Illinois ranks third, tied with Florida, for the largest number of bank or savings and loans failures this year and last. Georgia has the most, with nine, followed by California, with eight.

Illinois' banking industry is less consolidated than some other northern states with large populations, which may have contributed to the failures. New York, for example, had only 203 banks and thrifts chartered with the state as of Dec. 31. Illinois' heavy concentration in manufacturing and its proximity to the troubled Michigan market also creates a hurdle for its banks and thrifts.

To be sure, 80 of 658 Illinois banks and thrifts reporting as of Dec. 31 were assigned financial strength ratings of B-plus (Good Financial Strength) or higher by Ratings.

Highest grades

The following is a list of 48 institutions rated A-minus (Excellent Financial Strength) or higher. The list is sorted by rating, and then by total assets. Ratings are based on ratios and other data derived from regulatory filings, with capital adequacy, asset quality and profitability carrying the most weight.

Illinois Banks and S&Ls Rated A- or Higher - Dec. 31, 2008 ($Mil)
Highline Financial.

Larger institutions

Most of the institutions rated A-minus or higher are relatively small, as these are the banks and thrifts most likely to maintain higher capital ratios.

The following list includes the same ratios and ratings for the 10 largest Illinois banks and S&Ls:

Largest Ten Illinois Banks and S&Ls
- Dec. 31, 2008 ($Mil)
Highline Financial.

Northern Trust Co. (held by Northern Trust Corp. ( NTRS) had the strongest earnings performance for any of the large Illinois institutions on the above list, with net income of $808 million for 2008, or a return on average assets (ROA) of 1.2% and a return on equity (ROE) of 21%. Considering its primary role as a private bank, Northern Trust has the strongest asset quality on the list. The holding company was bashed in the press following its capital infusion of $1.6 billion during the fourth quarter via the Treasury's Troubled Asset Relief Program (TARP), as it continued to wine and dine wealthy clients. The holding company has already said it will return the TARP money as quickly as possible.

Harris NA is a subsidiary of Bank of Montreal ( BMO). Its C-minus (Fair) financial strength rating mainly reflects the institution's $103 million net loss for 2008, mostly from loan-loss provisions. Harris NA has been on a tear, acquiring 32 other banks in Illinois, Indiana and Wisconsin since 2005.

First Midwest Bank (held by First Midwest Bancorp ( FMBI)) reported a fourth-quarter net loss of $23.5 million as it experienced a sharp increase in nonperforming loans, but still managed a profit of $65.6 million for all of 2008. The institution's ratio of loan-loss reserves to total loans was 1.8% as of Dec. 31, staying well ahead of the pace of loan charge-offs, which was 0.7% of average loans for 2008.

PrivateBank & TC (held by PrivateBancorp ( PVTB)) also had a rough fourth quarter, reporting a loss of $37.6 million as it beefed up loan-loss reserves, and a loss of $32.6 million for all of 2008. has closely followed Corus Bank NA and its holding company, Corus Bancshares ( CORS) since August 2007, when it led the industry in reported nonperforming multifamily real estate loans. The holding company expressed substantial doubt about its viability as a going concern in a filing April 7.

Amcore Bank NA (held by AMCORE Financial ( AMFI)) had the worst overall asset quality on the list after Corus Bank. Nonperforming assets, including loans past due 90 days or more, or in nonaccrual status, and repossessed real estate loans comprised 6.5% of total assets as of Dec. 31, even after the institution charged-off 3.1% of average loans during 2008.

Amcore Bank's E (Very Weak) financial strength rating reflects the asset quality, net losses and weakening capital position. The institution's risk-based capital ratio was 10.14% as of Dec. 31, just above the 10% a bank ordinarily needs to be considered well-capitalized. After suspending dividends on common shares during the fourth quarter, the holding company on Feb. 20 announced the deferral of interest payments on trust-preferred securities. The bank has been operating under several regulatory agreements since 2005.

Illinois bank failures

Three out of four Illinois bank failures took place during the first quarter of 2009.

The Office of the Comptroller of the Currency shut down National Bank of Commerce, of Berkeley, on Jan. 16, with the Federal Deposit Insurance Corp. arranging for deposits and branches to be taken over by Republic Bank of Chicago.

State regulators closed Corn Belt Bank & Trust of Pittsfield on Feb. 13, and the FDIC sold deposits and branches to Carlinville National Bank.

Two weeks later, Illinois regulators shuttered Heritage Community Bank of Glenwood, and the FDIC arranged for MB Financial Bank, NA (a subsidiary of MB Financial, Inc. ( MBFI)) to acquire deposits and branches.'s interactive Bank Failure Map contains a summary of all failed banks and thrifts for 2008 and 2009.

Banks that aren't well-capitalized

The Illinois banks that failed during the first quarter were considered undercapitalized according to ordinary regulatory guidelines as of Dec. 31. (Please see Regulatory Capital Categories for Banks and S&LS for a detailed discussion on capital ratios.) The requirements for a well-capitalized institution include maintaining a tier 1 leverage ratio of at least 5% and a total risk-based capital ratio of at least 10%.

As of Dec. 31, there were two remaining Illinois banks that were undercapitalized, Family Bank and Trust of Palos Hills and Citizens National Bank of Macomb.

Family Bank and Trust was overwhelmed by losses on commercial real estate loans, as well as residential mortgages and construction loans. Citizens National Bank faced exposure in the same categories, although to a lesser extent. Still, the institution's capital ratios were cut in half during 2008.

Below-Well-Capitalized Illinois Banks (millions of dollars)
Highline Financial.

One thing to keep in mind about the banks on the above list is that the information is already three months old. Some may have raised capital during the first quarter.

Most of the below-well-capitalized Illinois banks saw their capital ratios slip because of net losses taken as loan-loss provisions were greatly increased to cover problem loans and charge-offs (loan losses). A rapid increase in nonperforming loans can also cause an institution to slip bellow well-capitalized, since the risk-based capital ratio reflects loan quality.

This is what happened with Citizens B&TC Chicago, which, although it posted positive net income for 2008, saw its nonperforming assets increase to 14% as of Dec. 31 from 7.2% in September.

Premier National Bank of Jacksonville fell from well-capitalized to adequately capitalized because of the rapid expansion of its loan portfolio. Total assets increased $120.5 million as of Dec. 31 from $112.8 million in the previous quarter and $91.8 million at the end of 2007. While the bank didn't experience declines in loan quality to the extent of any of the other banks on the list, its earnings weren't sufficient to keep the risk-based capital ratio over 10%, and the institution paid out 65% of its operating income for 2008 through dividends to its holding company.

Illinois banks burdened with problem loans

Another way to identify weak or potentially weak institutions is to look at the ratio of nonperforming assets to total assets. The following list includes all Illinois banks (except for Heritage Community Bank, which failed) with nonperforming assets exceeding 10% of total assets as of Dec. 31:

Illinois Banks and S&Ls Reporting Nonperforming Assets Exceeding 10% (millions of dollars)
Highline Financial.

Ratings Ratings issues independent and very conservative financial-strength ratings on the nation's 8,300 banks and savings and loans. These are available at no charge on the Bank & Thrift Ratings Screener. In addition, the financial-strength ratings for 4,000 life, health, annuity, and property/casualty insurers are available on the Insurers & HMOs Screener. Ratings also provides award-winning stock ratings, which are available on the Stock Ratings Screener. Ratings was recently ranked the No. 1 independent stock selector during the market meltdown by BNY ConvergEx Group's BNY Jaywalk.

Philip W. van Doorn joined Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.

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