Illinois Banks Improve but Weakest Are Vulnerable

NEW YORK ( TheStreet) -- Nearly 85% of Illinois banks and thrifts were profitable during the first quarter, but with 575 banks in the state there's plenty of pressure for the 87 institutions still losing money to consolidate with stronger rivals.

Illinois trails only Georgia and Florida for the largest number of bank failures since the current closure wave began during 2008, but there have only been three bank failures in the Land of Lincoln during 2011, with none so far during the second quarter.

According to data provided by Thomson Reuters Bank Insight, there were 16 undercapitalized Illinois banks and thrifts as of March 31. These are included on TheStreet's first-quarter Bank Watch List.

Since the Watch List is based solely on capital ratios, we take a different approach on our quarterly coverage of banks in key states, by looking at overall credit quality to identify troubled institutions.

Illinois Banks with Weakest Asset Quality

The following list includes all banks in the state with nonperforming assets comprising more than 15% of total assets as of March 31:

Nonperforming assets (NPA) include nonaccrual loans, loans past due 90 days or more and repossessed assets. Government-guaranteed loan balances are excluded. The ratio of net charge-offs to average loans is annualized.

The total risk-based capital ratios needs to be at least 8% for most institutions to be considered adequately capitalized by regulators and 10% for most to be considered well-capitalized. There are only four undercapitalized banks on the above list. Metrobank of Chicago was undercapitalized as of March 31 -- despite having a total risk-based capital ratio of more than 10% -- because its Tier 1 leverage ratio was below 4.00%.

The list also includes financial strength ratings provided by Weiss Ratings. Weiss Ratings uses a very conservative ratings model, placing the greatest weight on capital strength, credit quality and earnings stability to assign ratings ranging from A-plus (Excellent) to E-minus (Very Weak).

The Illinois institution with the highest level of nonperforming assets as of March 31 was American Metro Bank of Chicago, which had $85.3 million in total assets, with nearly 32.27% NPA, and was undercapitalized, with a total risk-based capital ratio of 6.02%, slipping from 6.77% at the end of 2011.

Largest Illinois Banks

Here are the 10 largest banks headquartered in the state, along with key metrics as of Dec. 30:

BMO Harris BANK, NA of Chicago, is the largest bank headquartered in Illinois, with $94.8 billion in total assets as of March 31, and a 9% second-place deposit market share in the state, behind JPMorgan Chase Bank NA (the main banking subsidiary of JPMorgan Chase ( JPM)) which had a 15.6% Illinois market share as of June 30, 2011, according to the most recent FDIC data.

BMO Harris Bank earned $100.5 million during the first quarter, for a rather weak return on average assets (ROA) of 0.46%, compared to 0.96% in the fourth quarter and a negative 0.15% in the first quarter of 2011. During the first quarter, the bank made a $190.6 million provision for loan loss reserves, increasing from $18.0 million the previous quarter, and $67.6 million a year earlier.

The second-largest Illinois bank is Northern Trust Co. of Chicago, which had $91.3 billion in total assets as of March 31, and is the largest subsidiary of Northern Trust Corp. ( NTRS). Northern Trust Co.'s first-quarter return on average assets (ROA) was 0.80%, declining from 0.92% the previous quarter, but increasing from 0.64% a year earlier.

The holding company Northern Trust Corp.'s shares have returned 6% year-to-date, through Friday's market close at $41.72. Based on a quarterly payout of 30 cents, the shares have a dividend yield of 2.88%. The shares trade for 1.5 times tangible book value, according to Thomson Reuters Bank Insight, and for 12 times the consensus 2013 earnings estimate of $3.45 a share. The Consensus 2012 EPS estimate is $3.01.

Interested in more on Northern Trust? See TheStreet Ratings' report card for this stock.

The next largest Illinois bank held by a publicly traded holding company is PrivateBank & Trust Co. of Chicago, which had $12.6 billion in total assets as of March 31, and is the main subsidiary of PrivateBancorp ( PVTB).

PrivateBank & Trust's first-quarter ROA was 0.68%, and the bank's nonperforming assets ratio was a relatively high 4.04% as of March 31, improving from 4.06% the previous quarter and 4.53% a year earlier.

PrivateBancorp's shares closed at $13.70 Friday, returning 25% year-to-date, following a 23% decline in 2011.

The holding company owes $243.8 million in federal bailout funds received through the Troubled Assets Relief Program in January 2009. During the company's earnings conference call on April 24, PrivateBancorp CFO Kevin Killips said "We continue to evaluate all aspects to determine the best execution and timing for our shareholders."

PrivateBancorp's shares trade just above their reported March 31 tangible book value of $13.29, and for 12 times the consensus 2013 EPS estimate of $1.15. The 2012 EPS estimate is 73 cents.

Private Bancorp bucked the industry trend for declining interest margins, with a first-quarter net interest margin increasing to 3.53%, from 3.48% in the fourth quarter and 3.46% in the first quarter of 2011.

Oppenheimer analyst Terry McEvoy on Friday included PrivateBancorp in a short list of bank holding companies in his firm's coverage universe "in a more favorable position" to limit net interest margin compression. During the prolonged low-rate environment, many banks have been able to limit their margin compression as their funding costs have declined, but "the costs of deposits is currently 39bps, extremely low by historical standards," so most banks are likely to see continued margin compression until short-term rates begin to rise.

McEvoy said in April that "a reduction in the amount of low-yielding short term investments, improved loan pricing, and reductions in the cost of funds contributed to the expansion" of PrivateBancorp's net interest margin during the first quarter.

The analyst rates PrivateBancorp "Outperform," with an $18 price target, estimating the company will earn 77 cents a share this year, followed by earnings of $1.15 during 2013.

Interested in more on PrivateBancorp? See TheStreet Ratings' report card for this stock.

Next is MB Financial Bank, NA of Chicago, with $9.6 billion in total assets as of March 31. The bank is held by MB Financial ( MBFI).

The bank subsidiary achieved a fourth-quarter ROA of 0.92%, from 0.82% in the fourth quarter and 0.29% in the first quarter of 2011. MB Financial Bank's NPA declined to 3.13% as of March 31, from 3.60% the previous quarter and 5.68% a year earlier.

The holding company in March repaid $196 million in TARP money, without raising any additional capital.

MB Financial's shares closed at $19.35 Friday, returning 13% year-to-date, following a 1% decline in 2011.

The shares trade for 1.3 time tangible book value and for 11 times the consensus 2013 EPS estimate of $1.77. The consensus EPS estimate for 2012 is $1.53.

Interested in more on MB Financial? See TheStreet Ratings' report card for this stock.

Strongest Illinois Banks and Thrifts

Based on fourth-quarter financial reports, 64 Illinois institutions were assigned "recommended" ratings of B-plus or above by Weiss Ratings:

The list is sorted by rating, and then alphabetically by institution name.

All of the Illinois banks and thrifts on Weiss's recommended list were strongly capitalized as of March 31, with total risk-based capital ratios exceeding 12.5% and 39 had total risk-based capital ratios exceeding 20% or twice the level most institutions need to be considered well-capitalized by regulators.

More than two thirds of the recommended Illinois institutions had fourth-quarter returns on average assets exceeding 1%.

Thorough Bank Failure Coverage

Since the current wave of bank and thrift closures began in 2008, Illinois has seen 50 institutions closed by regulators, trailing only Georgia, which has had 78 failures and Florida, which has had 61 bank and thrift closures.

All U.S. bank and thrift closures since the beginning of 2008 are detailed in TheStreet's interactive bank failure map:

The bank failure map is color-coded, with the states having the greatest number of failures highlighted in dark gray, and states with no failures in light green. By moving your mouse over a state you can see its combined 2008-2011 totals. Then click the state to open a detailed map pinpointing the locations and providing additional information for each bank failure.

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., 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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