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Financial newsletter: Some local banks could be in trouble
CEO of at least one denies assertion
By Anna Marie Kukec | Daily Herald Staff
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Published: 8/26/2010 12:05 AM

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Chief executives at two suburban banks disputed claims in a financial newsletter released this week that their banks are in trouble.

Tulsa, Okla.-based Bartmann Bank Monitor Report published a list of the Top 10 banks in Illinois that were "vulnerable" and could fail, including Baytree National Bank in Lake Forest, Bank of Commerce in Wood Dale, Valley Community Bank in St. Charles, All American Bank in Des Plaines and Old Second Bancorp in Aurora. The report said they were having problems that included being undercapitalized.

Several of the banks denied that, and the reporting firm's CEO Bill Bartmann said there is a lag in the reporting from the FDIC.

"We injected significant capital into the bank and the bank is now considered well capitalized," said Baytree National CEO Michael Flynn. He said Baytree was acquired in January by an investment group called EB Financial Group Inc.

"The transaction was not an FDIC-assisted transaction, however it was under the guidance and approval of the Office of the Comptroller and the Federal Reserve," said Flynn. "There is no question that Baytree was a troubled bank before our acquisition earlier this year. I am proud to say that the bank is meeting our expectations after only seven months under our management."

While nonperforming loans are high at Old Second in Aurora, its regulatory capital levels are strong, said its CEO Bill Skoglund.

"Regulators look at mainly two ratios, the leverage ratio and total capital to risk based assets," Skoglund said. "These ratios for Old Second National Bank as of June 30 were 7.76 percent and 10.73 percent respectively. These would still be categorized as well capitalized per the regulatory definitions. Banks are generally closed when these ratios become critically undercapitalized at 2 percent for the leverage ratio and 4 percent for the total ratio. As you can see we are a long way from hitting these ratios and are currently working on various capital plans to help increase them even further."

The Bartmann Bank Monitor Report based its analysis on information from the Federal Deposit Insurance Corp. The publication comes from Bartmann Enterprises, which has analyzed and purchased loans from banks for more than 25 years. Its newsletter has a circulation of about 57,000, including among businesses in Illinois, Bartmann said.

If a bank fails, individual account holders are protected for up to $250,000 by the FDIC.

Bartmann acknowledged there is a lag in the reporting from the FDIC and that a bank may have added to its capital recently.

"We took publicly available data, analyzed it and made some judgments about what factors are more important than other factors and thus identify the banks we believe to be troubled," Bartmann said. "There is no way to know exactly the official status of a bank," he said.

The FDIC does not disclose the names of 775 banks on its nationwide problem list. In Illinois, 21 banks have failed in 2009 and another 15 have failed so far this year, according to the FDIC.

Just because a bank is on such a list doesn't mean it will close its doors.

The FDIC won't comment on open and operating banks, even if they are in trouble, but customers should not panic, said FDIC spokesman David Barr.

"Historically, the vast majority do not end up failing," Barr said. "These banks get closer supervision by the regulators and are typically under some sort of supervisory action."

The FDIC has said to expect more failures this year than last year's 140 nationwide.

"But then we expect closings to begin to tapper off," said Barr. "Even when the economy turns around, however, you can expect to see banks fail as there is generally a lag time of several months before economic activity shows up on bank balance sheets."

Executives at the other banks did not return phone calls.