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The banking business has the blahs in St. Louis. Profits are down, fewer borrowers are making their loan payments, and capital levels are slipping.

Banks with money to lend say they can’t find enough borrowers who fit their new, higher credit standards. Troubled banks are cutting back on loans.

That’s the upshot from third-quarter results for St. Louis banks as reported by the Federal Reserve Bank of St. Louis. Of 78 locally headquartered banks, 19 are running a loss for the year.

The good news is that few seem in danger of failing soon. Only two tiny local banks — WestBridge and Champion — fail to meet the federal standard as "well capitalized." Gateway Bank was also on that worry list until banking regulators took control of the north St. Louis bank and sold it early this month to Central Bank of Kansas City.

Rick Hummell, CEO of WestBridge, said a group of investors has agreed to recapitalize the bank, lifting it out of the worry zone. The deal still needs approval from shareholders and regulators, he said.

Officials of Champion Bank could not be reached for comment.

Other local banks are having significant problems. First Bank, the eighth-largest bank in the region, lost $274 million in the first nine months of this year. The bank’s capital level is slightly above the "well capitalized" level, but its holding company, First Banks, has fallen to the "adequately capitalized" level.

First Banks, owned by Jim Dierberg, was one of the few St. Louis banks with major operations outside the region. It lost heavily on California real estate development loans and on lending around Chicago.

Although a large majority of banks are profitable, the losses at a few are throwing the entire industry average into the red. The 78 banks lost a combined $239 million in the first nine months of this year. Without First Bank, whose losses are concentrated in California, St. Louis-based banks would have made a slight combined profit.

St. Louis bank performance numbers have been heading south for more than a year. The average bank made an annualized 3 cent profit on each $100 of loans and securities in the September quarter, down from 36 cents a year ago. In normal times, most banks earn more than $1 on each $100 in assets.

As of September, 2.7 percent of loans were far behind in payments at St. Louis banks, compared with just 1.7 percent a year earlier. The leverage capital ratio, a measure of capital adequacy, shrank to 9.6 from 10.3 percent. A 5 percent ratio is needed for "well capitalized" status.

That analysis excludes several large banks headquartered in other parts of the country but with major St. Louis market share, such as U.S. Bank and Bank of America. Such banks don’t break out St. Louis lending numbers.

Troubles are moving down banking’s food chain. Early this year, the crisis was concentrated in the nation’s larger financial institutions, suffering from big losses on mortgage-backed securities, derivatives trading, consumer lending and other management flubs payday loans.

Then smaller banks began feeling the heat, as housing developers went bust. Now the recession is hitting commercial real estate owners — bread-and-butter borrowers for many St. Louis banks. Office buildings and shopping centers are losing tenants, and the rent they pay. The situation is worst among suburban strip shopping centers that lack an anchor tenant, said Ron Barnes, chairman of Midwest BankCentre in Lemay, which is profitable.

Local banks have 37 percent of their assets invested in loans secured by commercial property, compared with a national average of about 17 percent.

Many such loans were written in mid-decade when credit standards were lower. As the loans mature, borrowers find they can’t meet banks’ new, higher standards.

"2010 is going to be another tough year in banking as they work through the remainder of their commercial real estate problem," said Julie Stackhouse, chief bank regulator at the Federal Reserve in St. Louis.

The 78 local banks had $1.22 billion in bad loans in September, but half of them were at First Bank. The figure is up $1.05 billion in the June quarter and $723 million in September 2008.

If things aren’t getting better, at least things are not getting a whole lot worse, said Stackhouse. "We’re waiting for some stabilization."

There’s debate about when that might come. "If nothing else really happens dramatically, then I think we’re over the hump," said Robert Witterschein, president of Southwest Bank. At this point, bankers have identified their likely problems and are coping with them, he said.

But that assumes commercial real estate prices will not fall dramatically from here. Others are worried about that assumption.

"This thing is not close to the end," said Leon Holschbach, CEO at Midland States Bank, a profitable operation based in Effingham, Ill., with branches in Chesterfield and the Metro East.

Overall lending remains stagnant. Local banks had $29.4 billion in loans on their books in September, practically unchanged from June, and down from $30.2 billion in September of last year.

But that figure disguises much churning among lenders. Banks facing problems are trying to shrink their balance sheets by selling off assets. Such banks generally can’t lend freely and turn away good customers.

"We had a couple of really good businesses call us and say their lenders told them to take their business elsewhere," said Dennis Melton, district director of the small-business administration. "Some banks are pushing out the future to survive today."

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