ABC Finance

Blame it on stingy bankers or frightened borrowers. Either way, lending shrank at many St. Louis banks in the first quarter, according to recent figures from federal bank regulators.

Out of a sample of 20 banks that lend much or all of their money in St. Louis, 13 showed a decrease in loans in the quarter that ended in March. Six showed an increase and one remained flat from the end of last year.

Overall, loans at St. Louis-based banks were down about $400 million to $29.8 billion, according to the Federal Reserve Bank of St. Louis. That’s "more than a rounding error," but not a major retreat, says Julie Stackhouse, chief bank regulator at the St. Louis Fed. "It’s definitely not something you’d find overly alarming," she said.

The situation was a reversal from the last three months of 2008. Then, St. Louis banks actually increased lending even as the stock market tumbled, the bond market nearly froze up and the economy sank into recession.

Bankers say the local economy doesn’t seem to be improving. "I don’t think it will get much worse, but it won’t get much better for a while," says Ron Barnes, chairman of Midwest Bankcentre.

Less lending is not the only bad news in the federal figures. They show bad loans rising and bank profits generally small. The good news is that profits still exist. Of the 25 largest banks operating in St. Louis, only four lost money in the first quarter: Enterprise, Premier, Truman and First Bank.

Loan losses eat away at a bank’s capital. When capital falls too low, a bank can fail. Of the 78 banks based in St. Louis, only three tiny ones — Westbridge Bank, Gateway Bank and People’s Bank & Trust — fall below the government’s definition of "well capitalized," according to the St. Louis Fed.

Stackhouse says St. Louis banks are just being more cautious. "I’ve never found a banker in St. Louis who, when presented with a good quality loan, was not willing to lend," she said.

Bankers also note that their customers don’t want to borrow as much. After four decades of piling on debt, federal figures show consumers this year are actually paying down revolving charges, such as credit cards and home equity loans.

Demand for business loans, the bread and butter of local banks, also is declining, bankers say. Last fall’s stock and bond market chaos was largely a Wall Street affair. St. Louis businesses saw trouble coming, but they didn’t feel the full impact until early this year, says Peter Benoist, chief executive at Enterprise Bank. Then they often saw sales plunge 10 percent to 20 percent business card.

"They knew they would get hit, but many were surprised about how quickly they were hit," said Benoist, whose bank serves many midsize privately held businesses in St. Louis.

They canceled expansion projects and stopped borrowing. "Everybody has the hold button on, and they’re waiting to see which way the needle is going to point," he said.

Banks here endured losses as housing developers failed, and now they’re worried about commercial real estate loans, especially those that support shopping centers.

Part of the dip in loans may be seasonal, says Stackhouse. Companies that borrow to fund Christmas inventory pay off their loans early in the year. Part of the decline also reflects rising defaults by borrowers. Banks don’t count loans they think they’ll never be able to collect.

Some banks bucked the trend toward less lending. Pulaski Bank saw a 5 percent rise in loans between December and March. Pulaski, long a mortgage lender, has been pushing into commercial lending.

CEO Gary Douglass says Pulaski is picking up customers who were pushed out by weaker banks as they cut lending, or ignored by larger banks looking to land bigger deals. "Our sweet spot is the $1 (million) to $5 million loan," he says. "The really big guys are not interested in that."

Despite the worries about commercial real estate loans, banks are still making a few of them. "We’re not building 25-story speculative office buildings," says Douglass. "It’s knowing your customer, making sure they’ve got occupancy, making sure the tenants are good tenants. You’re going in with your eyes wide open right now."

Pulaski took $32.5 million in new capital from the U.S. Treasury in January. The Treasury’s capital-boosting program is intended to beef up relatively healthy banks so that they can lend more freely, and remain strong through the recession.

Douglass said the extra capital helped expand Pulaski’s lending. "For all the criticism and all the noise, we’ve done with it what its original purpose was," he said.

Other local recipients of Treasury funds may be headed in the opposite direction. New Treasury reports show that Centrue Bank, Enterprise Bank, First Banks (corporate parent of First Bank), Reliance Bank and St. John’s Bank reduced consumer and commercial loans between February and March. All the reductions were slight.

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Filed under: economics by Specialist