Oct. 6--CHAMPAIGN -- A bank rating service has sharply lowered its evaluation of Strategic Capital Bank and downgraded the ratings of two other area banks.

BauerFinancial Inc. dropped its rating of Champaign-based Strategic Capital Bank from "3 stars" to "1 star" in a report issued last month. The "3 star" rating is described as "adequate," while "1 star" is deemed as "troubled." In August, state and federal regulators issued a "cease-and-desist order" against Strategic Capital Bank, demanding it increase its capital and barring it from increasing total assets or accepting or renewing brokered deposits.

BauerFinancial lowered the rating on two other area banks, based on financial information the banks filed for the quarter that ended June 30, 2008. Fisher National Bank's rating was lowered from "5 stars" (superior) to "3 stars" (good). The rating for the John Warner Bank in Clinton slid from "3 stars" (good) to "3 stars" (adequate).

Two banks saw their ratings improve. The rating for Citizens National Bank, Paris, rose from "4 stars" to "5 stars," and United Commercial Bank, Oakwood, improved from "3 stars" to "4 stars."

Of 75 banks with a presence in East Central Illinois, 37 received 5-star ratings; 24 received 4-star ratings; 10 received "3 stars," three received "3 stars" and one received "1 star." Strategic Capital was the lone bank to receive the "1 star" rating, while the "3 star" ratings went to Cleveland-based National City Bank, Champaign-based Central Illinois Bank and John Warner Bank.

Here's a look at the situation with those four banks, along with downgraded Fisher National Bank: Strategic Capital Bank's total risk-based capital ratio, as reported by BauerFinancial, fell below the Federal Deposit Insurance Corp.'s requirements for being "adequately capitalized" for the quarter that ended June 30.

The rating service said Strategic Capital had a ratio of 7.376 per-cent, which is below the 8 percent regulators require for "adequately capitalized" banks and the 10 percent they require for "well-capitalized" banks.

Bank President Stephen Wills said Strategic's ratios were actually slightly lower than those reported by BauerFinancial because the bank had to restate its first- and second-quarter reports to the FDIC. Those restatements listed the total risk-based capital ratio at 7.08 percent.

Wills said when the bank's third-quarter report is issued, the bank will be "adequately capitalized" in all areas. To comply with the FDIC's cease-and-desist order, the bank has increased its capital ratios by reducing assets, he said.

"With the projections we've provided to the FDIC, we're showing increased capital, strong profitability and strong liquidity," Wills said.

So far, the bank has had a profitable year. It reported $3,464,000 in net income for the second quarter and year-to-date income of $5,559,000.

Central Illinois Bank reported a net loss of $1,417,000 for the second quarter. The bank had a profitable first quarter, but the second-quarter performance resulted in a $529,000 year-to-date loss.

Bank officials had no immediate response to the latest BauerFinancial report, but the bank has said it is discussing a possible merger or business combination.

In August, John P. Hickey Jr., president and chief executive officer of the bank's holding company, CIB Marine Bancshares, said all the company's subsidiary banks are well-capitalized, but the holding company is facing large interest payments on "trust preferred securities" early next year.

Hickey called these "difficult times for CIB Marine and the financial services industry in general." John Warner Bank had a net loss of $321,000 in the second quarter, for a total year-to-date loss of $223,000.

Bank President and Chief Executive Officer Andrew Robinson said the bank's loss stemmed from investments, not from loans.

"Our capital ratio remains above the minimal 'well-capitalized' level, and it will be that way for the end of this quarter," he said, referring to the one that ended Tuesday.

"We've had some losses that's common this isn't the first difficult cycle we've managed through," he said. "I feel good about the safety and security of customer funds here, and I feel good about the future." Nevertheless, he said, "We expect this to be a tough year." National City Bank reported a loss of $1,882,121 in the second quarter, for a year-to-date loss of $1,951,723. The bank, which signed a memorandum of understanding with federal regulators in June, has been hard-hit by the mortgage market and the sour economies in Michigan and Ohio. National City has been the subject of renewed talk about being ripe for takeover.

As of June 30, it had a risk-based capital ratio of 13.991 percent, exceeding the 10 percent requirement for "well-capitalized" banks.

Fisher National Bank, with offices in Fisher and Mahomet, has been profitable so far this year. It had net income of $174,000 in the second quarter, for a year-to-date gain of $406,000. But the bank saw its nonperforming assets increase to 3.93 percent of average assets a very high percentage.

"We've had an increase in the loan loss reserve in case of loan problems," said bank President Mike Estes. He said the potential problems involve "a few loans" to small businesses.

"I feel the losses will be fairly minimal, but you don't know that until everything's done," Estes said. He said this year's earnings won't be good, but said he believes "it's a one-year temporary thing." Estes said the bank's capital is considerably above regulatory requirements its risk-based capital ratio is 14.725 percent and added the bank continues to be highly capitalized.

In addition to Central Illinois Bank, John Warner Bank and National City Bank, three other banks reported net losses for the second quarter. Those included: State Farm Bank in Bloomington, which had a $25.5 million loss, leaving it with a year-to-date loss of $22.1 million. BauerFinancial gave the bank a 4-star ("excellent") rating.

Arcola Homestead Savings Bank, which had a $68,000 loss in the second quarter, for a year-to-date loss of $109,000. It got a 3-star ("good") rating from BauerFinancial.

First National Bank of Catlin, which had a $14,000 loss in the second quarter, leaving it with $12,000 in net income for the year to date. It, too, received a 3-star rating.

Charleston Federal Savings and Loan had net income of $7,000 in the second quarter, leaving it with a $1,000 net loss for the year to date.

Besides Fisher National Bank, only a few area banks had nonperforming assets that amounted to 2 percent or more of average tangible assets. Nonperforming assets usually refer to loans or leases on which principal and interest payments are not being met often, commercial loans that are more than 90 days overdue and consumer loans more than 180 days overdue. High percentages are significant because they could spell problems in months ahead.

Fisher National Bank had the highest percentage, 3.93 percent, followed by Scott State Bank in Bethany at 2.63 percent and First National Bank of Catlin at 2.56 percent.

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