Loan problems remain a drag on area banks

Last year was a rough one for area banks — and it’s not clear when things will get better.

Delinquent loans held by banks based in the Colorado Springs area surged by the end of last year to the highest level since at least 1987 while profits fell to the lowest level since 1990, according to the latest reports from the Federal Deposit Insurance Corp.

More than 7 percent of the $1.01 billion in loans held by the 10 banks based in the area were at least three months delinquent by the end of last year, surpassing the 6.7 percent level of delinquent loans reached at the peak of the local real estate industry collapse during the late 1980s, FDIC reports show. Area bank delinquencies are higher than both the national average of 5.4 percent and the statewide average of 4.4 percent, according to the agency’s year-end data.

“Last year was by far the worst year for the banking industry in the last 20 years and the jury is out for this year because we haven’t reached the bottom yet in real estate values,” said Larry Martin, a Denver-based banking industry consultant who works with several area banks. “If (values) continue to decline, banks will be forced to continue writing down real estate values, which will require them to put more into loan-loss reserves and trigger even more losses.”

Deteriorating loan portfolios prompted the 10 banks last year to boost the amount they pumped into reserves set aside for potential loan losses by 71.8 percent to $31.6 million, which left them barely profitable. The $4.29 million in profits area banks earned last year was the least for any year since 1990, when the area’s banks lost $44.9 million as an overbuilt real estate market made worse by the savings and loan industry crisis battered the entire financial-services industry.

The profit, loan, delinquency and reserve data were compiled by The Gazette from reports the banks file quarterly with the FDIC. The analysis didn’t include banks based outside the area such as Wells Fargo, U.S. Bank and Chase Bank.

A similar analysis of credit union data from the National Credit Union Administration showed that local credit unions boosted income by more than 10 times to $48.4 million, mostly because of surging income at Ent Federal Credit Union.

The loan problems are concentrated at five of the 10 banks, all of which had delinquency levels approaching or above 10 percent at year’s end. All five ranked among the 10 Colorado banks with the highest level of non-performing assets, a related measure of loan quality that measures any asset on which interest is not being paid. Three of the five banks have signed agreements with regulators requiring them to take steps to reduce loan delinquencies.

The five banks:

• Pikes Peak National Bank, which signed an agreement with regulators last year, reported that 18.8 percent of its loans were delinquent at year’s end, up from 10.2 percent at midyear. The west-side bank last year more than doubled the amount it put into reserves for potential losses on loans, triggering a $635,000 loss. Pikes Peak National President Robin Roberts said the bank is working with its borrowers to cope with a declining local economy in which unemployment hit 9 percent last year.

• Park State Bank, which also signed an agreement with regulators last year, reported that 14 percent of its loans were delinquent at year’s end, up slightly from 13.4 percent at midyear. The bank boosted its loan-loss reserve contribution by more than 40 percent last year, triggering a $2 million loss.

• Peoples National Bank also signed an agreement with regulators last year. It reported that 12.6 percent of its loans were delinquent at year’s end, down from 14.1 percent at midyear. The bank boosted its loan-loss reserve contribution last year by nearly 60 percent, resulting in a $2.58 million loss.

• Academy Bank, the area’s largest locally based bank with nearly $500 million in assets, reported that 10.6 percent of its loans were delinquent at year’s end, up from 8.4 percent at midyear. The bank more than doubled its loan-loss reserve contribution to $16.3 million, cutting its profits by 75 percent. Academy Bank President Steve Ingham attributed the bank’s loan problems to a focus on real estate lending, but added that the bank reduced its real estate loan portfolio last year by $40 million.

• Integrity Bank & Trust, which opened in 2003, reported that 9.3 percent of its loans were delinquent at year’s end, up from 1.4 percent at mid-year. The bank boosted its loan-loss reserve contribution last year by more than 50 percent, but still earned a small profit.

Outside of Colorado Springs, Florence-based Rocky Mountain Bank & Trust, which has most of its operations in the Springs, reported that 19.4 percent of its loans were delinquent at year’s end, up from 16.6 percent at midyear. The bank boosted its loan-loss reserve contribution last year by nearly 80 percent, triggering a $2.5 million loss. Rocky Mountain Chairman Doug McClure said the bank has agreed to some transactions that would reduce its loan problems and foreclosed real estate.

Statewide, Colorado banks suffered their first loss last year as an industry since 1990, losing $16.9 million compared with a $40 million profit in 2008. Nearly a third of the state’s 141 banks lost money during 2009, compared with 21.6 percent in 2008. Nationwide, banks more than doubled their profits last year to $12.5 billion, with more than half the institutions reporting improvement from the year before.

But the FDIC said more than 700 banks were on its “problem list.”

“What we need is customers coming in the door (for loans). If we’re not lending, we’re not making money. We have money to loan, but no borrowers walking in the door that are buying inventory, expanding or hiring people,” said Ed Sauer, president of The Bank at Broadmoor and chairman of the Colorado Bankers Association. “It is also harder to qualify borrowers for a loan. Our lending criteria haven’t changed, but the value of the collateral often has declined.”

Area credit unions are weathering the economic storm far better than banks, mostly because the member-owned institutions primarily make loans to consumers. While six of the seven area credit unions reported either a decline in income or a loss as a result of special assessments for a $1 billion bailout last year of the nation’s credit union system, less than 1 percent of their $2.21 billion in loans were delinquent at year’s end, according to NCUA data.
Ent was the only exception to the declining income trend, mostly because it received a nearly $17 million refund of a special assessment it paid in 2008 and because it paid far less in interest to depositors than expected because interest rates remained low throughout 2009, said Jim Moore, Ent’s senior vice president.

Statewide, credit union income last year rose 4.1 percent from 2008 to $62.2 million. Nationwide, credit unions earned $1.67 billion during 2009, compared with a $347.6 billion loss in 2008.
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Contact the writer at 636-0234.