City's financial industry is alive despite struggles

A slowing economy and a weak housing market are reflected in deposits, profits and problem loans for Colorado Springs-area financial institutions, according to the latest reports they file with federal regulators.

All three indicators show that the area's banks and credit unions are facing their biggest challenge in more than a decade as the local economy slips into a recession and the area's real estate market remains mired in a downturn that began two years ago. Despite growing numbers of bank failures nationwide, local institutions remain well capitalized and none appears to be in danger of failing.

"Colorado's financial industry overall is in good shape. A few institutions are having problems with asset (loan) quality and are working through them, but none are near failure," said Larry Martin of Bank Strategies LLC, a Denver-based banking industry consulting firm. "No one knows how big this storm will be or how long it will last; we have never had events like we have seen in recent months happen all at the same time."

An analysis by The Gazette of deposit, profit and loan data on local banks and credit unions - which doesn't include banks outside the area such as Wells Fargo Bank, U.S. Bank and Chase Bank - as of June 30 from BauerFinancial Inc., the Federal Deposit Insurance Corp. and the National Credit Union Administration found that:

• Delinquent loans at local banks more than doubled from a year earlier to $20.2 million and amounted to 1.72 percent of the $1.17 billion in loans held by the banks. A year ago, delinquent loans at the banks totaled $9.44 million, which was 1.11 percent of their portfolios. The banks' loan portfolios grew by $320 million in part because Peoples National Bank merged with an affiliated institution outside the county that is owned by the same holding company.

Those numbers likely will get worse in coming quarters because they don't include loans that are less than three months delinquent and aren't classified by federal bank regulators as problem loans. Loans that were 30-89 days delinquent more than tripled from a year ago to $16.1 million, or 1.38 percent of all loans held by local banks. Most delinquent loans in local banks were made on real estate, either for home construction or development.

Local delinquencies were somewhat higher than the statewide average of 1.54 percent of loans and below the national average of 2.03 percent of loans. The statewide average nearly doubled from a year earlier, and the national average was the highest since 1993.

Rising loan delinquencies are "a sign of the times" and the inevitable result of weak local and national real estate markets, said Ed Sauer, president of The Bank at Broadmoor and chairman-elect of the Colorado Bankers Association. He expects delinquencies at local banks to continue growing in coming months as the local and national economies decline and make it more difficult for businesses to stay current on their loans.

"Even though these numbers are up, it doesn't mean that banks made bad loans. We are just working with borrowers to make it through this slump," Sauer said. "The borrowers are struggling to pay right now, but eventually they will be a strong borrower again."

• Delinquent loans at local credit unions grew by 5.1 percent to $12.4 million and amounted to 0.57 percent of the $2.19 billion in loans held by the institutions. The percentage of delinquent loans actually declined because local credit unions' loan portfolios grew more than twice as fast, 13 percent, as delinquent loans during the same period. Delinquency numbers at local credit unions are well below the national average of nearly 1 percent of all loans.

Those numbers don't include loans that are less than two months delinquent and aren't classified by federal credit union regulators as delinquent. Loans that were 30-59 days delinquent jumped 58.2 percent from a year earlier to $12.1 million, or 0.55 percent of all loans held by local credit unions.

Local credit unions and most other credit unions are conservative lenders and didn't make any subprime mortgages, which are loans made to borrowers with shaky credit, said Glenn Strebe, president of Air Academy Federal Credit Union. Air Academy has seen some increase in delinquency among its car loans, but hasn't foreclosed on many home mortgages, although it sells off many of its mortgages into the second market, he said.

Loan delinquencies are lower at credit unions than banks. mostly because businesses, especially those in real estate, have been hit quicker by a slowing economy than have consumers, Martin said. Consumer delinquencies will increase as unemployment rises, he added.

• Bank profits for the first half of the year fell 40 percent from a year earlier to $7.73 million, but that is almost entirely the product of a $6.07 million loss at Colorado National Bank that resulted from owner Team Financial Inc. writing off the premium it paid when buying the bank. Without that loss, local bank profits would have risen 6.2 percent. Statewide, bank profits fell 16.1 percent from a year ago and nationwide bank earnings declined 87 percent during the same period.

Local credit union earnings rose 21.7 percent to $14.4 million for the same period, compared with a 17.1 percent increase statewide and an 18.8 percent decline nationwide.

Credit unions and banks in the Springs are better off than financial institutions in many markets because real estate prices didn't escalate as rapidly here as they did in hot markets such as Arizona, Nevada and Florida, said Jim Moore, senior vice president of Ent Federal Credit Union. Many borrowers in other cities have been unable to sell homes as prices have dropped sharply because they now owe more on their mortgages than the property is worth and eventually end up in foreclosure.

Local deposits in all 49 financial institutions operating in the Springs area - including such out-of-town giants as Wells Fargo Bank, U.S. Bank and Chase Bank - as of June 30 rose just 0.5 percent from a year earlier to $8.18 billion, the smallest annual gain in 12 years. Last year, deposits rose 4.8 percent from 2006 and averaged 6.5 percent in the previous five years. By contrast, deposits in Colorado banks as of June 30 grew 2.3 percent to $83.1 billion and deposits in all U.S. banks rose 4.8 percent to $7.03 trillion.

The slow deposit growth is a reflection of a weak local economy with rising unemployment and wage growth that is not keeping up with inflation, said Fred Crowley, senior economist for the Southern Colorado Economic Forum. National data show that consumers are tightening their belts and starting to use savings to pay their bills since they can no longer refinance their mortgages and cash in some of the equity in their homes, he said.

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Contact the writer: 636-0234 or wayneh@gazette.com