The failure of Colorado National Bank in March and disciplinary action by regulators against four other banks with operations in the Colorado Springs area has brought the national banking crisis home.

A sagging local real estate market has eroded area bank profits, federal reports show. Ten local banks, which represent about 20 percent of the local banking industry, reported that their combined first-quarter earnings fell nearly 90 percent to $723,000, as they poured money into reserves for potential loan losses.

Area banks added $8.11 million to loan reserves in the first quarter, more than triple the amount they set aside a year earlier. Delinquent loans jumped nearly 40 percent during the first three months of the year and nearly 160 percent during the past year to $38.2 million, or 3.46 percent of their loan portfolios.

Income also fell sharply for local credit unions, but for a different reason. Six of seven local credit unions took charges totaling more than $4.5 million against their first-quarter earnings as part of a $1 billion bailout of the nation's credit union system. All credit unions must take the special assessment in either 2008 or 2009; Ent Federal Credit Union took charges totaling more than $23 million last year for its assessment.

Those numbers could change as a result of legislation signed into law last month by President Barack Obama allowing credit unions to spread the assessment over an eight-year period starting with last year. The National Credit Union Administration is expected to tell credit unions soon how it will implement the new law.

The profit, loan delinquency and reserve data were compiled by The Gazette from reports banks file quarterly with the Federal Deposit Insurance Corp. The analysis didn't include banks based outside the area, such as Wells Fargo Bank, U.S. Bank and Chase Bank, because those banks don't break out numbers by city. The credit union numbers were compiled from reports credit unions file quarterly with the NCUA.

Local banks have been hit not only by mounting problem real estate loans that require higher loan reserves, but also by a decline in income banks receive from investments in government securities compared with what they must pay depositors to keep their money, said Ed Sauer, chairman-elect of the Colorado Bankers Association and president of The Bank at Broadmoor.

"The pressure to keep deposits makes you pay 1 or 2 percent on deposits. Banks have money to lend, but there are less people with jobs and less people who are qualified to borrow," Sauer said. "Even if you buy a one-year Treasury bill (instead of lending the money out), you're only going to earn about 0.40 percent, and there is nothing you can do to invest the money at any higher rate."

Sauer said he believes most local banks have identified most or all of their problem loans and set aside reserves to cover them. He said he expects the local housing market and banks' loan problems to improve by year's end.

The local banking industry has been hit hard this year by loan problems. Colorado National failed March 20 and was acquired by a Texas bank. Community Banks of Colorado, Cañon National Bank, Pikes Peak National Bank and Rocky Mountain Bank & Trust all have signed agreements in the past 1½ years with regulators restricting lending and other operations or requiring owners to raise capital.

Among the 10 local banks, Park State Bank & Trust is struggling with the highest percentage of delinquent loans - more than 13 percent of its $65.9 million in loans were past due on March 31. The bank lost $926,000 during the first quarter, mostly because it pumped $838,000 into its loan reserve to more than double those reserves from the level they were at the end of last year.

Park State President Tony Perry, who took over as the bank's CEO in January 2007, said the bank stopped paying dividends in the fall of 2007 as "we tried to get out in front of what we saw coming. We saw a dramatic increase in October (2008) in the number of customers who were struggling, and that worsened in December. We've worked with customers to resolve those problems."

Park State's directors began coming up with plans to raise capital in December and put $1.5 million in additional capital into the bank in March, Perry said. They plan to seek additional capital in the third quarter, he said.

Nationwide, bank profits fell 60.8 percent to $7.6 billion, mostly from setting aside additional loan reserves and writing off premiums paid for earlier acquisitions. The nation's banks lost $32.1 billion in the previous quarter. The percentage of loans that were delinquent at the first quarter more than doubled from a year earlier to 3.77 percent, the highest level in nearly 18 years.

Colorado banks lost $42 million in the first quarter, compared with a $107 million profit a year earlier as delinquencies more than doubled to 3.48 percent of loans and foreclosed real estate surged by more than double.

Banks likely will need all of this year to work through the loan problems, said Larry Martin of Bank Strategies LLC, a Denver-based banking industry consulting firm. A soft real estate market has meant that once regulators determine a loan is a problem, the bank has to get a new appraisal on the collateral, which often forces a write-down in the value of the property and loan, he said.

Income also was down for local credit unions, by 35.2 percent from a year earlier, to $3.88 million in the first quarter, mostly because of the special assessment for the credit union-system bailout. Delinquent loans at local credit unions jumped 28.9 percent in the past year to $13.8 million, prompting credit unions to boost the amount they pumped into loan reserves by 43.8 percent.

Ent Federal Credit Union was the only local credit union to make money in the January-to-March quarter, with its income increasing 46.3 percent, mostly because it sold off many of the low-rate mortgages it made in recent months rather than face the risk that deposit rates may go higher than the rates on those loans.

Ent also has cut costs by delaying new branches or expanded services, reducing travel and not filling some positions as it streamlined operations, said Jim Moore, an Ent senior vice president.

Nationwide, credit union losses jumped during the first quarter as more credit unions took the assessment, while delinquencies increased from 1.37 percent of loans to 1.44 percent of loans.

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Call the writer at 636-0234.

DETAILS

Started 52 years ago to serve employees of Colorado Springs Utilities, Colorado Springs Credit Union changed its name May 18 to Aventa Credit Union to reflect a large percentage of its membership that now lives outside the city.

A NAME TOO NARROW

The name change stemmed from research begun two years ago that showed that 40 percent of Aventa's 17,018 members don't live in Colorado Springs, said Greg Mills, Aventa's president and chief executive. The credit union also has been providing management and other services to some Pueblo credit unions and may offer similar services throughout southern Colorado, he said.

COMPANY SNAPSHOT

Aventa mostly serves employees of Springs Utilities, Memorial Hospital, the city of Colorado Springs, members of the Pikes Peak Arts Council and workers at about two dozen local small businesses, Mills said. The credit union has about 50 employees at three branches with $125.7 million in assets, $114.5 million in deposits and $97.4 million in loans as of March 31.