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Loan problems still issue, but banking's recovery continues

By: WAYNE HEILMAN
February 28, 2013
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photo - Profits tripled last year at Peoples Bank, fueled by a strong year from its Peoples Mortgage unit. Photo by BILL RADFORD, THE GAZETTE
Profits tripled last year at Peoples Bank, fueled by a strong year from its Peoples Mortgage unit. Photo by BILL RADFORD, THE GAZETTE 

A recovery from loan problems for Colorado Springs area banks stalled last year as delinquencies edged higher at year’s end, according to recently released data from the Federal Deposit Insurance Corp.

After declining 42 percent in 2011, loan delinquencies among the eight banks based in the Colorado Springs area rose 4.3 percent during 2012 as problem loans rose at two of the banks. Overall, though, local bankers say the industry is making progress in bouncing back from the most recent recession, pointing to increased profits and higher capital reserves compared with a year ago.

“The industry went from OK to good in 2012, but I expect 2013 to be more challenging because Colorado Springs is lagging the rest of the nation in recovering from the recession,” said Mike League, president of 5 Star Bank of Colorado Springs and a board member for the Colorado Bankers Association. “More banks are becoming healthy, so competitive pressures are increasing since there are a lot of banks chasing a very few good loans.”

The eight area banks earned a combined $13.1 million last year, up 39 percent from a year earlier and the most profitable year for those banks since they earned $17.6 million in 2007. Nearly all of the gains resulted from profits tripling at Peoples Bank, fueled by a strong year from its Peoples Mortgage unit. The eight banks held capital reserves totaling 13.3 percent of their $1.4 billion in combined assets, or more than three times the ratio that federal regulators require.

Despite the improving profit and capital numbers, problem loans for the eight banks totaled 5.6 percent of their combined loan portfolios at year’s end, up from 5 percent a year earlier. That’s because loan delinquencies jumped nearly 17 percent at Academy Bank and grew fourfold at Park State Bank. Presidents of both banks, though, say the financial condition of both institutions is improving by most other measures.

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 from outside the area, such as Wells Fargo, Chase Bank, U.S. Bank, FirstBank or ANB Bank, the area’s five largest banks measured by deposits.

“Some banks are still hanging onto foreclosed real estate because they can’t afford the losses” they would incur if they sold the property now, said Jack Kerr, who heads the local operations of Oklahoma-based First Commercial Bank. “You do that too many times and end up impacting your capital. I would have thought we would be out of this by now, but I expect it will take banks two more years to move through the assets they have now.”

Nationwide, bank earnings in 2012 jumped 19 percent to $141.3 billion, the second-highest annual total ever. Loan portfolios of the nation’s banks grew by 3 percent and loan delinquencies fell to 3.6 percent at year’s end from 4.2 percent a year earlier. In Colorado, profits in 2012 fell 86.6 percent to $43 million, mostly as a result of a $371.4 million loss at Aurora Bank. Loan portfolios of the state’s banks expanded by 4.8 percent last year while delinquencies fell to 2 percent at year’s end from 2.4 percent from a year earlier.

The banks that remain financially healthy are battling each other for the few borrowers who are seeking financing. Record-low interest rates mean that banks can’t generate profits without making loans since buying government securities instead would produce microscopic yields, Kerr said.

“If any credit has legs (can be approved), there are probably a minimum of five banks competing for it,” Kerr said.

The slow progress in reducing problem loans may indicate why three local banks are still operating under agreements with regulators. Those agreements require the banks to take steps to reduce problem loans, restrict lending and prohibit paying dividends to owners.  
Peoples Bank became the first area bank to be released from such an agreement when the U.S. Comptroller of the Currency’s Office released the bank in September from a 2009 agreement. Academy, Park State and Pikes Peak National Bank continue to operate under similar agreements as does Rocky Mountain Bank & Trust, which is chartered in Florence but bases most of its management in Colorado Springs.

Rocky Mountain was released in January from the highest level of regulatory agreement, imposed in 2010, but continues to operate under a less-restrictive agreement, said Roger Dotson, who became the bank’s president in April. The bank cut its problem loans by 20 percent and made a profit for the first time since 2008 though the bank is less than half the size it was four years earlier.

Pikes Peak National cut its problem loans by more than half last year and earned its biggest profit since 2008, after losing money in 2011. The percentage of the bank’s loans that were delinquent at year’s end fell to 8.5 percent from nearly 17 percent a year earlier.
Pikes Peak President Robin Roberts said a number of the banks problem loans were paid off by borrowers last year, helping to reduce the bank’s delinquency rate. She said the bank has resumed lending, focusing on what she called the “underserved” small business market.

“We have several million dollars of loans in the pipeline, which is way more than a year ago,” Roberts said.

Academy’s delinquency rate increased from 17.1 percent at the end of 2011 to nearly 26 percent at the end of last year, though the bank remained profitable and had the highest capital reserve ratio – 20.5 percent of its assets – of any area bank.

Academy President John Carmichael said the bank classified more of its loans as problems, but the bank has resumed making loans — lending between $30 million to $40 million last year — and adding to its staff.

“We are already seeing a major reduction in problem loans (this year) and we are actively in a growth mode,” Carmichael said.

Park State’s delinquency rate jumped to 10.4 percent of its loan portfolio at year’s end from 2.3 percent a year earlier. The bank’s losses nearly doubled to $760,000, though Park State’s losses in 2011 would have been $1.12 million without $721,000 in profits from selling securities.

Park State President Tony Perry said the bank raised $3.2 million in capital from existing shareholders and a pair of local investors he declined to identify. He attributed the increase in problem loans to delays in documenting replacement loans for those that matured. He said the bank is rolling out several marketing initiatives to raise its profile with small businesses throughout the area in hopes of landing more lending customers.

“We’re not out of the woods yet, but I expect significant improve in our problem loans this year,” Perry said. “The real issue is earnings and we are on pace to break even this year and be profitable next year.”

Contact Wayne Heilman: 636-0234 Twitter @wayneheilman
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