Colorado Springs area banks passed a major milestone last year in their recovery from the 2008 financial crisis, cutting their problem loans by more than half to a five-year low.
The improvement has allowed several local banks that had been struggling with loan problems to shift back into lending mode for the first time in several years, giving businesses more options to secure credit — most likely at better interest rates than they would have gotten in recent years.
The improved loan numbers also could mean that fewer local banks will have to operate under restrictions that have limited the amount and types of lending they can do.
“It’s a great time to be a borrower because you have so many healthy banks in the lending market,” said Mike League, president and CEO of Five Star Bank in Colorado Springs and a board member of the Colorado Bankers Association. “The spread we get on interest payments on loans minus the cost of funds we pay for deposits has dropped a full percentage point because of the competition for loans. In this market, we clearly have too many banks chasing too few good loans.”
Loans classified as problems by federal regulators at the end of 2013 accounted for 2.51 percent of the $634.9 million in loans held by the seven banks based in the Colorado Springs area, according to recently released data from the Federal Deposit Insurance Corp.
The $15.9 million in problem loans at the seven banks was down 57.1 percent from a year earlier and is the lowest, as a percentage of the banks’ combined loan portfolios since the end of 2008, when 2.48 percent of local loans were classified as problems. Problem loans at local banks peaked in mid-2010 at nearly 10 percent of their combined loan portfolios.
The improvement in loan quality also helped the banks’ bottom line: Their combined earnings last year jumped 10.7 percent from 2012 to $13.7 million — the local industry’s best financial performance since 2007.
In another key sign of the improving health of the local banking industry, the banks held capital reserves that accounted for 14.8 percent of their $1.25 billion in combined assets, or more than three times the ratio that federal regulators require.
The loan delinquency, profit 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, Chase Bank, U.S. Bank, FirstBank and ANB Bank, the area’s five largest banks as measured by deposits. SNL Financial, which tracks major banks, reported this month that the amount of problem loans for the nation’s largest banks continued to decline throughout 2013.
While local banks have largely cleaned up their loan portfolios, many are finding it difficult to add new loans because of the area’s tepid and uneven economic growth, League said.
Although the local housing industry has staged a big comeback in the past few years, he said many other sectors of the Colorado Springs economy aren’t seeing much growth. As a result, he said, they haven’t sought loans from local banks to expand or buy more equipment.
The lending market has become so competitive that the largest local financial institution, Ent Federal Credit Union, began offering rebates last month to customers who take out loans. Ent expects to pay about $3 million this year to any of its 232,000 members who get anything from personal loans to mortgages, said Ent CEO Charles Emmer. The rebates, which will be paid annually as dividends each November, range from $10 for a personal loan to $75 for a mortgage.
“It is an incentive for our members to use our services,” Emmer said. “The initial response to the program has been very positive, and we expect it will be a difference-maker in our market. We expect that many of our competitors will flatter us by imitating our program.”
Much of the local industry’s loan quality improvement was generated by Academy Bank, which cut its problem loans 82 percent, or more than $18 million, to just $4.1 million. Academy held more than 60 percent of the area’s problem loans at the end of 2012. The bank also boosted profits by nearly 19 percent from a year earlier to $5.36 million in 2013 and held the highest level of capital reserves of any local bank — 21.7 percent of its nearly $300 million in assets.
Academy, along with Pikes Peak National Bank and Park State Bank in Woodland Park, all are operating under orders from regulators that require the banks to take steps to reduce problem loans, restrict lending and prohibit paying dividends to owners.
“Last year was a milestone year for us,” said Paul Holewinski, CEO of Academy Bank owner Dickinson Financial Corp. “A lot of things came together in 2013 for us. We had a three-year plan to clean out our problem loans and (foreclosed real estate) and that was completed last year. We are generating new loans again and had a strong year. We look forward to the rest of this year because we have a lot capital and liquidity, so we want to add (lending) relationships in the Springs and across the state.”
Holewinski said several factors helped Academy Bank cut its problem loans: more borrowers paid off loans; the state economy improved, resulting in higher real estate values and lease rates; and the bank packaged and sold some loans and foreclosed real estate.
Pikes Peak National also cut its problem loans by 47.2 percent, to $1.69 million, or 4.7 percent of its loan portfolio. The bank’s profits fell 21.5 percent to $321,000, but it remained in the black and its reserves well exceeded federal requirements.
Pikes Peak National CEO Robin Roberts attributed the bank’s recovery from its loan problems to the improving financial condition of its borrowers and the sale of an office building in eastern Colorado Springs that the bank seized in foreclosure.
“We have worked hard on lowering these (problem loan) numbers and are happy with our progress,” Roberts said. “As a result, we were able to put fewer resources into working with problem borrowers and spend more resources on talking to local businesses and making loans.”
Park State didn’t make much progress on paper last year, but expects to “turn the corner” this year in cutting its problem loans by at least 40 percent and getting close to or at a break-even level, said Tony Perry, the bank’s president and CEO.
“We have a significant number of (problem loans) and foreclosed real estate in the pipeline to be resolved this year,” Perry said. “For the first time since the financial crisis, we are in a business development mode and looking forward” instead of backward.
Contact Wayne Heilman: 636-0234
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CREDIT UNIONS MAKE 'STEADY' IMPROVEMENT
Colorado Springs-area credit unions last year reported a 5.6 percent gain in income from a year earlier to $47.4 million, while the amount of loans 60 or more days delinquent declined 6.2 percent from a year earlier to $13.2 million, according to data from the National Credit Union Administration. Ent Federal Credit Union CEO Charles Emmer called performance of Ent, which accounts for nearly 90 percent of the local credit union industry, as “steady and even keel.”