Despite a booming Colorado Springs-area economy and double- digit percentage growth in lending, the area's banks are shoring up reserves for potential loan losses as delinquent loans rose for a second consecutive year, according to year-end data.
The combined profits of the eight banks based in the Springs area fell 1.8 percent from 2015 to $23.4 million last year, but earnings would have increased 7.8 percent without $2.1 million in one-time earnings in 2015 at Integrity Bank from spinning off its trust and wealth management operations, according to data from the Federal Deposit Insurance Corp. The 2015 area profit total was the highest since 2006. The county's numbers don't include results from banking giants Wells Fargo, U.S. Bank, Chase Bank and others that hold the bulk of the area's bank deposits.
Local banks took advantage of a hot real estate market to expand lending by 13.5 percent to $1.53 billion, the third consecutive year of double-digit percentage growth. But along with growing loan portfolios, area banks also reported that a few more borrowers were falling behind on payments - the amount of delinquent loans rose 31.8 percent to $14.5 million, or 1.1 percent of their combined loan portfolios, up from 0.8 percent in 2015.
"These numbers show that businesses are feeling more confident and are borrowing so they can expand and hire more people," said Tatiana Bailey, director of the University of Colorado at Colorado Springs Economic Forum. "This is good news all around and is consistent with other major local economic indicators - employment growth, business starts and the influx of high-wage jobs."
As a result, area banks continued to beef up reserves, more than doubling what they set aside for potential loan losses to $7.46 million though much of the additional reserves were needed to keep up with rapid loan growth and maintain reserves at the same percentage level as the previous year.
"The last recession is still fresh in everybody's minds and if we are doing well, it makes sense to put something away for the future," said Rob Alexander, chairman and CEO of Stockmens Bank in downtown Colorado Springs. "Many of the local banks are big real estate lenders, and they are doing very well right now."
Academy Bank, the largest bank based in the Springs, benefited from strong growth across all of its major lending sectors, including home mortgages, commercial real estate loans and traditional business lending, said Paul Holewinski, who heads Academy Bank and its parent company, Dickinson Financial Corp.
"We are cautiously optimistic at our bank that this strong lending market will continue into this year," Holewinski said. "Rising interest rates might slow the housing market and temper property values a little bit, but the mortgage business is strong relative to the supply of housing on the market and we are seeing more requests for loans for capital investment by businesses who are more emboldened by the strength of the economy and the prospect of a cut in the corporate tax."
Randy Bernstein, CEO of Ent Federal Credit Union, southern Colorado's largest financial institution, said loan growth has been strong in both home mortgages and auto loans and is gaining strength in home equity lines of credit, which often helps to finance other major purchases.
A healthy banking industry is important for small businesses that turn to banks for loans. Lending fell sharply during the recession as loan delinquency levels surged to nearly 10 percent and four of the banks faced orders from federal regulators restricting lending and other operations. No local bank is under such orders.
National and state data for all of 2016 won't be available until next week, but for the first three quarters of the year, Colorado bank earnings jumped 13 percent from a 2015 to $452 million last year. Loan portfolios grew 17.6 percent during the same period to $35.3 million and the percentage of delinquent loans edged up to 0.7 percent from 0.6 percent. Nationwide bank profits increased 3.9 percent in the first three quarters of the year to $127.8 billion, while loan portfolios expanded by 6.8 percent to $9.23 trillion and the percentage of delinquent loans fell to 1.5 percent from 1.6 percent.
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