Local banks in black, past due loans up

All banks based in Northern Colorado were in the black last year, but some other key financial data suggests the region’s hot economy has slightly cooled.

Of the 16 institutions based in Northern Colorado in 2006, none was unprofitable – an improvement from 2005 when two of those banks were in the red. The change can likely be attributed to several de novo banks maturing into profitability.

Overall, net income increased 32 percent to $82.2 million for 2006. The year-over-year growth compares to 16 percent and 10 percent increases in the previous two years. Net- income growth for all banks in Colorado was 7 percent and for all banks in the United States was 8 percent over 2005.

The Northern Colorado net- income dollars represent “very strong, positive figures,´ said Don Childears, president and CEO of the Colorado Bankers Association. He pointed out that charge-offs during the same period for the region’s banks grew by only $500,000 or 2.5 percent.

“That is pretty modest compared to asset growth,” Childears said.

Assets for the local banks also made a good showing in 2006. Year-over-year, assets grew by more than $1 billion to $8.1 billion. The growth was slower than in the previous year, but still stronger than that for the state and the nation.

Even with such positive results, there are some growth areas that are less than desirable.

$64M ‘past due’

The region’s banks saw a marked increase in past-due loans in 2006. As of Dec. 31, there were almost $64 million in loans past due by 30 days to 89 days – an increase of 121 percent compared with Dec. 31, 2005. Assets past due for 90 days or more increased by 280 percent to $21.9 million by the end of the year.

Childears warned against taking the “past- due” data as an industry trend. He explained that a handful of construction projects could push up the amount past due significantly. He added that the increases were not likely the result of the much-publicized issues in home mortgages and foreclosures.

The CBA released a report earlier this year showing that while banks make about 58 percent of all residential real estate loans, loans held by banks account for only 18 percent of foreclosures. Conversely, non-banking lenders account for 42 percent of all residential real estate loans and 77 percent of foreclosures.

Dianna Vasa, president of Capital West Bank in Fort Collins, explained that many Northern Colorado banks, including hers, do not hold onto home mortgages, instead selling them in the secondary market.

In fact, the real estate gained through foreclosure grew most heavily in the construction and development segment. For Northern Colorado-based banks, real estate gained through foreclosure overall rose 240 percent to more than $13 million in 2006. Of that, $7.5 million was in construction and development, compared to $4.3 million in residential properties.

What’s more, in 2005, construction and development foreclosures were only $588,000, down significantly from $1.8 million in 2004. The slowing home market is hurting builders who have been accustomed to quickly unloading their finished homes.

“Now, they’re holding onto them for six, eight, 12 months,” she said.

Vasa said that Capital West is trying to work with its builder clients to help them weather the slowdown. Lucky for the bank, which opened in late 2005, it was not too heavily vested yet.

“We’re pretty new to the market so we don’t have a lot of risky loans,” Vasa explained. Instead, Capital West focused its first year on attracting deposits.

Local economic barometer

Despite the troubles in the home market, Vasa said she’s already seeing some pickup. She is “especially optimistic” for 2008.

The once-booming real estate market is cooling, according to many bankers.

“We are seeing a slowdown in the real estate industry,´ said Darrell McAllister, president and CEO of Evans-based Bank of Choice.

Bank of Choice began taking a closer look at its real estate loans more than a year and a half ago because there were signs of softening then, McAllister explained. He added that banks that are just now reacting to the market might not show such positive results in the future.

“If they didn’t pull back a while ago, they might feel it,” he said. “Nobody makes a bad loan, but you really find out how good your loans are (when the economy softens).”

McAllister guesses that this year will be telling, as far as bank income is concerned. The softening has been occurring for about a year, but banks indicators often lag behind the economy.

“All banks are a measure of the local economy,” McAllister said. “It just takes a while to see that reflection.

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