Some local banks win, some lose

A reflection of the economy, the local banking industry continued to show strains in the form of increasing noncurrent loans, growth in provisions for loan losses and net losses for the third quarter at many institutions.

There were some positive signs nationally, as the third quarter heralded a return to profitability for the industry at large. All institutions insured by the Federal Deposit Insurance Corp. combined earned $2.8 billion in net income, up from a $879 million income in the third quarter of 2008 and a marked improvement over the second quarter’s $4.3 billion net loss.

However, FDIC Chairwoman Sheila Bair warned against celebration.

“I wouldn’t read too much into quarterly trends,” she said during an announcement of the results. “We don’t know if they are trends.”

In Northern Colorado, the 15 locally based banks in aggregate saw a net loss of $25 million. Much of that can be attributed to two institutions: First National Bank with a loss of $27.2 million and Bank of Choice with a loss of $22.5 million, offset by a $17.15 million gain by Bank of Colorado. For all Colorado banks, net income for the third quarter was $4.59 million.

First National Bank President Mark Driscoll said that the bank’s quarterly results were due less to the bank’s operating under an agreement with its regulator, the Office of the Comptroller of the Currency, and more to the current economic conditions.

“It’s just the way the year seems to be going,´ said Driscoll. “Borrowers continue to struggle under the weight of a slow economy.”

The bank has continued to shrink its assets, a process that started last year. Since the end of fourth quarter 2008, First National’s total assets have declined by 12.6 percent. Real estate loans declined by 7 percent from second quarter to third quarter.

Driscoll pointed out that the biggest quarterly change for the bank was in its credit card portfolio, which went from $136.2 million to nothing. First National sold its credit card portfolio to its parent company, Lauritzen Corp., a more than year-long strategy that appears to be a good bet for the bank. According to the FDIC, charge-offs of credit card loans were up $4.4 billion year-over-year, a 78.2 percent increase.

Cushioning for the future

First National’s $27.2 million loss through the third quarter came largely from cushioning for the future. The bank increased its provision for loan losses from $46.2 million in the second quarter to $101.2 million. Net interest income was not far from where it was for the same period last year and non-interest income was up after the sale of the credit card portfolio.

“Some of it is anticipation for 2010 as we look at some potential difficulties, particularly in commercial real estate,” Driscoll said.

Provisions for loan losses have eaten into net incomes for banks everywhere. For the region’s banks, the provision grew from $72.7 million in the second quarter to $150.9 million. The increase mirrors the growing concern over troubled assets.

Other real estate owned, or OREO, which is typically property gained through foreclosure, stood at $81.5 million at the end of the third quarter. That’s up only 3.8 percent from the second quarter but an increase of 123 percent since the end of 2008. By comparison, all Colorado-based banks saw a 21.9 percent quarter-over-quarter increase in OREO but only a 77.1 percent rise since the end of 2008.

Noncurrent loans – those that are no longer earning interest – increased to $345.5 million for Northern Colorado-based banks, up 60 percent from second quarter and 113.2 percent since the end of 2008. On the bright side, loans past due 30 to 89 days declined for the first time in a year. The early past-due loans were down almost 36 percent to $85.5 million. Many bankers point to this category as the pipeline for future noncurrent loans.

Even the banks with the strongest results have seen some increase in troubled assets. For Bank of Colorado, assets in nonaccrual status were up in the third quarter. FirstBank of Northern Colorado, with a net income of $3.2 million, saw an increase in nonaccrual and assets past due 30 to 89 days.

“We feel the effects of the recession,´ said Leroy Leavitt, president of New West Bank. “We’ve had some loan issues to deal with along the way.”

New West reported $678,000 of assets in nonaccrual status for the third quarter, up from $161,000 in the second. The bank worked through five commercial property foreclosures recently, and reported a net charge-off of $646,000 for the quarter.

Leavitt feels that the bank is well positioned and performing relatively well thanks to the diversity in its portfolio. New West doesn’t have a lot of non-owner occupied real estate loans as part of its business model. It’s the banks that decided to take advantage of the booming real estate business in years past that are under the most stress now, he said.

Construction and land development loans in Northern Colorado declined 7 percent in the third quarter, and commercial real estate loans were down just under one percentage point. Commercial and industrial, or C&I, loans saw a larger decline, dropping 13.6 percent. Nationally, the C&I loan category saw the largest increase in net charge-offs compared to last year, up 117.5 percent.

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