Positive trend: Fewer OREOs on ledgers

A lot of this issue of the Business Report is dedicated to 2013, with predictions from industry experts about what may be in store for Northern Colorado business, now that we’ve eaten our holiday dinners and even sidestepped an apocalypse.

Before we jump ahead, though, there are some things worth mentioning about 2012.

At the beginning of this year, someone with the city of Fort Collins staff told me that 2012 would likely be the last year of recovery, and that 2013 and 2014 would be years of growth.

The prediction of recovery has held true for most industries in Northern Colorado, with nearly every sector of the economy posting better numbers than they were able to a year ago. Banks are no exception.

Of our eight locally-based banks, five posted higher total lending amounts in the third quarter of 2012 than they did in the same period of 2011. The increases have been relatively slight, 7.5 percent or less, but considering the last five years, these bumps in lending amounts are encouraging, and not just for bankers.

Six of these eight banks have increased their real estate lending in the last year, a nod to the improving strength of Northern Colorado’s real estate market.

During one of the conversations I had to forecast 2013 for this issue, Verus Bank CEO Gerard Nalezny told me that local banks are “deeply tied to the community.” He was trying to explain how the overall improvements in the economy had led to improvements in lending.

Of course, more money in a community means more money in the bank. This isn’t a difficult thing to comprehend.

I have written before about better times for local banks, from branch expansions to the hiring of new employees, but my most recent look at the numbers shows yet another reason to believe that the other half of my city source’s prediction will come true, and that the next two years will in fact be a time of real growth in our region.

I’m talking about OREO. No, not the cookie, but rather the line item on a bank’s balance sheet that caused so much trouble not so many years ago.

“Other real estate owned” sounds pretty nondescript on its face, but this statistic, when it gets too high, can be deadly for a bank, and sometimes an entire economy if the epidemic is too widespread.

A simple definition: OREO is a result of foreclosure on property as a result of default by the borrower who used the property as collateral for the loan. A bit of OREO is acceptable, but too much is a sign of deteriorating credit and spells trouble in many other areas as well.

From 2008 to 2011, OREO ramped up every year, jumping from a total of $8.9 million held by our eight local banks combined in 2008 to $75 million in 2011.

So where’s the good news?

In 2012, this total dropped by nearly $20 million to $58 million across the universe of locally-based banks.

It is worth noting that First Farm Bank, based in Greeley, has seen no OREO crumbs on its books for at least the last five years.

Obviously, there’s still work to do. There are still too many problem assets to be worked out and, if you listen to some bankers, regulators who make it difficult for banks to make good loans to replace the bad.

Of course, there are national and international factors at play that could crush my budding optimism, but on the other hand, others have also been reporting good news on the banking front, on both statewide and national scales.

Bauer Financial’s recently released findings from third quarter data show that the percentage of Colorado banks considered “troubled and problematic” dropped from 21.1 percent as of Sept. 30, 2011 to 17.1 percent as of Sept. 30.

Bauer also rates banks that it considers four- or five-star institutions as “recommended.” The share of banks in this basket increased to 53.3 percent in the third quarter, from 45 percent a year earlier.

The Federal Deposit Insurance Corp. also reported positive news on a national scale in the third quarter.

For all insured institutions nationwide, loan balances increased for the fifth consecutive quarter out of the last six quarters, rising by $64.8 billion, or 0.9 percent. Loans to commercial and industrial borrowers increased by $31.8 billion and residential mortgages rose by $14.5 billion, or 0.8 percent.

The increases are slight, and there are those who believe that the industry is still suffering, but, to me, there’s reason for hope in 2013.

Molly Armbrister covers real estate for the Business Report. She can be reached at 970- 232-3139, at marmbrister@ncbr.com or at twitter.com/MArmbristerNCBR.

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