FDIC speaks more softly but swings same stick

Two Northern Colorado banks may have received the last “cease-and-desist orders” from the Federal Deposit Insurance Corp., but they’ve joined an ever less-exclusive club in the process.

Both Loveland-based Advantage Bank and Windsor-based Signature Bank entered into negotiated agreements with the FDIC, among 40 such orders issued by the regulator during October. A handful, finalized at the end of the month, were described by the regulator in softer language as “consent” rather than “cease-and-desist” orders.

Whatever they’re called, the terms of the agreements remain the same – for a growing number of institutions. Through October, 287 banks went under FDIC cease-and-desist orders. In all of 2008, only 142 were issued; 78 in 2007 and 45 in 2006.

Also entering a cease-and-desist order during October was Hillcrest Bank based in Overland Park, Kan. Hillcrest operates bank branches inside nursing home facilities in Colorado, including an office in Loveland and one in Estes Park. Other Colorado banks issued cease-and-desist orders this year include Brighton-based Valley Bank and Trust and Greeley’s now-defunct New Frontier Bank.

CRE loan questions

Advantage signed its order on Oct. 21. According to Advantage CEO Tom Chinnock, the action deals largely with issues related to the distressed commercial real estate market. The order specifically listed capital requirements, liquidity, brokered deposits, adversely classified assets, allowance for loan losses and loan policy and concentrations of credit.

Chinnock said the bank has already complied with many of the provisions required by the agreement. Much of the work has dealt with revising and filing plans with the regulators.

“We have to review and revise certain policies, all related to loans,” he said. “We are asked to reduce and address our troubled assets, which are primarily in commercial real estate.”

As of Sept. 30, Advantage Bank reported $454.76 million in assets and a loan portfolio of $338.3 million – down about 10 percent from the start of the year. The bank had reduced its brokered deposits from $13.5 million at the start of the year to $594,000 as of Sept. 30. The bank reported a net loss of $2.3 million through Sept. 30.

Construction and land development and commercial real estate loans accounted for more than 70 percent of Advantage’s loan portfolio. Noncurrent loans totaled $23.35 million, up from $17 million at the end of the second quarter. Other real estate owned, typically property foreclosed upon and now held by the bank, stood at $13 million. Advantage consummated a capital campaign in the spring, and Chinnock feels that the raise will be adequate for regulatory purposes.

“What’s most important to us is the retention of our customer base,” he said. “We’re diligently trying to make loans to our existing customers.”

Robert Hinderaker, president and CEO of Signature Bank, echoed that sentiment. Signature’s order dealt with many of the same issues as Advantage’s, according to Hinderaker. The order was not included in the FDIC release of all other October actions on Nov. 27. Hinderaker said he wasn’t sure why it was omitted and inquiries to the FDIC were not answered in time for publication of this story.

“The plan is primarily targeted at commercial real estate concentration,” he said.

Signature had $91.3 million in assets as of Sept. 30, up from $78.2 million at the start of the year. The bank held $66.7 million in loans – $30.38 million of which were in construction, land development or commercial real estate. Noncurrent loans totaled $7.7 million and other real estate owned was $2.3 million. The bank reported a net loss of $451,000 through the third quarter.

Hinderaker said that Signature is working at maintaining the property capital ratios through a variety of actions, including raising new capital and reducing its loan portfolio.

“There’s no single solution anymore,” he said.

Hinderaker explained that the bank has already shifted its lending away from assets that the regulators consider more risky. Most of the assets that are now adversely classified were made two or more years ago. At the same time, the bank remains committed to working with its existing customers.

“We know this may cause short-term problems for the bank but feel we owe it to our customers to support them through these challenging times,” he said.

Strong income result of good lending

Despite the FDIC’s softer wording for its consent orders — including toning down references to “unsafe and unsound practices” — some bankers still point to the existence of such practices at the banks under the agreements as an area of concern.

“Those banks whose business models were built around higher risk real estate lending with loan concentrations in land development, spec construction, and non-owner occupied commercial real estate loans are clearly feeling the effects of the economy,´ said New West Bank President Leroy Leavitt.

He pointed out that his bank has worked since its inception in 2003 to maintain a diversified loan portfolio with little lending to speculative projects. As a result, the bank has relatively low other real estate owned and non-performing assets. Other locally based banks, such as FirstBank of Northern Colorado and Bank of Colorado, have similarly diverse loan portfolios and strong net income in the third quarter to show for it.

Kristen Tatti covers the banking industry for the Northern Colorado Business Report. She can be reached at 970-221-5400, ext. 219 or ktatti@ncbr.com.

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