The housing slump and economic slowdown are straining banks and credit unions across Colorado.
But fewer than a dozen are showing signs of cracking under the pressure, according to one bank-rating service.
BauerFinancial Inc., based in Coral Gables, Fla., lists 11 problematic or troubled banks and credit unions in the state out of about 315 institutions it rated at the end of 2007.
That works out to 3.5 percent of the total versus 1.9 percent for credit unions and banks nationally, said Karen Dorway, president of the rating firm.
“Nonperforming loans have generally increased, with a particular emphasis on construction lending,” she said.
Bauer ranks institutions on a scale from five stars, or superior, to zero stars. In Colorado, about 6 percent of credit unions had ratings of two or fewer stars, while 2 percent of banks did.
Many of the institutions receiving low marks are small, short on capital and losing money. They typically, though not always, have heavy exposure to real estate. The state’s biggest banks, including Wells Fargo, U.S. Bank and FirstBank, rate good or better.
Saguache County Credit Union expanded rapidly in one of Colorado’s poorest counties, growing to three branches and funding housing developments.
“Our volume is down, and our delinquencies are up,” said Rick Wertz, chief executive of the one-star credit union.
He said he expects the credit union to break even soon and weather the slowdown.
Tiny credit union IUOE No. 9 suffered after a significant loan went bad in 2006, manager Mark Young said.
“We are small, which makes us more susceptible,” he said. “It doesn’t take much in a bad loan to rock us.”
Often when an institution weakens, competitors will step in. Colorado East Bank & Trust in Lamar purchased First National Bank of Stratton after it started losing money and fell to two stars.
If things get really bad, then regulators act. The National Credit Union Administration took over Norlarco last May after the Fort Collins credit union suffered big losses on risky construction loans it backed in Florida. Public Service Credit Union of Denver won approval in January to take over Norlarco.
So far, it appears that banks are holding up better than credit unions, which have more limited sources of funding.
“We are seeing some declines in loan portfolios, which you would expect, but we are seeing a well-capitalized industry that is well-positioned to ride through this,” said Richard Fulkerson, Colorado’s banking commissioner.
Fulkerson said that concerned consumers can start with a bank rating but that they should dig deeper and ask local bankers why a rating is low and what they plan to do to raise it.
Another rating service, Veribanc, listed Centennial Bank of the West in Fort Collins as the state’s only problematic bank, based on a $141 million loss.
That loss wasn’t from bad loans but reflected a noncash write-off of goodwill because Centennial had overpaid for banks it acquired.
“It is not a real loss, and it didn’t affect cash earnings,” said Paul Taylor, chief financial officer of Centennial Bank Holdings, which folded Centennial Bank of the West into Denver-based Guaranty Bank and Trust Co.
A key measure that rating services and regulators look at is the core capital ratio, or the amount of loans and other assets at risk divided by the equity available to absorb potential losses.
Institutions typically try to have $1 of capital available for every $10 of assets at risk, a ratio of 10. Regulators start paying extra attention when that ratio falls below seven or eight, especially if other things are going wrong.
A heavy investment in securities backed by subprime loans helped sink investment bank Bear Stearns and raised concerns about all financial institutions.
Fulkerson said most banks in the state don’t have direct exposure to mortgages or mortgage-backed securities. But some did fund homebuilders and commercial development that is being hurt by the housing slump.
Colorado Federal Savings Bank in Greenwood Village has seen its star rating fall from five in 2006 to one in 2007. The thrift, which heavily promotes mortgage lending on its website, declined to comment.
Often, management is able to correct problems with the guidance of regulators. Premier Bank, down to two stars in 2006, has since rebounded to three.
Failing that, deposits in banks and credit unions are protected up to $100,000, with higher protection amounts on retirement accounts.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
