Last week, a surviving production builder client of Genesis reported that 12 banks contacted were all unable to lend for housing construction - they are simply out of the business regardless of the quality of the project or its sponsor. Our client has reached the same conclusion as other Genesis clients; that private equity is the only realistic resource available for housing finance today.
This situation provides a timely introduction to our announcement that The Lender Services Division of The Genesis Group has completed its First Quarter 2009 analysis of Colorado banks and their troubled assets, particularly real estate. Here are some of our key findings about this industry.
· As a group, the 137 Colorado banks chartered in Colorado are well capitalized and are able to deal with their bad loans and REO (real estate owned). These banks had nearly $1.14 billion in these 'troubled assets' but this was just 2.0 percent of all bank assets and 24.6 percent of total bank capital and reserves – an overall “Troubled Asset Ratio” of 24.6.
· However, nearly one third of Colorado banks (44 out of 137) had troubled asset ratios higher than 24.6, and these banks held almost $850 million of troubled assets. This amounted to 4.7 percent of total assets of these banks and 47.6 percent of total capital plus reserves.
· In June, the FDIC took “administrative enforcement actions” against the two Colorado banks; these two banks had the highest troubled asset ratios. Park State Bank & Trust of Woodland Park had a ratio of 117.6 and Valley Bank and Trust of Brighton had a ratio of 95.0 as of March 2009.
These “Cease and Desist” orders require the banks to change lending practices as well as to improve their capital ratios by either increasing capital or reducing their exposures of bad loans. Their new requirements are Tier 1 Leverage Capital ratios of 9% of assets and Total Risk Based Capital ratios of at least 13% of Risk Weighted Assets. These orders can be viewed online at http://www.fdic.gov/bank/individual/enforcement/index.html
· According to the Wall Street Journal, the recent failure of Colonial Bank of Alabama (August 14) “signals an ominous phase in the nation’s banking crisis. Even as some large institutions show signs of stabilizing, a slew of regional lenders remain on the ropes. And regulators appear to be giving up hope that some of them can be saved.” As of First Quarter 2009 Colonial had over $26 billion in troubled assets and a 59.5 troubled asset ratio.
None of the Colorado chartered banks fall into this “regional” category; the largest had assets of approximately $2.6 billion. Still, eight Colorado banks had troubled asset ratios equal to or higher than Colonial’s 59.5 ratio.
Two larger non-Colorado banks that are active in the state are Compass Bank ($61.5 billion assets) and US Bank ($258.5 billion assets). Both of these institutions had troubled asset ratios of approximately 35.
· The most significant asset problems for Colorado banks are loans for real estate construction and development. Troubled loans in this category added up to more than $504 million and comprised nearly two-thirds of all troubled real estate loans.
The Genesis Group has released for publication the First Quarter 2009 “Colorado Bank Troubled Asset Report.” Priced at $500, this T.A.R. report details key capital ratios and dollar amounts of assets and dollar amounts of troubled assets for each of the 137 Colorado chartered banks in these categories:
· Real Estate Loans
· Construction & Development Loans
· Residential Loans (single and multi-family)
· Commercial Real Estate Loans
Clck Download Asset Groups, New Frontier to see a sample of the information included in the report for New Frontier Bank in Greeley (closed in April by FDIC).
To order the report or if you have questions about it, contact Mike Rinner at The Genesis Group – 303-662-0155 or mrinner@thegenesisgroup.net
Definitions: The “Troubled Asset Ratio” compares the sum of troubled assets with the sum of tier 1 capital plus loan loss reserves. Generally speaking, higher values in this ratio indicate that a bank is under more stress caused by loans that are not paying as scheduled. Troubled assets include: · Loans that are 90 days or more past due · Loans that are in nonaccrual status. Nonaccrual means the bank can no longer claim interest income from the loan. · Other real estate owned (primarily property the bank has acquired through foreclosures) “Tier 1 capital,” also called core capital, includes common stock and retained earnings, subject to regulatory adjustments.
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