For more than 100 years, it was a solid, healthy community bank. Then the Great Recession hit.
Rocky Mountain Bank & Trust, based in Florence, Colo., has been plagued by bad loans and low capital ratios since 2008. The situation became so serious, the bank was forced to sign an agreement with the Federal Deposit Insurance Corp. in April 2009 promising to put an end to any unsafe banking practices.
Since then, the bank has taken a number of steps to put its house back in order but remains far from achieving the benchmarks set by regulators.
Perhaps most dubiously, its nonperforming loans-to-capital ratio is the highest of any of the 10 locally based banks in the Pikes Peak region.
On the other hand, Rocky Mountain Bank has plenty of company.
The number of banks on the FDIC’s “problem” list has increased since the recession began in the fourth quarter of 2007. Back then, only 76 banks made the list. The recession is officially over but that number has soared to 829 this quarter, out of 7,830 banks in the nation.
Rocky Mountain, which had a high concentration in commercial real estate and single-family residential construction loans on its books — typical of many banks in this region — found itself inundated with loans that soured.
The national average of banks’ nonperforming loans-to-loans is about 10 percent. Rocky Mountain’s ratio is 23.3 percent, more than twice the national average.
Moreover, the average percentage of net loan write-offs for banks with less than $300 million in assets in the mountain-west region is 1.25 percent, according to the FDIC. At Rocky Mountain, that percentage is 4.76, nearly quadruple that of its peers.
Several key provisions in the bank’s agreement with regulators included not making any more construction loans, reducing its concentration of commercial real estate loans, and strengthening the management team.
It met some conditions and is still working to fulfill others.
For example, within 90 days of the April 2009 order, the bank was supposed to have increased its Tier 1 Capital ratio, its equity and reserves, to 9 percent, and increase its ratio of total risk-based capital, or liquid reserves, to 13 percent. As of June, those ratios were 6.11 percent and 7.36 percent, respectively.
Fred Crowley, a senior economist for the Southern Colorado Economic Forum, said any concerns about the bank’s health are valid.
“They’re going through their cash reserves, or Treasury securities (government-backed bonds), to cover these bad loans,” Crowley said.
In the 28-page cease-and-desist order, regulators ordered the bank to “have and retain qualified management.”
So, although Douglas McClure has been president of the bank since 1993, the board of directors decided to augment the management team.
To that end, the bank brought in Ev Covington as CEO, pending approval by the FDIC. Covington has more than 35 years of experience in commercial banking, founding banks, consulting, managing and restructuring financial institutions with assets greater than $1 billion. Most recently, he was a contract employee for the FDIC.
Covington insisted this week that the bank’s troubles are no different than hundreds of others in the nation.
“The economy collapsed — and real estate was the main sector of that. We had our share of (construction and real estate loans),” Covington said. “Banks are a barometer of the economy — and we were caught up in it.”
Indeed. As of June 30, the bank’s nonperforming loans-to-capital ratio was a staggering 244 percent. A ratio of less than 20 percent is optimal.
Last week, the bank sold its largest single piece of “other real estate owned” property, or property whose owners had fallen into default on their loans. The sale dropped its nonperforming loans-to-capital ratio to 170 percent, Covington said.
Rocky Mountain is under contract to shed three more OREO properties, and estimates that by the end of this month, that ratio will drop further to 120 percent. By then, all of its locally originated OREO loans will be off the bank’s balance sheet.
Covington said the bank has complied with regulators by shrinking its assets from $200 million to less than $160 million.
One thing the bank has in its favor is a healthy amount of cash or other liquid assets — $30 million of its $160 million.
“What usually makes banks fail is lack of liquidity,” Covington said. “That’s no small accomplishment to shrink the bank’s assets and have a high cash flow.”
Executive Vice President Tom Havens echoed that sentiment.
“Ev wouldn’t be here. If we weren’t (highly) positive (in) liquidity, there wouldn’t be much he could do,” Havens said.
Perhaps the brightest note for the bank is that year-to-date Rocky Mountain is finally in the black. As of August, it has positive profits of $143,000.
Also, the bank hopes to raise $1.3 million this month from its shareholders.
It’s not much, but it could be the start of a long, slow recovery.