7 Colorardo banks rebuked for risky practices | VailDaily.com

7 Colorardo banks rebuked for risky practices

Miles Moffeit
The Denver Post

In an unprecedented crackdown, federal regulators have placed at least seven troubled Colorado banks under strict enforcement orders during the past year, ordering them to clean up their practices to forestall deepening woes or closure.

From a Western Slope bank that dabbled in obscure investments to a bank on the southeastern plains that binged on bad farm loans, the community banks violated banking laws or regulations.

Four others also took excessive credit risks by lending too much money for commercial real estate projects or operated with inadequate capital, according to a review of the cease-and-desist orders.

Southern Colorado National Bank of Pueblo, the latest targeted, was ordered to hire a new executive to “ensure that the bank has competent management” and a plan for closing or selling if it doesn’t come up with extra cash.

Native American Bank of Denver has cleared out its top ranks, replacing four top executives, including its chief executive.

“Clearly, these enforcement orders are increasing,” said former Colorado banking commissioner Richard Fulkerson. “We’ve been through a decade of very healthy banks. Now things are changing. With the economy down, this is becoming more pervasive.”

Prior to 2008, only four cease-and- desist orders had been served this decade by the two main federal bank regulators ” the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency ” according to a database search.

The five other banks under regulatory oversight are Colorado National Bank in Colorado Springs; McClave State Bank in McClave; Canon National Bank in Canon City; New Frontier Bank in Greeley; and First National Bank of the Rockies in Grand Junction.

The government has stepped up scrutiny of banks during the past two years as the economy was hobbled by reckless mortgage lending and other questionable investments.

The seven institutions’ problems were discovered during routine bank-health exams.

When FDIC regulators arrived at tiny McClave State Bank last year ” the only bank serving the dusty southeastern Colorado town of 120 ” they discovered that president Shannon Chase had suddenly moved away.

“Three days before the bank exam he had found a better job,” said his replacement and current bank president, Matt Kelley. “It was poor timing.”

The examiners found a range of problems, including a spate of delinquent agriculture loans, poor cash levels and “operating without adequate management or staff.” A vice president who doubled as the cashier couldn’t answer regulators’ questions about the banks’ lending practices.

But months later, Kelley stresses, the bank has found new capital to shore up its balance sheet and purged many bad loans. But he said that it could be three years before the bank is on “solid footing.”

Executives for the battered $44 million Southern Colorado National Bank in Pueblo, hit with its enforcement order in January, didn’t return calls to discuss whether it had found the new senior officer mandated by regulators to oversee its loan program. The bank was given 60 days to make the move.

Native American Bank is making strides with regulators, said president David Gillman. “We now have an entirely new management team in place.”

Peter Waller, chief of First National Bank of the Rockies in Grand Junction, said his bank has drastically reduced its reliance on what regulators described as a money-losing “illegal investment” in the AT Fund of Funds investment program in California.

First National had sunk $16 million into the scheme, which dealt in mortgage-backed securities and which regulators didn’t consider transparent, Waller acknowledged.

“Since that time, we have liquidated that asset,” he said. “. . . We’re getting back on track with strong capitalization.”

Research librarian Barry Osborne contributed to this report. Miles Moffeit: 303-954-1415 or mmoffeit@denverpost.com

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