Local banks mirror national trends | VailDaily.com

Local banks mirror national trends

CVR Banks Health DT 3-31-11

EAGLE COUNTY – The national economy has been hard on just about every business, and some are stronger than others. Banks are no different.

Recent bank rating reports by Bauer Financial have put several Colorado-based banks on ground ranging from solid to shaky and just about everywhere in between. Those ratings are determined using information submitted to federal regulators about cash on hand, loan performance and other factors. All that information is available on the U.S. Federal Reserve Board website – http://www.federal

reserve.gov – but can be interpreted in slightly different ways by different raters.

For instance, Glenwood Springs-based Alpine Banks has a two-star rating at http://www.bankrate.com and a three-star rating from Bauer. But one banking-industry veteran said the ratings are just one way to evaluate a bank’s health.

“I put as much stock into those ratings as any other rating system – you have to get behind the numbers,” Kevin Brubeck said. Brubeck is now a financial adviser with Edwards Jones in Eagle but is a 25-year veteran of the banking industry. “These ratings are an indicator, not an answer.”

Brubeck said one way rating companies can skew financial information is to “annualize” fourth-quarter reports – extrapolating the information into an entire year’s performance. The problem is that most companies, not just banks, tend to put much of a year’s bad news into those final-quarter reports.

But one bad year doesn’t necessarily reflect on a bank’s real health.

Alpine Bank lost money in 2010.

“We had a horrible year,” bank President Glen Jammaron said.

Some of that loss came from loans that had gone bad, but much came from $30 million the bank put into its loan reserve fund. Jammaron said building up the loan reserves was one way the bank positioned itself for a better 2011.

The bad loans haven’t entirely worked their way through the bank’s profit and loss statements yet. But the bank projected a profit for this year, and the company exceeded its profit estimates for the first quarter.

And through the current financial slump, the company has continued its practice of community contributions and, so far, hasn’t laid off any employees.

American National Bank – rated higher than Alpine by Bauer – followed a slightly different path. Susan Sturm, the bank holding company’s chief financial officer, said American National has gotten through the slump through a combination of cost cutting – including layoffs – and urging customers to get out of potentially risky investments.

“We started warning people in 2007,” Sturm said. American National has also built up its cash reserves and now has more than half its total assets in cash and liquid securities.

FirstBank, the state’s largest bank holding company, has also come through the slump in relatively good shape. Mark Ristow, president of FirstBank in Vail, said that company has survived the slump by sticking to basics.

“We haven’t tried to be everything to everybody,” Ristow said. And, he said, even when a fairly regular pulse was the primary qualification for many loans just a few years ago, FirstBank stayed out of “sub-prime” mortgages and similar loans.

“We’ve always expected lenders to show a source of repayment,” he said.

Companies that didn’t follow that model and tried to grow loans at the expense of sound business practices haven’t done as well.

“All of that works if real estate never declines in value,” he said.

Banks will be healthier when the economy recovers, but when that will happen – or how – remains an open question.

“The current business environment is poor,” Sturm said. “It’s hard for a lot of businesses to meet the (lending) standards they could meet a year or two ago.

And those standards are tougher than what many people became accustomed to during the last decade’s boom years.

“The simple answer is we need more jobs,” Sturm said. “But where will they come from?”

Ristow added that he isn’t sure Eagle County’s housing market has found its bottom yet.

“But there are some signs, in improved skier days and retail spending,” Ristow said.

Speaking from Glenwood Springs, Jammaron said there’s been a little bit of activity in construction lately.

But all three bank executives said times are still tough for banks, and will stay that way until the economy improves.

“If our customers are struggling, we are too,” Jammaron said.

And, Brubeck said, some of the banks with strong ratings at the moment might not be as strong as it seems, and those with worse ratings might not be as bad off as it appears.

“Customers have an obligation to look beyond (ratings),” he said. “i would never make a flash decision just based on a rating.”

Business Editor Scott N. Miller can be reached at 970-748-2930 or smiller@vaildaily.com.

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