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11th-hour deal averts closure of Colo. thrift

By David Milstead, Rocky Mountain News (Contact)

Published July 16, 2008 at 9:05 p.m.

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Thanks to a last-minute deal shepherded by federal regulators, Colorado has avoided its first savings-and-loan failure of this downturn.

Federal regulators had planned to close Colorado Federal Savings Bank, a savings and loan, on June 30 because it was in critical condition. Instead, it was sold to a California investor who plans to refocus the thrift on more traditional lines of business.

Trade publication American Banker said R. Craig Pica, the CEO of Burlingame, Calif.-based wholesale mortgage lender Provident Funding Associates LP, is the buyer. Randy Ilich, the new CEO, is a former Provident Funding employee.

The little-known Greenwood Village-based company was making millions of mortgage loans across the country. Ilich said it began running into trouble in late 2007 when it was forced to take back "problem" and irregular loans that it sold to investors.

Federal regulators made Colorado Federal Savings Bank write down the value of the bad mortgage loans, giving the thrift one of the worst-looking balance sheets in America.

"It blew out the rest of the capital they had remaining," Ilich said.

As of March 31, the thrift had just $489,000 in capital for $44.7 million in assets, according to reports filed with federal regulators. Having that level of capital - less than 2 percent of assets - makes the institution "critically undercapitalized" by regulatory standards.

Colorado Federal Savings Bank was striking deals with mortgage lenders out of its Dallas office, Ilich said. The new management has terminated those deals and is scaling back to turn the thrift into a more traditional deposit-gathering and loan-making institution.

"We'll run this as a traditional bank, with a traditional retail operation," he said. Ilich would not reveal terms of the sale.

The previous owners and managers "were good people," Ilich said. "I think they just got caught in the current market."

Colorado Bank Commissioner Richard Fulkerson told the Rocky on Tuesday the state has a small percentage of institutions it is working with, but "I don't see a failure threat from any state-chartered Colorado bank at this time."

He has no authority over Colorado Federal Savings Bank, which is a federally regulated savings association.

Finance Editor David Milstead can be reached at milstead@RockyMountainNews.com or 303-954-2648.