Mounting problem loans at Denver's Premier Bank have prompted state and federal regulators to step in and demand the bank clean up its balance sheet.

The Federal Reserve and the Colorado Division of Banking have entered into a "written agreement" with Premier Bank that requires it to revise its lending policies and to stop extending credit to the borrowers who have created the bad loans.

Premier Bank President Kenneth So said the issues stem from loans made several years ago, and the bank has been working for some time to improve its policies and procedures. It's brought in new managers and is completing a three-year strategic plan.

"With what we've been doing the last two years to correct the problem, we feel we're not at the beginning stage, we're at the middle stage," So said. "Our owners, board of directors and senior management team are committed to fixing the problem. We're not for sale, and we're trying to build back to profitability."

At Dec. 31, Premier Bank had nearly $8.7 million in what's called "noncurrent loans and leases," representing 8.5 percent of the bank's assets. By comparison, all Colorado chartered-banks, including Premier, had about 0.5 percent of their assets nonperforming at year's end.

Premier Bank cut its nonperforming loans to $5.3 million by June 30, but the number still represented more than half the bank's capital.

The bank lost $848,000 in 2006 as it made provisions to cover its loan losses and lost another $184,000 in the first six months of 2007, according to regulatory reports.

Founded in 1995, Premier Bank is owned by a number of Korean investors and specializes in lending to the Asian community. Under former president Jeffery Lee, the bank won national attention for heavy Small Business Administration-backed lending. Each year, Premier Bank battled Wells Fargo and other huge banks for the top spot in Colorado SBA lending.

Lee left in January 2004 to examine his life and "do more for the Kingdom of God," he said at the time. He was replaced by a senior vice president in the bank, George Taylor. So followed in May 2005.

So said a number of the bank's SBA borrowers got behind as interest rates increased and the loans, typically priced at the prime rate plus 2 percent, required higher and higher monthly payments. Restrictions on refinancing into another SBA loan, coupled with the additional risk any bank would take on by extending the customer a non-SBA loan, made repayment even more difficult.

"They're trying to pay, but they're always behind," So said.

Colorado Bank Commissioner Richard Fulkerson said the bank "was a little more aggressive in its lending practices. When the economy turned down, they tightened up, but that may have been a little too late."

The bank's issues have nothing to do with the current storm in the subprime mortgage-lending market, said both Fulkerson and Barbara Walker, the executive director of the Independent Bankers of Colorado.

"These loans are not sub-prime loans," Walker said. "Premier Bank has strong capital and strong loan loss reserves, and the bank continues to improve its lending processes and earnings."