N. Colorado economy still on roll, bankers say

Northern Colorado Business ReportNorthern Colorado’s robust economy has many wondering when the good times will end. Construction continues at a fast clip, the low unemployment rate is fodder for water-cooler discussions and banks are popping up faster than a bag of Orville Reddenbacher’s.

“How long can the good times last?” asked William R. Farr, president and chief executive of Centennial Banks of the West. “We’re in the 10th year of the longest expansion we’ve ever had. Doomsayers say it’s right around the corner, when the good times will end. There’s nothing on the horizon to let you think it’s going to be bad. It could be less good and still be good. Some people say there’s too much growth. You could lessen that, and the economy would still be great. In Northern Colorado, my gosh it’s good. What could cause it to change?”

The economy has been very good. The nation’s 10,224 commercial banks, savings banks and savings and loans closed out 1999 with a record net profit of $82.6 billion – an increase of 15 percent over the previous record of $72.1 billion set in 1998, according to Weiss Ratings Inc., a leading bank rating agency.

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The industry’s return on assets – a common measure of bank profitability – likewise rose to a record high of 1.32 percent in 1999 compared to 1.20 percent in 1998.

“Despite three Fed interest rate hikes, banks were still able to pull off record profits last year,´ said Martin Weiss, chairman of Weiss Ratings.

Not all banks came through the year unscathed, however, as the number of unprofitable banks actually increased. The percentage of banking institutions reporting a new loss in 1999 reached 7.4 percent compared to 5.7 percent in 1998.

The Federal Deposit Insurance Corporation also has begun flashing a few yellow caution lights.

“The extraordinary duration of this economic expansion has been a tremendous boon to banks and thrifts,´ said FDIC Chairwoman Donna Tanoue. “There are indications, however, that banking risks associated with the U.S. business cycle may actually be increasing, making tomorrow’s challenges much different from those of the recent past.”

In its second quarter edition of the “Regional Outlook,” FDIC analysts stated that long expansions allow banks and their customers to take on more leverage and possibly more risk. Growing indebtedness by consumers and businesses leaves both vulnerable to rising interest rates, and raises concerns about consumer and commercial credit quality, the publication stated.

Commercial credit quality in Northern Colorado is “not an issue of grave concern,´ said Mark Driscoll, president of First National Bank of Fort Collins. “Regulators are concerned about credit quality, but it’s not a big concern from what we see.”

Farr, too, said he isn’t concerned with credit quality because underwriting standards are tougher than a decade ago, eliminating many problematic loans before a signature lands on the dotted line. “Some loans are not perfect,” he conceded. “That’s why you charge interest.”

As for all of the bank expansions, Farr said it’s an indication of a healthy climate for the industry. “Why would they be doing all those things if the economy wasn’t good? If things are bad, you don’t make expenditures on the future.”

Jerry Bryant, president and chief executive of First National Bank of Yuma and its holding company, Washington Investment Co., said he believes certain areas of Northern Colorado are over-banked. Nonetheless, the holding company is in a growth mode, having put banks in Johnstown and Milliken and has another one under construction in Loveland.

“We’ll continue to expand where there’s a need,” he said.

If there are gray clouds on the horizon, they come in the shape of Amendment 24, the Colorado Responsible Growth Act, which would limit local decisions on growth issues and require an annual vote to amend any growth planning.

“It could create chaos in real estate and real estate development,” Driscoll said. “Like it or not, real estate and construction provide a tremendous number of jobs and are multipliers throughout our economy. We all want to manage growth, but this solution is absolutely the worst and creates all kinds of problems.”

Bryant, also president of the Independent Bankers of Colorado, agreed.

“As far as I’m concerned, eventually it will have a long-term effect on every job in Colorado. What’s driving the economy now is e-commerce and infrastructure and construction. If the growth initiative passes, it will devastate our construction industry. It won’t immediately, but it will long-term.

He added, “This is an amendment to the constitution. This is a forever thing, not a short-term fix.”

Elise Jones, executive director of the Colorado Environmental Coalition and one of the two initial proponents of the Responsible Growth Initiative, said the amendment “will be very helpful to the long-term prosperity of Colorado. It will protect the quality of life that attracts quality residents.”

The state’s clean air, views, recreation, livable communities and traffic that is “not of control” are among amenities that draw residents, she said. But if growth continues unchecked, she said, it will result in another Los Angeles and leave people looking for “the next great place.”

Citing “further proof of the connection between managing growth and economic prosperity,” Jones said that among states with the best economies, Oregon ranks first. Oregon, she added, has “the strictest management of growth, but their economy is booming.”

But Bryant said if Amendment 24 passes, Colorado residents – those in the construction industry first – will start losing their jobs. They’ll stop spending money and stop taking out loans or fail to pay off the loans they do have. Add to this the dreary agriculture economy and, if the initiative passes, “you will have everyone in the dumps at the same time. “It’s scary,” Bryant said.

If Amendment 24 doesn’t pass, Bryant said the general economy will be OK.

“The ag economy will struggle and will continue to struggle. But the state isn’t dependent on ag like it used to be.”

Bryant said he expects most farmers to do OK in 2000, but thanks only to a second annual farm payment from the U.S. government. “Most farmers will break even or have a slight profit, but the only reason is this extra payment.”

He does not expect farm loan delinquencies to be a major factor this year.