More bank capacity, less loan volume

With a refrain about the bubble bursting in the real estate market playing in the background, bankers in Northern Colorado are sounding less optimistic about the state of their loan pipelines than earlier in 2006.

“Our pipeline is, I would say, as low as it’s been in several years,´ said Byron Bateman, president, chairman and CEO of Cache Bank and Trust.

A real estate market headed toward the over-built mark and a wait-and-see attitude among commercial borrowers are factors at play in reducing the flow of loans-to-be.

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Further, Bateman noted, the high number of banking institutions in Northern Colorado is also affecting the pipeline.

“We’ve just got too many banks,” Bateman said. “We have saturated the market. Everybody poured capital in to obtain short-term gains on all this construction and the real estate boom, if you will. I think that’s gone a little flatline.”

Scrutinizing banks’ loan pipelines is a little bit like looking through a crystal ball backwards, bankers note. The pipeline, in general, consists of loans in the approval process.

At Cache Bank and Trust, for instance, the pipeline in early 2006 looked strong, due to loan applications from late the previous year.

“The first quarter and first half were pretty positive,” Bateman remarked. “However, that was mainly due to the pipeline through the third and fourth quarter as it was building in 2005.”

Applications down, banks up

Bateman and other Northern Colorado bankers say their approach to loan approvals hasn’t changed, but the number of applications and lending opportunities have declined at the same time bank numbers have grown.

“We’ve always had pretty conservative underwriting guidelines,” Bateman said. “We’re just not seeing nearly the opportunities.”

With growing numbers of financial institutions vying for loans, the “good ones” are spread further.

“I think we’re still getting our share, but our growth has been a lot less than it has been. The pipeline for construction loans has been very good for several years, Bateman said. “And I think if there’s anywhere that the pipeline is noticeably down it’s in the number of projects that are coming to the pipeline.”

David Eikner’s look into the loan pipeline at First National Bank in Fort Collins yields a somewhat different perspective. “Our loan pipeline is very good. It’s very strong. It really has continued to be throughout the year. We’re very pleased with what we have in our pipeline right now,´ said Eikner, senior vice president and chief lending officer.

Eikner said the consumer portion of the pipeline has been somewhat weaker but has shown improvement over the past couple of months. “I think the consumer loan pipeline is not where anyone would want it to be as an industry right now.”

The competitive nature of banking in Northern Colorado and the slowing rate of appreciation in housing values have served to stem the flow of consumer loan requests.

“As we have been reading, that appreciation is not happening at the same rate it had been so it reduces the opportunity for people to either get or increase their home equity loans. That means now you have to go out and take the business from somebody else, as opposed to increasing the business you have,” Eikner observed.

Commercial, agriculture still strong

Meanwhile, however, Eikner said the commercial and commercial real estate aspects of the pipeline remain strong.

“Commercial real estate has stayed very strong in Northern Colorado. A lot of things are happening in different segments,” Eikner said. “There is a lot of activity in the whole area around I-25 and the Loveland exchange. We just opened a new branch near that location. We’re very positive on that area and all of Northern Colorado.”

Eikner, too, said his bank has not changed the way it makes lending decisions. “We have not made any kind of conscious decision to tighten up on credit. Our credit policies are status quo.”

At Norlarco Credit Union, Forest Hayes, vice president of lending and acting chief financial officer said the total number of loan applications processed is down roughly 20 percent over this time last year. “And certainly the number that have been closed is down more significantly than that.”

Those numbers cause concern, Hayes said, in the light of the continuing growth in bank numbers. “The reality is that for any financial institution to survive they’re going to have to use the secondary market to generate loans.”

With the credit union’s share of Larimer County loans declining, Hayes said the institution will look elsewhere across the country to purchase auto, first and second mortgages.

Even as Norlarco broadens its focus in the secondary market, Hayes said it will focus more closely on its presence in Northern Colorado. “We’re definitely going to be putting more of a focus into the communities where we have a presence in 2007.”

Hayes said Norlarco will seek to build volume by making certain its offices are in the right locations and that products are designed and priced properly.

At New Frontier Bank in Greeley, Joe Tennessen, senior vice president, culture enhancement, expressed cautious optimism about the bank’s loan pipeline. A strong presence in the region’s ag industry is helping, he said.

“Agriculture looks very good,” Tennessen said. “We have built a good reputation in the dairy industry and we’re doing a lot of good work with the dairies.” The bank’s pipeline, in general, is up, Tennessen said.

“We’re very optimistic, maybe cautiously optimistic. Like everyone else we’re aware that some of the signals are a little bit negative.”