Banking & Finance  July 18, 2008

Local banks readjust to slowing economy

As if the fallout from subprime lending didn’t hurt the banking industry enough in recent months, the slowing economy is also taking its toll, in the form of job loss.

Analysts with financial research firm Celent LLC said in an April 1 report that they expect the U.S. commercial banking industry to lose 200,000 of its 2 million jobs over the next 12 to 18 months, largely in the investment banking sector.

Leroy Leavitt, chairman and CEO of New West Bank in Greeley, said this cutback is a national issue that is for the most part passing Northern Colorado by.

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“Over the last 10 years, (national banks) have grown steadily, primarily because of their ability to generate more and more mortgages that were subprime,” he said. “As a result, not only were the mortgages creating jobs for banks, but the whole development industry was creating jobs for the banks.”

Now there is less business, from originating mortgages to offering construction and development loans.

“One (way) to react to these losses is to reduce one of the single largest expenses, which is salaries,” he said.

This trend is not hitting Northern Colorado with much force because the majority of banks here sell any mortgages they procure, said Cody Fullmer, branch president with the Bank of Colorado.

However, there is still a noticeable decrease in business for some banks, something Fullmer attributes to a more general slowing in the economy.

“It’s not horrible, but we’ve seen better days,” he said. “One of the things we had going on that was a false positive is that people were overextending themselves so much for the price of a home. Sooner or later you have to pay the piper, and that’s coming around. And gas prices and food costs and everything like that is starting to show its ugly head a bit.”

In the end, there is less money to go around for monthly payments, not to mention the prospect of spending extra money.

Home credit tightening

Fullmer said car loans and home equity lines are stable, but credit for home loans is another issue. While they have not yet made adjustments to his bank, he said examiners that evaluate bank performance in accordance with laws and policies – the Federal Deposit Insurance Corp., Federal Reserve Bank and Office of the Comptroller of the Currency – have been tightening credit across the board.

“If they’re harder on our credits, subsequently we’re harder on the customers coming in,” Fullmer said. “They have to have more credit and cash flow, so that slows us down a bit.”

Leavitt is not seeing the slowdown at New West Bank.

“Most of the local banks are not cutting back on staff,” he said.

In fact, he said his bank is growing, adding about 10 percent in the last year, with the potential of adding more.

Figures also show more employees at First National Bank of Colorado, which combined charters with Union Colony Bank and First National of Fort Collins in February, making it the largest bank in the region.

At the end of December, just after the merger was announced, the three banks reported to the FDIC a combined 731 full-time equivalent employees, down from the combined 785 reported at the end of March 2007. As of March 31 of this year, after the merger was complete, First National reported a total FTE of 847.

Regardless of what changes have already transpired in the banking world, Fullmer sees a story unfolding, one of readjusting following the boom times of recent years.

“I don’t think you can ever say this is good for the economy, but it needed to correct itself,” he said. “Right now (our customers are) not expanding as much. That reduces banks’ earnings.”

And, he said, this is just the start of it.

As if the fallout from subprime lending didn’t hurt the banking industry enough in recent months, the slowing economy is also taking its toll, in the form of job loss.

Analysts with financial research firm Celent LLC said in an April 1 report that they expect the U.S. commercial banking industry to lose 200,000 of its 2 million jobs over the next 12 to 18 months, largely in the investment banking sector.

Leroy Leavitt, chairman and CEO of New West Bank in Greeley, said this cutback is a national issue that is for the most part passing Northern Colorado by.

“Over the last…

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