Banks gaining strength post-recession

Income is up, problem loans are down, and thanks to agriculture and oil and gas, community banks in Northern Colorado are looking at even better times ahead.

Every one of the nine banks headquartered in Larimer or Weld county saw an increase in income in the fourth quarter of 2012 as compared to the same quarter in the previous year.

“Other real estate owned,” or nonperforming loans, dropped at most community banks, and two local institutions managed to keep their books free and clear of these loans altogether.

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All the institutions combined brought in just over $49 million in net income in the fourth quarter, compared with $17.8 million in 2010.

Northern Colorado banks aren’t alone in posting improved financials.

Colorado was recently ranked in the top 10 best states for banking, and it made it through all of 2012 without a single bank failure.

The entire industry reported a $9.3 billion increase in assets year-over-year in the fourth quarter to $34.7 billion, marking the 14th consecutive quarter in a row that earnings have registered a year-over-year increase, according to the Federal Deposit Insurance Corp.

Local banks are also expanding again, opening a slew of new branches.

First FarmBank, based in Greeley, has plans to open a branch in Yuma, while Loveland-based Home State Bank is working to open a branch in Lafayette.

Bank of Colorado, headquartered in Fort Collins, has also filed paperwork with the Colorado Division of Banking to open a second branch in Loveland.

Bank of Colorado is growing in other ways as well, with the pending acquisition of New West Bank, founded in Greeley by banking veteran Leroy Leavitt in 2003. Acquiring New West will mean the addition of two more branches and another $179 million in assets for Bank of Colorado.

The bank’s plan is to grow evenly, according to recently appointed Charter President Shawn Osthoff. Osthoff took over for former president Tom Goding, who retired at the beginning of the year.

Bank of Colorado has grown steadily in the last five years, even during the recession when many banks saw their assets — assetts also include securities, investment earnings, cash, loan loss allowances, etc… — drop. The bank topped $2.3 billion in assets in the fourth quarter.

The more noticeable accomplishment on the bank’s balance sheet, though, is the dramatic drop in its nonperforming loans. Between the end of 2011 and the end of 2012, Bank of Colorado dropped the balance of nonperforming loans from more than $5.1 million to about $528,000.

“Asset quality continues to be our focus,” Osthoff said.

With so many problem loans off the books, the bank can look ahead to producing more loans as it grows.

“We’re always interested in lending,” Osthoff said. “And we’re cognizant of the thresholds set by regulators and stay well within them.”

Regulations are one thing that Farmers Bank President Fred Bauer still considers a concern moving forward. Expenses related to staying in compliance with new regulations are mounting, according to Bauer.

In spite of that, his bank saw a 30 percent increase in net income in the fourth quarter when compared to the same quarter a year earlier, according to the FDIC.

Like Bank of Colorado, Farmers Bank made some strides toward clearing problem loans from its books, seeing a 23 percent decrease in other real estate owned.

As its name implies, Ault-based Farmers Bank does a lot of business in the agricultural sector, but like the rest of Weld County, the bank is getting a nice boost from the oil and gas industry as well, although not directly from the oil companies themselves.

Large companies like Noble and Anadarko don’t bank with small community banks, but the jobs and payroll they create ultimately benefits the bank, Bauer said.

The added oil and gas-related business might be just what helps buoy the bank through what could be a rough second summer of drought for the area’s farmers.

“It’s been a great couple of years for farmers, but this year remains to be seen. We need more moisture,” Bauer said.

Real estate lending is also slowly creeping back up, Bauer said, but only in certain situations.

Bankers are more able now to finance pre-sold construction, according to Bauer, but many are still leery of speculative projects.

Overall loan demand has improved in the past year, Bauer said, a welcome change from the recession years, when even the healthiest of banks had difficulty making loans because of uncertainty.