Banks’ improvement sign of continuing economic strength

Larimer and Weld county banks saw large jumps in both lending and income in the second quarter, even in such segments as commercial loans, which had been stagnant for years as a result of the recession.

Loveland-based Home State Bank saw a 66 percent increase in commercial lending year-over-year in the second quarter, rising from about $39 million to more than $65 million.

Commercial lending includes large and small business loans as well as construction financing.

Small-business lending has long been the focus at Home State, according to its chief financial officer, Mark Bower, but improvements in the economy have meant that more small businesses are seeking financing, both to get started and to expand.

Established businesses that have seen profit for a few years are a prime target for banks, according to Curt Bear, senior vice president at Capital West National Bank, who teaches business financing at the Larimer County Small Business Development Center.

Making loans still is very competitive, he said, and while conditions have improved, it’s still difficult for young businesses to get loans. But as more businesses start to turn bigger profits and as problem assets left over from the recession are cleared off balance sheets, Bear said, banks will be able to free up more money for lending.

While all economic improvement is welcome, gains made in construction are especially telling, Bower said.

“You can’t underestimate how improvement in construction ripples through our economy,” he said. Construction activity has picked up across Northern Colorado, with new commercial projects breaking ground, supported by newly constructed single-family homes, which are being purchased at a near breakneck pace.

With home buying comes home financing, which also adds to lending levels at area banks.

Even though interest rates rose by more than a percentage point over the summer, bank lending levels up to June 30 weren’t yet affected.

It can take 60 to 90 days for such changes to be felt by community banks, Bower said, and the second-quarter numbers don’t take into account July or August. Residential borrowers have been somewhat stymied by the increase in interest rates, which have increased from 3.31 percent for a 30-year fixed-rate mortgage at the beginning of 2013 to 4.46 percent on June 27, according to Freddie Mac.

But for now, banks are enjoying higher income as a result of the increased lending. Of the seven banks based in Northern Colorado, five saw higher income in the second quarter of 2013 than in the same period in 2012, by at least 10 percent. Home State Bank’s year-over-year income increased by 45 percent, the largest jump in the region, with income at Farmers Bank jumping by 43 percent in the same period.

While most of the income at Home State comes from interest on loans, Farmers Bank has seen improvements because of expense management and removal of non-performing assets from its books, according to Fred Bauer, president of Farmers Bank.

Northern Colorado banks aren’t alone in this trend, according to data from the Federal Deposit Insurance Corp. For all federally insured institutions in Colorado, income in the second quarter increased from $202 million to $228 million when compared with 2012, even as the number of institutions in the state decreased from 106 to 101 in the same period.

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