Local economy’s improving health reflected in banking and finance

92099006It won’t be the best of times, but it definitely won’t be the worst of times.

Throughout the financial industry, 2014 is shaping up to be a modest, perhaps decent year. Nationally, the Dow Jones Industrial Average closed at record high levels 51 times during 2013, while the S&P 500 closed at all-time highs 44 times and NASDAQ hit its highest level since the beginning of September 2000.

Such trends bode well for the Colorado Springs economy, although perhaps not at record-setting levels.

“In five years, Colorado has recovered all jobs lost in the Great Recession,” said Tom Binnings, senior partner of Summit Economics, at a recent presentation. “And Colorado Springs is down 2 percent on that.”

According to Summit Economics’ Jan. 1 report, “Welcome to the New Normal: Emerging from the Storm,” the local seasonally adjusted unemployment rate hovers around 7.7 percent with “good private sector employment growth, offset by Federal cutbacks.”

Personal income and wage and salary growth are also keeping pace with local inflation.

During the annual Southern Colorado Economic Forum, Tom Zwirlein and Fred Crowley forecast a 4.3 percent total wage and salary growth in 2014 and average wage and salary growth of 2.2 percent. In addition, the SCEF expects per capita personal income growth to increase 4.5 percent this year.

If you’re into classy — rather than sassy — then you’re in luck. The region shows signs of being steady and stable, rather than impetuous or feckless.

In the short term, interest rates will remain stable, and long-term Treasury rates won’t move much in 2014, said Trent Stafford, Kirkpatrick Bank market president. Locally, loan demand will remain flat to soft, he said, with a continued push for long-term, fixed-rate loans.

Among the better trends, small business owners are de-leveraging and saving, said Aileen Berrios, senior vice president, Vectra Bank Colorado. Mortgage lending and refinancing has kept a “very healthy pace” and will continue this year, she added.

For fiscal year 2013, in El Paso County, the Small Business Administration made $60.8 million in 7(a) loans, compared to $42.6 million in FY 2012. If this trend continues, 2014 could become a great year for some local small business owners.

“We increased our SBA lending 30 percent in 2013 over the prior year, and we see that continuing in 2014,” Berrios said.

Over at Cañon National Bank, “There’s certainly been an increase in loan demand and activity [through the end of last year], and I see that continuing in 2014,” said Jesse Spaeth, senior vice president and market president.

Now that the economy is healthier, Spaeth added, “We’re seeing business owners looking to expand. They were leasing, and now they’re ready to buy property or lease new or better machines. I expect this growth to continue.”

Returning to normal

As market president, Spaeth has been focusing on certain industries in Colorado Springs, including technology and nonprofits. The latter don’t always get attention from banks, he said, but Cañon has made nonprofits a focal point. In addition, the bank anticipates a 15 percent growth in loans this year.

Economist Richard Wobbekind, executive director of the Business Research Division at University of Colorado Boulder’s Leeds School of Business, said the banking industry in Colorado is returning to normalcy, especially with no Federal Deposit Insurance Corp. closures during 2012 and 2013.

Nevertheless, low loan-interest margins will continue to limit earnings, and banks still lag behind national financial ratio trends “given [the state’s] high concentration of community banks and their exposure to commercial real estate,” according to the Leeds’ annual report.

Spaeth expects interest rates to remain low for the first half of 2014, and then possibly rise in the second half, “but I don’t see it being anything monumental,” he said.

In addition, banks will find it necessary to continue to devote resources to compliance, regulatory and information technology demands.

Not only that, but many of the state’s community banks will face the unenviable choice of years of “slow and painful growth or be acquired by a better capitalized bank (often larger) with the compliance and IT sources to address today’s burden,” according to Leeds.

Berrios would agree with that assessment.

“Even though we see a healthier economy in 2014, the result of the recession is more rules and legislations around banking and mortgage lending — and that will impact consumers and banks,” she said.

With rules being implemented this year, the Dodd-Frank Act creates tighter debt-to-income restrictions for business owners and consumers. On the other side of the Dodd-Frank coin and more strenuous stress testing, there will likely be more bank consolidations, nationwide and in Colorado, Berrios said.

Credit unions

In nearly all key areas, credit unions in Colorado showed improvement during the first half of 2013, including better capital ratios, loan growth, improved asset quality, strong earnings and solid membership growth.

With an annualized 4.2 percent increase in membership growth, according to Leeds, credit unions have seen the fastest percentage increase in nearly two decades.

Total assets of the state’s 94 credit unions increased $289 million to $17.4 billion. Given the constraints of government budget issues — which keep consumers cautious — credit union operating results will improve only modestly this year, by way of “healthy levels of lending, further improvements in asset quality, and solid earnings,” according to the report.

Currently, the capital buffer reported by credit unions in the state is “about one-half [of a] percentage point higher than the U.S. credit union average,” the report said.

Stock investing

Although he bases investment strategies on staying the course, not predictions, Rollyn Wild, president and CEO of Advisers Investment Management Inc., expects the bull market will continue in 2014.

“You can’t miss years like this,” Wild said, referring to the Dow Jones total stock market index being up approximately 26 percent for the year in December.

“If you’re an investor — not a saver or a spectator — you should have yourself mentally prepared for the volatility of the stock and bond markets,” he added. Although people are fearful of stock losses, over the past 30 years, the S&P 500 Index has experienced an average correction of almost 15 percent.

In other words, stocks may soar and plummet, but over the long haul, they increase. To reap those gains, an investor needs to stay in the game.

“Statistics show that it’s very hard to outperform an index or benchmark with active investing,” Wild said. He advises most people to create passive portfolios and rebalance them quarterly for consistent performance and to keep costs low.

Jobs outlook

In the local financial industry, Kirkpatrick’s Stafford expects positive but relatively flat employment. “I think job growth will be flat to positive,” he added.

The Leeds School of Business expects employment in the finance and insurance industry in Colorado to increase by 2,100 jobs in 2014. This includes jobs in these sectors: credit intermediation and related activities; securities, commodities and other activities; insurance carriers and related activities; and other finance and insurance activities.

In a sign of improving times, numerous banks and credit unions in the region are hiring.

“After the recession hit, there was a shrinkage of people [at financial institutions], but now there’s growth. We’re hiring at Vectra. Banks in Colorado Springs will hire in 2014,” Berrios said. “Banks want — and rightly so — qualified applicants, especially people who already live here and are familiar with the community.”

At UMB Bank, President Jason Doyle said many small businesses are growing locally, causing banks to hire. Two years ago, for instance, the bank had no small business development people, and now it has two people devoted to developing relationships, in addition to adding more private bankers and concierge-type services.

“We’ve identified Colorado Springs as a major growth region in Colorado,” Doyle said, especially for the next several years.

Cañon Bank recently hired a commercial loan officer to build a new portfolio, rather than manage an existing one. Spaeth sees this as part of a trend.

“Individual banks will target their needs with strategic hiring, “ he added.

Some sectors remain up; some face uphill battles. Overall, however, the banking and finance industry seems poised to remain steady, if flat, while adding some jobs, battling compliance issues, and slowly increasing capital reserves.