James Tibbetts, vice chairman and former president and CEO of $260-million asset First Colebrook Bank, based in Colebrook, New Hampshire, credits a strengthening New Hampshire economy for the growth he’s seeing at his bank. The bank has locations throughout the state, and the rural economy at the bank’s home in northern New Hampshire depends on tourism and timber harvesting, with Tibbetts seeing increased investment in property and equipment purchases among the small businesses that comprise the core of the bank’s customer base. “Our growth is coming from commercial real estate and C&I lending,” he says. “We do quite a bit of equipment lending.”
With competition for loans and deposits stiff, many community bank executives and boards are looking for the right formula for growth. Many banks are sticking to mortgages, despite rising interest rates and lower volume, instead vying for an increased share of the mortgage market. Still others are focused on the growth they are seeing in commercial real estate and commercial and industrial (C&I) lending.
Industry-wide, C&I loans grew 8.1 percent in the third quarter compared to the same period a year ago, according to the Federal Deposit Insurance Corp. Meanwhile, residential loans secured by real estate fell by .8 percent. Home equity lines of credit fell 8.8 percent.
In November, Bank Director informally polled over 30 bank directors and executives by email to get their views on lending and saw similar trends. In what areas are institutions seeing loan growth? Most of those polled, 73 percent, reported growth in commercial real estate in 2013 and 65 percent reported growth in commercial and industrial lending.
In contrast, the mortgage market remains stagnant, with many reporting a flat market for home mortgage purchase loans in 2013 and almost half seeing a decline in home mortgage refinancing. Looking ahead to 2014, how will the new ability-to-repay rule and creation of “qualified mortgages” impact the mortgage business? Most bankers polled that already offer mortgages indicate that they will continue to be part of their banks’ business in the near future, though some may no longer consider it to be a core part of the business.
Kevin Lemke, a director at Grand Forks, North Dakota-based Alerus Financial Corp., a financial holding company with $1.3 billion in assets, says that while mortgages have slowed a bit, it’s still a strong business for his company, which as of the third quarter of 2013 reported an increase of 4 percent in mortgage originations and loan servicing from the previous year. “I don’t know if we’ll have a record year in originations this year,” says Lemke, “but it will be close.”
Alerus’s broad geographic reach, in Arizona, Minnesota and the bank’s home base in North Dakota help the bank take advantage of strong demand in some areas even as the mortgage business wanes in others. The Minneapolis/St. Paul area of Minnesota is strong for mortgages, and Alerus plans to expand in Arizona.
Lemke feels that his bank is prepared for the qualified mortgage rule, and doesn’t expect an adverse impact on business at his bank. He’s more concerned about rising interest rates. “I think interest rates will have an impact, and already are. I think we will see a decrease in our volume,” he says. “There’s no doubt about it.”
Competition with other banks for loan business continues to be a key concern. To address this, many are hiring new loan staff, offering more attractive loan terms or looking to technology to make the loan process more efficient for clients.
Tibbetts says his bank doesn’t see a lot of competition in northern New Hampshire, but the southern part of the state is a tough market. Pricing is competitive. “It’s all about developing relationships, and that’s how we’re able to grow the amount we have grown,” he says. “We’ve developed those relationships and we price competitively.”
First Colebrook, like many banks, is emerging from a challenging four years. A lot of the bank’s business development and commercial lending staff was stuck tackling problem loans, Tibbetts says, but now the bank can devote more personnel to growing business. “We’re now able to focus on the future and the strengthening economy,” he says.
