North Idaho bankers say competition is heating up as players in an increasingly crowded banking market there look for ways to sustain growth in a cooler economy.


Following several years in a hot economy, North Idaho bankers say they expect 2008 to be a transition year for their industry, and although they still expect relatively healthy gains, a softer real estate market will mean theyll have to fight harder for market share.


North Idaho is still a great place to have a bank, says Rod Colwell, executive vice president of Coeur dAlene-based Idaho Independent Bank. Long term, its where we want to be, and its going to work out well, but its different now than it was two years ago, for sure.


Roughly a dozen banks now compete for business in North Idaho, and five institutions have joined the fray in the past few years, Colwell says.


You could argue theres a little bit of overbanking in Kootenai County and maybe Boundary County, says Jon Hippler, president and CEO of Coeur dAlene-based Mountain West Bank. Banks here see the area for its long-term growth potential, and are planting their flags accordingly.


Now, amidst stiff competition and a softer economy, bankers say theyre focusing on strategies such as customer service, rather than major expansions, to fuel growth.


Hippler says that achieving double-digit growth in earnings and assets this year, as Mountain West did last year, will be difficult, but that he expects healthy growth. The bank ended 2007 with assets topping $1 billion, and posted annual earnings of more than $14 million, he says.


2008 will be a retrenchment year for banks, and well all be paying attention to the balance sheet, Hippler says. Hitting double digits will be a challenge with the turmoil going on in real estate and the general economy, but markets here are doing relatively better than other parts of the U.S.


He says that while hes more optimistic about the banks growth prospects in 2009 than this year, 2008 could end up being a better year than most people expect. Although the region has excess housing inventory that needs to be worked off, homes sales are starting to pick up, he says. Plus, unlike other times in North Idahos history when the housing market slowed, current economic conditions include low interest rates, relatively low home prices, and available inventory, which should help the market rebound faster, Hippler says.


Also, North Idahos economy now is diversified enough to handle downturns in certain industries, unlike in the past when the economy was dependent on lumber and mining, he says.


A lot of what we do is connected to housing, so to the extent that real estate is down, it presents challenges, he says. I see us recovering faster than other parts of the country, though, and theres still good fundamental strength in our markets.


< p align=center>Stiffer competition


The effects of more robust competition among North Idaho banks can be seen in the competitive interest rates theyre charging on loans, Hippler says. To drive their growth in a cooler economy, banks are focusing on loan and core deposit growth, and on building relationships with customers, he says.


Hippler doesnt expect that banks will pursue large-scale expansions in 2008. Mountain West, which will have 25 branches by year-end, is constructing new offices for its branches in Spokane Valley and Ketchum, Idaho, and is building new branches in Sandpoint and Park City, Utah, this year. The bank is eying the Spokane market for expansion in the future, but for now is focusing on its current branches, he says. The Boise area, where the bank has 12 offices, also presents a good opportunity for growth, he says.


Idaho Independents Colwell says the stiffer competition among banks is tempering that banks growth somewhat, but the institution is projecting strong growth over the next two to five years. Idaho Independent, which has 11 branches, including two in North Idaho, is budgeting for growth this year similar to last year, but Colwell declines to disclose exact figures. Loans at the banks North Idaho branches grew 3 percent during 2007, while deposits at those branches climbed 6.5 percent, he says.


Competition is very strong; there are a lot of good competitors in the market, Colwell says, adding that he started seeing competition heighten in 2002. Were at a good balance of banking versus the economy, but the area probably would be overbranched if someone came in and opened two or three branches.


He says the slowdown in the real estate market has been a challenge particularly because people from other parts of the country who want to move to North Idaho are having difficulty selling their homes in other markets.


Max Faller, president and CEO of Coeur dAlene-based bankcda, says the region remains attractive to people from outside the area.


While we have to be careful and prudent in our operations, I expect things to stay healthy and that well continue to have good growth, Faller says. Our strategy is to pay a high level of personal attention to our customers, which we can do as a small community bank.


Bankcda, which has two branches, plans to move its headquarters later this year to a larger space to accommodate its growth, Faller says. As of Dec. 31, the bank had about $90 million in assets, $70 million in loans, and deposits of $76.5 million, he says.


Curt Hecker, CEO of Intermountain Community Bancorp, the Sandpoint-based parent of Panhandle State Bank and Intermountain Community Bank, wrote in a letter to shareholders recently that the company doesnt plans to open any new regional hub branches this year. He added, though, that it will be looking for an opportunity to develop a regional center in southern Idaho and that the Spokane market holds significant growth potential. He says Intermountain expects that its Washington operation, which includes two offices in the Spokane area, will contribute significantly to its deposit growth this year.


Last year, the companys assets rose 14 percent, cresting $1 billion as of Dec. 31. Loans also grew nearly 14 percent in 2007, while deposits climbed 9 percent.


Hecker said in his letter that in response to challenges presented by a softening economy, the bank has changed its focus to place a higher priority on its current customers, rather than on attracting new ones. He also says Intermountain plans to capitalize on the diminished competition in the mortgage market.


Dave Bobbitt, chairman and CEO of Post Falls-based Community 1st Bank, which opened last June, says he also sees opportunity for growth in the midst of a softening residential real estate market. Bobbitt says the bank lucked out because it opened after signs of a slowdown had started to appear, so it didnt chase the real estate market as much as it would have if it had opened six months earlier.


The good news is that we dont have any speculative real estate loans on the books, and the bad news is that we need more loans on the books, Bobbitt says.


The bank, which hopes to be profitable by November, currently has $15 million in deposits, $7 million in loans, and $25 million in assets, which puts us in a very liquid, secure position, he asserts.


Other community banks have problem real estate loans or concentrations of real estate in their portfolio, he says. Those banks are becoming more restrictive in real estate lending, and we can fund those (loans) because we dont have the same problems.


Bobbitt says hes still optimistic about the North Idaho market, and that the bank is focusing on continued growth in the commercial real estate, small business, and consumer sectors.


Although increasing competition and the cooling residential market present big challenges to North Idaho banks right now, other obstacles include thinning margins, concerns about asset quality, and a tight labor market in the banking sector, bankers there say.


The Federal Reserve has been cutting short-term interest rates to stimulate the economy, and banks tie their prime rateswhich they charge to their best customersto those Fed rates. Lower interest rates squeeze a banks net interest margin, which is the difference between interest income and interest expense.


Margins are under a lot of pressure, and banks are having a challenge maintaining them, Mountain Wests Hippler says.


Banks also are focusing on maintaining asset quality, Hippler says. Asset quality is an estimate of the quality of a banks assets as measured by lending credit standards and the liquidity of securities held in the investment portfolio.


Idaho Independents Colwell says another challenge is finding qualified bankers in the region. Part of the problem involves the tightening labor market, he says. In addition, big banks, which used to run training programs aimed at producing well-rounded bankers, now focus on training specialized employees, he asserts. As a result, fewer experienced workers are available in the market, he says.


Contact Emily Proffitt at (509) 344-1265 or via e-mail at emilyp@spokanejournal.com.