Montana's banks are struggling with weak loan demand and delinquent construction loans. Yet this summer they're getting a much-needed buffer from tourists, whose dollars are flowing into communities near the state's two bustling national parks.
The boost is a reminder that a region's core industry can often make or break a community's banks, whether it's oil along the Gulf Coast, technology in Silicon Valley or health care in North Carolina's Research Triangle.
The health of local industry "has a lot of weight on the success of the community bank," said Paul Merski, the chief economist for the Independent Community Bankers of America.
In Montana, tourism is among the top three industries, along with health care and agriculture.
Especially because revenue from tourism plunged 31% in 2008 and 2009 in the state, bankers say this summer's surge is welcome news to small businesses — and that their good fortune is spreading to other parts of the economy, often through the banking system.
"You start seeing the ripple effect, where once we're employing these people then it trickles down to businesses that you wouldn't directly associate with tourism, like banks, insurance companies, utilities, legal and professional services," said Sarah Lawlor, a spokeswoman for the Montana Office of Tourism.
"What's good for the state of Montana economically is good for us, and tourism is a major part of our economy," said Lyle Knight, the chief executive of First Interstate Bank in Billings. "So it's pretty encouraging that our tourism numbers should be up this year compared to last year."
Yellowstone National Park — the state's No. 1 draw — had its busiest June on record this year, with 694,841 visitors. In July, it had its best month ever, with 957,000 visitors, a 6.4% bump from 2009 and an 18.5% jump from July 2008.
The park straddles the state's southwest border with Wyoming, and three of its five entrances are in Montana.
More than two-thirds of park visitors this year — 1.3 million people — have entered the park through those three gates.
Further, Glacier National Park in the state's northwest corner is having one of its strongest summers in years as it celebrates its 100th anniversary.
At its peak in 2007, the state's tourism industry generated about $3.2 billion in annual spending. Yet revenue fell markedly in 2009, to $2.3 billion, as the recession curtailed domestic travel.
Lawlor said 79 cents of every tourist dollar is spent in local communities, primarily at gasoline stations, restaurants and bars, stores, and in lodging. Tourism supports more than 25,000 Montana jobs, about 7% of the work force, and generates about $660 million in personal income for residents.
While the state's banking community may not realize the full effect of improved tourism until later in the year — when balance sheets reflect third-quarter activity and businesses seek loans for off-season improvements — some bankers say they already are taking note of an uptick.
"It's hard to track the dollar all the way to the end of the road," Knight said. "What we do know is as our clients are healthier, they are certainly spending more, and hiring at least seasonal workers."
Knight said loan demand hasn't changed much, yet deposits are improving each month as businesses seek to have more cash on hand.
And he is hopeful that some business owners will start thinking about off-season investments as the summer comes to a close.
Bryan Klein, the president of the $391.5 million-asset American Bank in Bozeman, said five of the bank's six branches are located near entrances to Yellowstone, and several clients that provide wholesale apparel and other products to gift shops have reported a lift in sales.
"Any impact to the bank would be indirectly through our customers," Klein said. "And we do have some customers who service directly Yellowstone National Park and Glacier National Park, so they're certainly experiencing the benefit of increased tourism traffic."
At the $571.3 million-asset First Security Bank in Bozeman, which has a branch near the park's busiest entrance at West Yellowstone, CEO Ron Farmer said businesses that sell recreation equipment — including backpacks, bicycles, camping gear and skiing equipment — are having a banner year.
Unlike the past two years, visitors appear to be spending freely on tours, attractions and souvenirs.
"For us in this area, it's a nice diversification, [because] we are suffering still as a consequence of the crash in the construction industry," Farmer said. "So we're seeing the recreation industry actually improve and provide that diversification in our local economy."
Of course, not all local industries provide the safety net that banks need.
Damon DelMonte, an analyst for KBW Inc.'s Keefe, Bruyette & Woods Inc., said some banks in New England, for instance, have had to charge off loans to businesses that rely on tourism income, as they haven't had a return to pre-recession business.
Meanwhile, the reasons that Montana draws tourists — serene, wide-open spaces and beautiful landscapes — are partly to blame for the economic troubles it has endured the past few years.
The state's top vacation destinations became havens for second homes and retirement communities.
Yet when that demand declined precipitously, many banks were stuck with troubled real estate development loans, said Brad Milsaps, an analyst with Sandler O'Neill & Partners LP.
"The tourism areas are where the banks are having the most troublesome sort of real estate issues," Milsaps said. "Any extra help to the economy would be obviously a big positive to the banks there."