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Pikes Peak Community Banks

On a Growth Trajectory

Central Bank & Trust Colorado Market President Gary Markle expects his community bank to do close to $30 million in commercial loans this year. “Over the past three years we’ve loaned $135 million, exclusively to small business,” he says, adding that last year CB&T was also named Colorado’s top SBA (Small Business Administration) lender.

Herring Bank Colorado Market President Kristie Bender expects a good year ahead as well. 

“We just opened our first Colorado Springs branch, and estimate that our loans and deposits, including commercial activity will double in our first year,” she says, adding that Herring ownership encourages a “nimble and aggressive” approach to funding small business loans.

Based on comments like these, independent banks appear to be on a roll. What many may not realize, however, is that in a post-recession environment, they’ve had to reboot and retool to meet new standards and federal guidelines.

Fallout from The Great Recession of 2007-08 sent shock waves through the banking world, affecting large, regional and community banks. Since then, some financial services organizations have fared better than others. Megabanks, for example, underwent numerous mergers & acquisitions as stronger institutions took over weaker rivals. At the same time, six of the largest companies were slapped with more than $5 billion in fines for their role in the financial crisis.  

Ironically, new operating efficiencies and an improving economy have enabled companies like JP Morgan Chase, BOA and Citigroup to grow even larger. In fact Bankrate.com reports the top 10 U.S. banks now hold a record $10.2 trillion in assets. 

Wall Street banks’ past bad behavior, however, had an especially serious ripple effect on independent community banks, sending their numbers tumbling dramatically. According to a March 2015 report by the Federal Reserve Bank of Richmond, small banks (those with less than $50 million in assets), had seen their numbers shrink by 41 percent to roughly 6,200 – down from more than 12,000 in 2007. 

Reasons for the decrease vary. Industry analysts blame the shakeout, in part, on Frank-Dodd legislation passed by Congress in 2010 to curb blatant abuses by big banks. The law was originally designed to overhaul the nation’s financial system and to discourage excessive risk-taking. In so doing, however, it has also created mounds of new regulatory requirements. This burden, especially for community banks, drives up hiring and administrative costs, often slows the loan approval process and makes it difficult to focus on core consumer or business lending and deposits. 

A second factor in the decline: In February, Federal Reserve Bank of Richmond noted independent community banks saw their numbers fall another 14% compared to the prior year. 

“The number of newly formed banks (called de novo banks) has fallen sharply since 2010. In 2012 there were no de novos, and in 2013 there was only one: Bank of Bird-in-Hand, formed in Lancaster County, Pa., to serve the Amish community,” the report stated.

But community banks play an important role in American business. And their star is once again on the rise.

The Federal Deposit Insurance Corporation reported this spring that community banks have led the industry in first-quarter 2015 profit growth, with net income up 16.4% from a year ago. Non-community banks, on the other hand, grew by just 6.1% and for all FDIC- insured banks, the average was just 7%.

In a Harvard University report entitled “The State and Fate of Community Banks,” researchers found that community banks – those with less than $10 billion in assets – dominated agricultural lending, where they account for 77% of total assets. They also continue to account for 46% of commercial real estate loans and 51% of small business loans.

Kristie Bender says the extra paperwork and lending limitations now required by the government can be overcome using Herring Bank’s proactive approach and quick turnarounds on loan applications.

She admits her biggest challenge is currently getting the company’s name out, adding that Herring is not just a transactional bank. “We have plenty of capital to lend,” she says.

Markle, whose commercial lending network includes commercial building owners and brokers, business brokers, word-of-mouth-referrals and repeat customers, admits that Dodd-Frank requirements focus more on numbers than on the character of individuals. 

“You can’t lose sight of that. It’s a key part of our decision-making process,” he says.

The bigger immediate challenge, he notes, may be competition from the Pikes Peak region’s other 37 banks. 

“The last three years, a lot of tenants decided rates were good, the economy was better so it was time to buy the building they’d been leasing,” he adds, noting that the company’s commercial portfolio grew significantly. “In 2015, we’ve got the same potential, but a lot of that demand has been sopped up.”

Locally, CB&T has helped clients like The Garden of the Gods Club and Bristol Brewing successfully qualify for key SBA loans. He hopes to see more companies qualify this year – especially as outside investment in the community has picked up.

“We can lend up to $5 million or $6 million, given the right company, the right situation,” he adds.