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1/11/2004

Banks still hot

By Pam Mellskog
The Daily Times-Call

LONGMONT — Banks and fish are alike. When they go belly up, the event tags the environment as unhealthy.

Such was the case for too many banks during the soft economy of the late 1980s and recession of the early 1990s, according to Barbara Walker, executive director of the Independent Community Bankers of Colorado.

“But financial reporting shows that the banking industry continues to be strong, despite the soft economy,” she said. “Even with all the areas of drought, Colorado’s banks are all in the 1-to-2 range of the 1-to-5 scale state and federal regulators use to rank health, which is very positive.”

Although analysts use sophisticated tools to measure this vitality, Boulder County residents can plainly see the industry swimming along despite the economy’s upstream feel. In the past three years, bank branch construction in Boulder County has mushroomed.

Horizon Banks’ chairman and CEO Daniel Allen opened the Longmont headquarters in 2001 with $50 million and closed 2003 with $408 million, he said. The capital high-water mark supported building four additional branches in the meantime. Another is set to open this May in Loveland, with Golden and Cherry Creek on deck as future locations.

“We hired experienced bankers and built each branch around them,” Allen said.

It also helped, he said, that Horizon is locally owned and operated with 150 shareholders who are “very active” in recruiting customers.

“Bankers are kind of bullish,” said Don Childears, president of the Colorado Bankers Association in Denver. “It’s hard to say, hard to quantify why ... We’ve all read and pondered the economic difficulty of the last several years.”

However, he speculated that the combination of the industry’s long-term perspective and lessons learned the hard way during the last recession might be to credit.

“Instead of 12 or 24 months, we look at 10 to 12 years,” Childears said. “That doesn’t mean they haven’t had challenges and hiccups in the immediate. But they’ve managed it well ... Some of us thought the industry would forget lessons from the last recession when newer managers replaced the older ones. That hasn’t been the case.”

A half-dozen area bankers agreed on identifying those lessons, which include bulking up capitol reserves, improving risk management procedures and aggressively diversifying loans and customers to avoid the calamity many rural Colorado banks suffered for putting too many eggs in one basket.

“We’re just on better footing now,” said Bill Mitchell, president and CEO of the Louisville-based Heritage Bank.

Since 1990, Heritage Bank has averaged 30 percent annual growth, he said. In 2002, that figure dropped to 15 percent and last year to just 6 percent.

“But we will continue adding bank branches where it makes sense,” he said.

This summer, for instance, Heritage will open a branch in Firestone.

Debbie Jessup, president of the Cleveland, Ohio-based Key Bank’s Colorado operations, opened six banks in 2003 and plans to open five more in 2004, including one on the northwest corner of the Diagonal Highway and Hover Street.

“Our No. 1 asset,” she said, “is human capital. Before, we were order takers. Now, to survive, you have to have an incredible sales culture that provides a diverse product line along with technology and innovation.”

Specifics like those go a long way in explaining the success story, according to Bill Reef, senior vice president of marketing for First National Bank of Colorado in Boulder. But the growth also has sprung from a more general sense of optimism.

“It’s related to the belief that Colorado still has the potential to be one of the major growth areas in the country,” he said.

Six of First National’s eight statewide locations are in Boulder County, where the bank began in 1973 as The Bank of Boulder. It added a second location in 1996, and took off from there by opening the Longmont branch in 1998, the Denver and Westminster branches in 2001 and the Broomfield branch in 2002, he said.

Commercial real estate represents the most profitable segment of First National’s business — much stronger than the commercial and industrial lending for equipment and inventory, according to Reef.

Tom Denny, branch president of Centennial Bank of the West in Longmont, said his business, too, has catered more to customers interested in buying land and putting up a building on it, he said.

“I think people know things will turn around, and they want to be in line and ready for the next spurt in the economy,” Reef said.

In the big picture, according to Denny, banks also profited from the low cost of funds and Colorado’s position in the 1990s among the top five growth areas in the country.

That partially explains Centennial’s growth between 1993 — when it launched in Eaton, Colo., with $37 million in assets — and today. Assets now top $750 million over 12 branches, four of which sprang up during the past three years, he said.

“There are now 700 community bank locations because of branching, which is clearly strengthening the industry,” Walker said.

According to Reef, that makes for a hyper-competitive environment.

“But that may be why it’s a good environment,” he said.

Pam Mellskog can be reached at 303-776-2244 Ext 224 or by e-mail at pmellskog@times-call.com.