Banker-to-banker advice as lending returns

Northern Colorado banks have picked up their lending levels a bit in recent quarters, getting back to business as the economy gains strength and more companies expand or are formed.

With the region in comeback mode, it stands to reason that some banks will get aggressive to get back in the lending game.

On a national level, there is some trepidation about what the massive banks that caused the recession will do in these recovery years. The economy isn’t as stable as anyone would like, and analysts and economists are keeping a watchful eye for the questionable lending practices that helped send the economy into a tailspin.

Commercial lending is up across the country, but there are still a relatively small number of credit-worthy borrowers out there. This has led to increased competition between banks in many areas, driving down interest rates. The decrease in rates could thin out margins even more at a time when many banks are working overtime to hold onto their capital.

Community banks in Northern Colorado, of course, are not among the ranks of giant financial institutions that mired themselves in subprime loans. But as lending levels rise, observers and industry insiders say it will be important for bankers here to remain vigilant and take steps to lend smartly.

There are a few things community banks can do to make sure they’re making the best possible loans, for their institutions, the borrower and the economy in general.

One of the most important steps they can take, according to Joe Bonner, former president of Community Banks of Colorado, is “an introspective look at what their strategies are.”

More specifically, Bonner said, banks need to consider investing in the right people to make sure they’re making the best-possible loans.

Banks, he said, need to make sure their compliance staffs are up to the challenges that come along with the new regulations stemming from the Dodd-Frank Act and other legislation.

Many new regulations have come from the law, and more will follow. Hiring staff to keep banks in compliance is creating a cost that many banks never had to deal with before, according to Bonner.

Higher costs mean lower margins, and attempting to fatten those margins might lead banks to make riskier loans, Bonner said.

Which, he said, is why banks need to make sure they have the right underwriting talent in place.

This means figuring out which areas of lending a bank wants to focus on and hiring employees who are experts in that type of business. A bank that wants to focus on agricultural lending, for example, should hire someone who knows all about crops, water law and other factors that impact agriculture.

Colorado Banking Commissioner Fred Joseph agreed that banks should be sure their lending officers really understand the business lines they lend to.

“Community banks need to explore different types of lending,” he said. “However, they need to ensure that they have the knowledge and expertise to deal with the new lending. That said, I strongly recommend that banks continue to lend in products that they know best.”

Joseph also stressed the importance of due diligence and solid underwriting.

“If the loan portfolio grows, oversight must be enhanced to ensure safety and soundness. There are still good loan applicants, but the bank needs to adhere to sound underwriting,” he said.

If area banks are able to collectively make the right loans to the right borrowers, Bonner said, they can help buoy the economy.

In order for a loan to be successful, though, bankers and borrowers need to keep the lines of communication wide open, according to Dallas Everhart, a lecturer at UNC’s Monfort College of Business and principal of consulting firm Everhart and Associates.

“Bankers have to have a conversation with borrowers that clearly articulates what might happen if things don’t work out,” Everhart said.

The lender-borrower relationship is a business partnership, Everhart said, and business owners need to have a partner they can rely on.

“If you’re running a business, you want a partner that is well-informed in the industry and who can help avoid making mistakes,” he said.

In the post-recession world, and especially in Northern Colorado, Everhart said, personal relationships and communication are coming back into focus, and that will help both lenders and borrowers make smarter choices.


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Molly Armbrister covers real estate, banking and health care for the Northern Colorado Business Report. She can be reached at 970-232-3139, or

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