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All eight banks headquartered in the region have achieved “satisfactory” ratings when audited for compliance with the CRA since 2010. Banks typically are subject to these audits every five years, unless an audit finds that a bank is performing below expectations. If a bank gets a “needs to improve” rating, audit frequency can be increased to every two years, or as often as every six months if a major problem is detected.
Out of nearly 7,000 community banks nationwide, 21 were rated outstanding, 18 were rated “needs to improve” and two were judged to be in substantial noncompliance. The majority were judged satisfactory.
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A financial institution’s performance is evaluated in the context of information about the institution such as financial condition and business strategies, its community as viewed through demographic and economic data, and its competitors, said LaJuan Williams-Young, spokeswoman for the Federal Deposit Insurance Corp.
A sample of the bank’s lending portfolio is analyzed by federal regulators to determine whether the bank is adequately lending to the populations outlined in the law.
Small banks are given one of four ratings: Outstanding, satisfactory, needs to improve or substantial noncompliance, with satisfactory or outstanding ratings placing the bank in the compliance category. Large banks are rated on a slightly different scale, with the “satisfactory” rating split into “high satisfactory” and “low satisfactory.” In the region, only Fort Collins-based Bank of Colorado falls into this category. Thresholds for acceptable lending practices under the CRA vary with each bank.
For most community banks, such as those headquartered in Northern Colorado and the Boulder Valley, maintaining CRA compliance is easy enough, said Fred Bauer, president of Ault-based Farmers Bank, because the majority of the loans made by these banks are within their home communities and are to small businesses with smaller incomes.
But the cost of staying in compliance with the law still is high, Bauer said, estimating that his bank spends about $150,000 annually to keep up with necessary paperwork to be ready for an audit. Farmers Bank’s last CRA audit occurred in February 2011.
The effectiveness of the Community Reinvestment Act has been debated by financial professionals, especially in recent years as more regulations have burdened banks trying to remain in compliance with a wave of new federal laws.
A paper published in 2012 by the National Bureau of Economic Research maintained that the CRA led to a deterioration of lending quality, causing banks to make riskier loans, but supporters of the CRA argue that legislation passed in 1977 could not have had an effect on the mortgage meltdown 30 years later.
While the legislation had good intentions, Bauer said, the cost of maintaining compliance is problematic.
“If you raise the cost of doing business, the customer ultimately pays the price,” he said.
CRA audits for banks in the region show that locally based banks have loaned millions to small businesses and low-income populations in recent years. Here, BizWest provides a summary of Community Reinvestment Act lending made by the eight banks headquartered in Larimer, Weld, Boulder and Broomfield counties.
Loveland-based Advantage Bank received its last CRA audit in January, according to the bank’s performance evaluation, provided by the FDIC.
During the period audited, 65 percent of Advantage’s small-business loans were made to companies with less than $1 million in annual revenue, but the bank originated no loans to low- or moderate-income borrowers, according to FDIC documents. Since the audit, the bank’s shares have been foreclosed upon by an investor, who will likely sell the bank. If no buyer is found, the federal government could take control of the bank.
“It should be noted again the bank is considered a commercial lender and most of the residential loans were accommodations for its commercial customers with high net worth,” the performance evaluation states.
Bank of Colorado
Fort Collins-based Bank of Colorado is evaluated in a slightly different way than are the smaller banks in the region, and also has a larger assessment area than some other banks, with its reach extending beyond Northern Colorado and the Boulder Valley to parts of Colorado in every direction. The bank rated satisfactory during its last CRA audit, conducted in September 2012.
Bank of Colorado’s audit data is broken down by metro area, giving a more specific look at lending practices by the bank in different parts of the state. In Fort Collins-Loveland, 12.9 percent of home loans originated by the bank in 2010 were made to low-income families, and 51.6 percent of small-business loans were made to companies with $1 million or less in annual revenue.
In Weld County, 53.8 percent of the bank’s small-business loans in 2010 went to businesses with annual revenues of $1 million or less and small farms with less than $1 million in revenues made up 74.1 percent of the bank’s small farm loans. Bank of Colorado originated very few low-income home mortgages in Weld County during the audit period, according to the FDIC, but the bank’s investment in small farms provided balance.
Cache Bank & Trust
Cache Bank’s assessment area encompasses Weld, Larimer and Denver counties. The Greeley-based bank was last audited for CRA compliance in February 2012 and received a satisfactory rating.
The bank extended 100 percent of its small-business loans during the audit period to businesses with $1 million or less in annual revenue, according to its performance evaluation. Data show that Cache Bank focused a majority of its small-business loans to very small companies.
“Examiners noted the bank focused its efforts on the smallest businesses with gross annual revenues of less than $250,000, which represented 64 percent,” the report said.
In addition, the bank made 75 percent of its 2011 home loans to low- to middle-income families, according to the report.
Ault-based Farmers Bank received a satisfactory rating on its last audit, conducted in February 2011. Farmers serves the Weld County area and deals mostly with farm loans, as its name suggests.
Sixty-one percent of Farmers home loans during the survey period were made to low- to middle-income families, including 19.3 percent to low-income families.
Like Cache Bank, 100 percent of small business loans made by Farmers were made to companies with $1 million or less in annual revenue. The bank also made 100 percent of its farm loans to farms with $1 million or less in annual revenue.
Primarily an agricultural lender, Greeley-based First FarmBank serves Weld, Logan and Morgan counties and received a satisfactory rating on its last CRA audit, which occurred in July 2012.
The bank made 68 percent of its small-business loans to low-income businesses, according to the FDIC, and mortgages made up a small enough percentage of the bank’s audit that data about residential loans was not included in the performance report.
Instead, data about farm lending is detailed in the report. Ninety-two percent of farm lending at the bank went to farms making $1 million or less per year, including 26 percent to farms making less than $100,000 per year.
Boulder-based Flatirons Bank maintained a rating of satisfactory when it was examined for compliance in May, although the bank rated poorly in an evaluation of the geographic distribution of its loans and did not make a number of mortgages to low-income families deemed appropriate by regulators.
The bank made just 5 percent of its home loans to low- to middle-income borrowers in 2012, according to the performance evaluation. The report notes that the low-income areas identified by the FDIC mainly were made up of the University of Colorado-Boulder campus, drastically limiting the lending opportunities there.
In addition, 44 percent of small-business loans made by Flatirons were to businesses with $1 million or less in annual revenue, according to the FDIC.
Home State Bank
Loveland-based Home State bank’s last CRA audit occurred before the opening of its branches in Lafayette and Louisville, limiting the geographic scope of its September 2011 assessment to Larimer County.
The bank performed satisfactorily, according to the FDIC, with 49.1 percent of small-business loans going to companies with $1 million or less in annual revenue. Of that, 21.9 percent went to businesses with $100,000 or less in annual revenue, according to the performance evaluation.
Home State had a “strong record” of lending to low- and moderate-income borrowers in the audit period, with 39 percent of loans being made to these populations in 2009. There was a decrease to 31.9 percent in 2010, according to the report, but regulators still considered that number satisfactory.
Verus Bank of Commerce
Fort Collins-based Verus’ last CRA audit was conducted in August 2010 when the bank was still called Fort Collins Commerce Bank, before its merger with Loveland Bank of Commerce and Larimer Bank of Commerce at the beginning of 2011. The bank was given a satisfactory rating for its provision of capital to low-income populations in its assessment area of Larimer County.
About 68 percent of small business loans originated by what is now called Verus Bank of Commerce went to companies with $1 million or less in annual revenue.
Similar to First FarmBank, when the audit was conducted, Verus’ residential lending did not make up a very large part of its portfolio, so the sample taken for the audit did not include conclusive data on residential lending at the bank.
Molly Armbrister can be reached at 970-232-3129, 303-630-1969 or firstname.lastname@example.org. Follow her on Twitter at @marmbristerBW.