Oil boom helps propel banking business

The oil boom isn’t a boon to oil companies alone.

Bankers, too, have enjoyed a boost in lending activity, thanks to the growth in the oil business in Northern Colorado.

Take, for example, a recent $11 million loan to Loveland-based McWhinney for a building in Johnstown leased by Houston-based Fiberspar.

The 165,000-square-foot building was completed in December and houses sales and distribution employees of the company, which produces fiber-reinforced piping for the oil and gas industry.

Fiberspar has a long-term lease for the property.

The new facility was made possible by a loan from Denver-based Guaranty Bank & Trust, which operates throughout Northern Colorado.

Guaranty, like most other banks doing business in the region, says it has seen an increase in loan levels in recent quarters because of the overall improvement in the economy.

In fact, five of the eight banks based in Northern Colorado have seen an increase in their assets since Houston-based EOG Resources discovered the oil well “Jake” in 2009.

The oil and gas boom, particularly in Weld County, has helped bolster loan levels at Guaranty in two lending areas most closely tied to drilling: commercial and real estate loans.

Chris Erickson, executive vice president of commercial real estate lending at the bank, said that any time an industry takes off like oil and gas has in Northern Colorado, it follows that more financing will be needed for housing and retail building acquisitions and construction.

Banks also have seen plenty of demand for money to help offset an industrial real estate space crunch in Weld County that has worsened as companies move into the market or expand.

Despite the boom, banks have been hesitant making construction loans for oil and gas uses.

In part, that’s because no one is certain when the oil will dry up. Beyond that, the economic climate nationwide has made it difficult for many banks to make loans, especially for construction or speculative projects.

For Guaranty, there were two reasons for making the loan for the building, according to Erickson.

The first was the involvement of McWhinney, which has remained one of the area’s more successful real estate developers through the recession; the second was the financial strength of Fiberspar.

Indeed, Fiberspar is a well-established company with operations on five continents. The company was a good loan candidate because the bank felt confident about Fiberspar’s business plan, Erickson said.

The building sits within the Iron Horse development, a 165-acre mixed-use business park near the Great Western and Union Pacific railways as well as Interstate 25 and Highway 34.

Mark Driscoll, president of First National Bank in Northern Colorado, which operates 15 branches in the region, believes construction financing will pick up even more in coming months.

Projects most likely to get loans are those tied directly to a specific need, rather than speculative projects proposed by developers without a tenant in mind, Driscoll said.

“More financing should become available as oil and gas companies continue to make commitments to the area. They’ll need more space and will hopefully have sufficient cash flow and income streams to be approved for loans,” he said.

At First National, commercial and industrial lending is up about $10 million from the previous year, Driscoll said. Driscoll estimated that a “fair amount” of the increase was related to loans made for drilling and equipment purchase.

The increasing strength of the oil and gas industry also adds diversity to the Northern Colorado economy, Driscoll said, which may help the area weather economic downturn better.

Along the same lines, banks that make mostly agricultural loans are seeing their customers benefit from drilling, according to Tony Miller, senior vice president of lending at Greeley’s First Farm Bank.

Many of the farmers and ranchers who do business at First Farm Bank own land with mineral rights attached to it, and have been seeing returns from the drilling that has taken place there.

This helps First Farm Bank’s customers improve their overall financial positions, which may help them prepare for less-than-ideal times in the agriculture industry.

Farmers and ranchers have enjoyed relatively successful seasons for some time, but like every other industry, agriculture will have to come back down to earth at some point, Miller said.

The drought and this year’s dry winter may bring that about sooner than many would like. Royalties from oil and gas drilling could help many of Weld County’s farmers and ranchers weather a downturn, Miller said, and keep the bank healthier as a result.

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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, marmbrister@ncbr.com or twitter.com/MArmbristerNCBR

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