The local banking industry has returned to financial health and is lending at the fastest rate since before the recession, according to the latest data from the Federal Deposit Insurance Corp.
The combined loan portfolios of the eight banks based in the Colorado Springs area hit $785.6 million last year - a 19.4 percent jump from 2013. That marks the biggest annual growth since 2007 and only the second year in which lending has increased since the recession.
Earnings also jumped nearly 30 percent to a seven-year high, and the percentage of loans classified as problems by federal regulators ended the year at the lowest level in at least 10 years.
It's good news not just for the banks, but for the small businesses that turn to them for loans.
"Small business is what drives the American economy, and the fact that credit is easing up and businesses are getting the money they need to expand will make it easier for them to purchase equipment and hire more people," said Tatiana Bailey, director of the Southern Colorado Economic Forum.
"There is still a dearth of credit for startups and some types of small businesses, but it is a lot better than it had been.
"Unemployment is declining, the housing market is stable and new businesses are being started."
Local banks have come a long way since the depths of the recession. In mid-2010, loans classified by regulators as problems peaked at nearly 10 percent of the banks' combined loan portfolios, and four of the institutions were under orders from regulators to clean up their problem loans.
By the end of January, all but one of the banks had been released from those orders, and the percentage of their combined loans classified as problems at end of 2014 had declined to just over 1 percent.
With an improving economy and their finances in better shape, the banks have been able to step up lending.
Peoples Bank reported the biggest surge in lending, expanding its loan portfolio by 46.6 percent to $209.5 million.
"It is a lot easier to do when you're not playing defense. You can seek new opportunities," said Brendan Zahl, the bank's president and CEO.
Peoples, the second-largest local bank, was released in 2012 from an order to clean up its loan portfolio, becoming the first local bank to be freed from such an order.
Zahl credits the industry's lending growth to the improving financial condition of borrowers; business owners' budding confidence to invest in growing their companies; and lenders making it easier to get credit.
"Banks had tightened credit standards a lot, and then looked at where the losses where coming from and now feel comfortable in making loans in areas where they didn't have losses," Zahl said.
"I would still say that these numbers reflect moderate to tempered economic growth."
Mike League, president and CEO of 5Star Bank of Colorado Springs, said customers have told him that last year was their best since 2008, which he believes reflects improvement in the local economy and has given business owners more confidence to expand.
"Most of our lending - between two-thirds and three-fourths - has been growth rather than refinancing existing loans with better terms, as was the case in the past few years. That has continued into the new year at a time that usually is very slow," League said.
Bill Vogeney, executive vice president and chief lending officer for Ent Federal Credit Union, southern Colorado's largest financial institution, said loan demand in the area is "at the highest level since the financial crisis and resulting recession."
"One of the factors that has helped that is pent-up demand from people who have been concerned about their jobs and investments," Vogeney said. "Consumers also have more capacity to take on debt, since consumer debt levels as a percentage of disposable income are the lowest level since 2000."
Fewer problem loans
Part of the reason bank profits have improved is they are spending far less dealing with problem loans than they have in the last few years, and some banks are transferring money out of reserves for potential loan losses, said Jim Swanson of Bank Strategies LLC, a Denver-based bank consulting firm.
"More bankers have been able to be more forward-looking and focus on making money instead of putting out fires, straightening out bad loans and figuring out new legislation, including Dodd-Frank," Swanson said, referring to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Since April, regulators have lifted orders on Academy Bank and Pikes Peak National Bank to clean up their problem loans, leaving Park State Bank in Woodland Park as the only remaining area bank under such an order.
Park State reduced its problem loans last year by 86 percent from the end of 2013 to $604,000, or 1.2 percent of its loan portfolio. That is the bank's lowest level of problem loans since mid-2006, which could get it released soon from the 6-year-old order.
Park State President Tony Perry said much of the improvement in the bank's loan portfolio is tied to the improving financial condition of borrowers.
The result is that regulators are no longer classifying loans as problems.
One other bank in the area - Rocky Mountain Bank & Trust, which is chartered in Florence but operates from headquarters in Colorado Springs - remains under the least restrictive order imposed by the FDIC after a more restrictive one was lifted in October.
The bank cut its problem loans last year by 72.3 percent to $615,000, or 1.7 percent of its loan portfolio. That is the lowest level since the end of 2007. The FDIC slapped a cease-and-desist order on the bank in 2009, and imposed its highest level of regulatory order a year later.
Nationwide, SNL Financial, which tracks the banking industry, reported this month that federal bank regulators handed out the fewest severe enforcement actions last year since 2007 and the number of banks under such orders declined to 454 as of early this month from 662 at the end of 2013.