Building local assets

Stories like Ken Ela’s help explain why North Idaho’s community banks are growing. The Hayden businessman dates his allegiance to local banking to a particularly trying phone conversation with a loan officer based in Tempe, Ariz.

Ela is the builder and developer of Warren K. Industrial Park, whose no-frills metal buildings are popular with small manufacturers. But he couldn’t sell the concept to the Arizona-based loan officer of a national bank.

“There’s nothing worse than a banker without imagination and authority,” says the gruff-spoken developer. “She knew nothing about the area. … She couldn’t visualize what the hell I was doing.”

Instead, Ela got his loan from Mountain West Bank in Coeur d’Alene, which he now recommends to other small companies.

North Idaho has been fertile ground for community banks. Over the past decade, they’ve steadily picked up market share from larger financial institutions. Sandpoint’s Panhandle State Bank ranked second for market share in Kootenai and Bonner counties last year, behind Wells Fargo Bank, according to 2006 data from the Federal Deposit Insurance Corp. Mountain West Bank ranked third.

The rankings are based on bank deposits in the two counties. Other community banks, including Washington-chartered banks, have also gained ground in the region. A decade ago, North Idaho’s banking scene was dominated by large, national banks.

Across the state line, community banks have also picked up market share in Spokane County, according to federal data. But the growth trend is less pronounced there, because Spokane has a longer established tradition of community banking.

In North Idaho, CEOs credit several factors for community banks’ growth, including the region’s rapid population growth and strong job creation.

“I never dreamed the markets we operate in would be some of the fastest growing in the United States, in terms of percentage growth,” said Curt Hecker, president and CEO of Intermountain Community Bancorp, Panhandle State Bank’s holding company.

Small business owners, such as Ela, also played a key role. The banks have actively courted firms that were underserved by larger institutions.

Mountain West, which now operates 23 offices in three states, is one of the Northwest’s largest generators of loans backed by the Small Business Administration. The bank’s typical loan customer is a company with annual revenues in the $10 million-or-less range.

Intermountain Community Bancorp also focuses on small- and mid-size companies. Eighty percent of the bank’s loans are commercial.

Bank mergers in the 1990s created opportunities for savvy community banks in the area of small business lending, said Jim Bradshaw, D.A. Davidson’s senior vice president of research.

As banks got bigger, loan departments were centralized. Small companies found themselves dealing with loan officers in Portland, San Francisco or Minneapolis, instead of an officer at their local branch, who knew their company intimately, and had the authority to approve loans.

Small firms tend to be extremely loyal to their loan officers, Bradshaw said. They’ll follow their loan officer to a different bank, similar to the way that devoted customers follow a favorite hairstylist or nail technician to a new salon, he said.

Community banks capitalized on that loyalty, recruiting experienced loan officers.

“You can really make a difference in a community bank,” said Jon Hippler, Mountain West’s CEO. In small banks, loan officers often end up in the role of mentor and financial advisor to their small business clients, he said.

At Idaho Independent Bank, founded in Coeur d’Alene in 1993, dark-wood décor and flowered carpets in the branches evoke an earlier era of banking, where the bank manager “was kind of bigger than life,” said Jack Gustavel, the bank’s chairman and CEO.

One of Idaho Independent’s goals was to keep that kind of authority at the branch level. “People were used to that front-line service,” Gustavel said. “The person you talked to could make a decision.”

Continuity of key employees is also important to customers, bank officials said. Ela, the Hayden developer, likes the fact that the same Mountain West employee has handled his loan applications for nearly a decade. And he praises a three-day turnaround on loan applications.

“There’s no fooling around,” he said. “They’ll have a decision for you.”

As much as he likes Mountain West, Ela also patronizes another community bank — Washington Trust Bank of Spokane. “You shouldn’t put all your eggs in one basket,” he said.

As community banks grow, retaining the dynamics of a small bank is one of their challenges. They’re also facing more competition in small business lending from larger banks. Wells Fargo, for instance, has increased the number of small business loan specialists in its North Idaho branches over the past two years, said Amy McDevitt, the bank’s spokeswoman in Boise. Wells Fargo also prides itself on loan decisions made in the region, as opposed to a distant city, she said.

“Small business is a big part of business in Idaho,” McDevitt said.

Banking will continue to be a competitive arena in North Idaho, Mountain West’s Hippler predicted, with customers’ loyalty determined by how responsive banks are to their needs.

In 2000, Mountain West became part of Glacier Bancorp, a Montana holding company for 11 community banks, which one competitor says is already steering Mountain West toward the bigger leagues. Mountain West’s deposits recently passed the $1 billion mark — a milestone for the bank, which opened in a trailer in 1993.

“We try to be the community bank in each community we’re in,” Hippler said. “We don’t want to lose our edge.”

Intermountain Community Bancorp will also pass the $1 billion deposit mark this year, fulfilling the expectation that Hecker had back in 1995 when he took over as CEO of Panhandle State Bank, then a one branch operation in Sandpoint.

Intermountain operates in 16 communities in Idaho, Oregon and Washington. But the bank still “brands small,” according to Hecker.

The bank operates as Panhandle State Bank, Intermountain Community Bank and Magic Valley Bank, reflecting the distinct communities it serves. Hecker said the bank’s mission hasn’t changed since it was founded in 1981. The goal is still to build long-term customers and to grow local economies by reinvesting local deposits in each region, he said.

“I’ve never had a customer tell me … that we should look like a large bank,” Hecker said.