Jim Campbell works on the dreams of every grown-up kid who never lost the love of radio- controlled cars. At Tekin, a few blocks from downtown McCall, Campbell builds motors and speed controls for models that will zip down a course at 40 miles an hour.
But Campbell, who bought the business in 2004, might never have gone this far down the track without the help of Idaho First Bank, a tiny community bank that opened eight years ago.
"Idaho First had the faith to take us on" after another bank dumped the business, Campbell says.
He says Idaho First reiterated that faith recently by lending him $200,000 so he could expand his building to meet increased worldwide demand for Tekin products.
With assets of $83 million, Idaho First traveled a chancy path of its own during a recession that leveled the real estate market - where Idaho First had made loans - and that cut deeply into the resort community's tourist trade, hurting small businesses that had loans and lines of credit with the bank.
Community banks across Idaho sank into red ink as the recession ravaged their bottom lines. Five of them, including Idaho First, ended up under orders from bank regulators to rebuild their capital and strengthen their finances.
Between 2009 and 2011, Idaho's community banks lost a combined $152 million. Loan demand - the lifeblood of small banks, which often don't have other income-producing services such as credit cards - plummeted between 2009 and 2011.
As the economy strengthened, community banks saw their first, tepid increase in loan growth in 2012. They turned a collective profit for the first time since 2008.
"We are seeing those kinds of trends, but not in every single bank," says Gavin Gee, director of the Idaho Department of Finance, which regulates 14 of Idaho's 16 community banks.
Community banks have assets of $10 billion or less and are usually local or sometimes regional.
The banks say they remain crimped by low interest rates that are meant to entice borrowers, but that discourage depositors. They face fierce competition from medium-sized and big banks that can undercut them on loan prices.
In McCall, for example, Idaho First's competitors include the big U.S. Bank and Sterling Bank, a much larger community bank based in Spokane.
And the small banks complain of a blizzard of new regulations that arose from the financial crisis four years ago, forcing them to hire compliance personnel to make sure the paperwork is getting done right.
IDAHO FIRST'S TRIP TO THE EDGE - AND BACK
In 2012, Idaho First Bank showed its first annual profit since it opened in 2005.
Greg Lovell, its president and CEO, is a former banker with Bank of America. He became a convert to small-town banking after helping create First Bank of Idaho in Ketchum in 1997. Lovell saw a niche for home-town banks in resort communities, where there is strong support for local business and people have high net worths.
Within three years of opening, First Bank of Idaho had nearly 40 percent of the Sun Valley market. Lovell left in 2002. In 2009, regulators seized First Bank because of problem loans and worries about an imminent run on the bank by nervous depositors. U.S. Bank took over the branches. First Bank was the only Idaho bank to fail after the financial crisis.
Lovell's new bank in McCall followed the traditional community bank model for lending. It sold mortgages to individuals for primary or secondary homes. It stayed away from financing speculative homes. It invested in small businesses such as stores and restaurants. But when the recession took hold, tapped-out Boiseans quit coming to McCall to spend their money, and businesses struggled to pay their loans.
"It was like a brick wall," Lovell says.
Idaho First Bank, which is 65 percent owned by its board and senior managers, found itself with $8 million in problem loans, four times the size of its storehouse of capital.
In February 2010, federal regulators told Lovell the bank needed to raise $5 million in capital. He tried, but couldn't raise enough money fast enough to satisfy regulators' concerns. In August 2010, they issued another order: Raise more capital or put the bank up for sale.
That December, Idaho First raised $2.7 million by selling stock to directors, shareholders and bank officers. Regulators canceled the August order, though the earlier one remained. This month, the bank raised $1.2 million, largely from directors, bringing the bank's capital level to 7.6 percent - enough to be considered well-capitalized under normal circumstances, but short of the regulators' 10 percent goal.
Meanwhile, the bank cut costs by renegotiating rent for its Boise office, which offers mortgages and other services, and by negotiating lower prices with an outside company it pays to process transactions. It reduced its payroll through attrition from 24 employees to 19. (The bank now has 30 employees, because it has expanded a Boise mortgage office.) It also whittled away at its problem loans, now equal to about 60 percent of its capital.
Lending is up, and Idaho First Bank has reported six profitable quarters in a row, with a record $262,000 profit in 2012.
BETTER NUMBERS, TOUGHER COMPETITION
In the recession's aftermath, interest rates are at historic lows as the Federal Reserve keeps trying to prop up lending.
But for community banks like Idaho First, profits haven't come easily. The bank makes most of its money on the spread between what its pays depositors and what it gets from borrowers. At Idaho First, depositors average a 1 percent return. Lovell says average loans are 5.5 percent, just over 2 percentage points above prime rate, which banks typically charge their best customers.
Bigger banks are offering loans below prime, Lovell says. He's seen loans at 2.8 percent.
"If we compete on price, we are going to lose," he says.
So the bank competes on service.
TOO MUCH MONEY, TOO FEW BORROWERS
At D.L. Evans Bank, a 109-year-old bank based in Burley with seven branches in the Treasure Valley, loans peaked at $648 million in prerecession 2008. By 2011, loans had fallen by 13 percent to $563 million. In 2012, they rebounded slightly to $575 million.
D.L. Evans has money to lend, but borrowers are wary. That has set off a chase for customers by bankers big and small.
"The competition for loans is the most intense I have ever seen in my career," CEO John Evans says. "You get a loan, you lose a loan."
Gee, of the Department of Finance, says he's heard reports of larger banks cherry-picking community bank customers. Not long ago, Idaho First lost an $800,000 loan to a bank offering a lower interest rate. The money Idaho First offered to lend now resides at the Fed, earning a quarter of a percent until Lovell can lend it out again.
Idaho's 51 credit unions pose a stiff competitive challenge to Idaho's community banks, too. They are nonprofit entities that don't have to pay taxes, Evans says. He says they have an unfair advantage that allows them to lend at lower interest rates. Banks pay up to 40 cents on the dollar in state and federal taxes, Evans says.
But Idaho credit unions say their assets grew by 8.2 percent to $2.4 billion in 2011, according to the state's latest annual report on financial institutions. Idaho bank assets, which are mostly assets held by the community banks, grew by nearly 19 percent to $7 billion.
"Those figures would indicate that credit unions are not outcompeting banks," says Will Hall, compliance and governmental affairs specialist for the Idaho Credit Union League.
CARVING A NICHE TO MAKE A BUCK
Community banks insist that with service and nimbleness, they can outmaneuver the big guys to such an extent that a point or two in savings on the cost of a loan won't be the deciding factor on where customers borrow money. Idaho First has delved into private banking, aiming everything from business loans to financing airplanes at professionals such as attorneys and doctors.
Community banks aren't the only banks pushing local service, either. Zions Bank, a regional bank in Utah and Idaho, is running ads in Idaho showing a small-business owner talking about how the bank's business credit card helps him maintain cash flow. He's dressed in a gray T-shirt - he's a real Utah businessman - and the embroidery machines he runs are sewing the words "Zions Bank."
Zions' ads aren't aimed at taking business from community banks, says Toni Nielsen, Zions regional president for Western Idaho.
She says Zions wants to project "that community bank feel" while providing services not typically found in community banks, such as export banking or help with public financing in local communities.
That community feel is a powerful draw. Campbell, owner of the radio-controlled car-parts business in McCall, knows he can walk into Idaho First Bank and chat with the loan officer or Lovell himself.
Campbell says he did business with another bank before switching to Idaho First. "They pulled the rug out from under everybody," he says. "They yanked a lot of people's line of credit."
A BETTER VISION AHEAD
Community banks may be buffeted by competition, but one thing separates them from a few years ago: Nearly all of them are making money, even those whose problem loans got them into trouble.
While D.L. Evans forecasts its return on assets this year will slip to 0.7 percent from 1 percent last year, the bank is again considering expansion plans it shelved during the recession.
Bank officials won't talk about expansion in the Treasure Valley, but CEO John Evans says it owns property in Caldwell.
Bill Roberts: 377-6408, Twitter: @IDS_BillRoberts