Banking CEOs: Dodd-Frank regs still top issue faced by industry

FORT COLLINS — Bankers in Northern Colorado have a lot on their minds other than collecting deposits and making loans.

Issues affecting their operations run the gamut from new regulations coming online, dealing with younger regulators and examiners, and adjusting to the banking habits of the younger generation made possible by technology.

They also turn a keen eye to how future economic development and the growing population that has created traffic gridlock between many of the region’s cities will affect the economy, and ultimately, their banking operations.

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“More regulations come on board every year … and the cost to comply is pretty astounding,” Mark Brase, president of Points West Community Bank,” said Wednesday during BizWest’s CEO Roundtable on banking.

Brase pointed out that the Dodd-Frank Act, a federal law passed in 2010 that instituted a rollout over time of more-stringent regulations for the financial industry, will require in 2018 all banks to have more capital on hand. And that the amount of time and money spent on complex compliance requirements continues to be felt.

“We’ve had to beef up staff to handle compliance, and these are jobs that are not producing revenue,” Brase said, adding that audits cost his bank $100,000 per year.

Kristi Benningsdorf, president of First Western Trust in Northern Colorado, said added regulations have created a chilling effect on what banks will or won’t do for fear of running afoul of the feds.

“Our compliance department became super conservative,” she said.

Harry Devereaux, Northern Colorado market president for Guaranty Bancorp., which recently acquired his family-run Home State Bank, said adding to the stress is the inexperience of new regulators and examiners.

“I’ve seen the turnover of a generation of regulators,” he said. “We (Home State Bank) were examined a year ago, and it was challenging to navigate through those new relationships. …  They don’t have a history of cycles, and they don’t know the banks.”

Devereaux pointed out that there has been an inconsistency among regulators of the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., but recently “they’ve been making headway through communication.”

Joe Scherger, chief credit officer for Guaranty Bancorp., said he’s beginning to see consistency in young examiners, but believed they “were stretched thin. … It was rough to start with, but they’ve come up to speed fast.”

Gerard Nalezny, CEO of Verus Bank of Commerce, has a different view about regulations.

“Banks have always been regulated,” he said. “They can choose to step out of a particular environment if they want. I don’t think it’s as big a deal as it’s made out to be.”

Branch banking

“The next generation doesn’t need a branch,” Nalezny said. We merged two branches, in essence closing one, and we only lost three customers.”

Devereaux concurred.

“The younger generation would rather interact with a banker on a screen rather than face-to-face and a handshake.”

Gerry Agnes, president and CEO of Elevations Credit Union that has its roots at the University of Colorado, recently opened a branch in Fort Collins and is planning to open more there. Agnes said Elevations is building smaller branches, but considers a branch essential.

“You need them for the more complex conversations and for branding. Students use a branch when they need, so you have to have one. They want it all, branch and mobile options. They require full service.”

Luis Ramirez, market president for BBVA Compass, said addressing students is a smart play.

“Once you get them, you can keep them forever,” Ramirez said.

The size of branches being built now are smaller, to cut overhead and take advantage of technology.

Markets in the region’s major cities are considered saturated with banks with a head-shaking 25 on Harmony Road between South College Avenue and Interstate 25, given as an example Wednesday. But there is still room to expand footprints. With developable lots at a premium in major cities, developers are turning to smaller communities to build homes, and banks will follow.

David Bruni, community bank president for US Bank, has taken note of the situation, and his bank has turned to the grocery store-based model for “tiny” branches to enter smaller markets that have the potential to grow.

“We’ve opened branches in grocery stores in Firestone and Windsor. They are very cost-effective,” Bruni said.

M&A activity vs. new banks

With fewer new charters, expect more mergers and more banks looking to expand to Northern Colorado, Nalezny said. “The Northern Colorado economy is as good as it gets in the U.S. I expect more competition, not less.”

Ramirez said as people move to the region, who in the past would become new customers, probably won’t be now.

“It’s too easy to stay with your original bank online,” he said. “We won’t see a big influx of banks into the region. There may be a few small ones, but not the big ones.”

Commercial lending

When the feds clamped down on risk ratios for lending after the recession at the turn of the decade, there was a lack of enthusiasm to borrow because of uncertainty, Devereaux said.

Scherger added, “Looking back, businesses worked out a lot of inefficiencies. But the SBA was a shining star with the programs they rolled out. They’ve been a key player for emerging businesses.”

Betsy Markey, regional administrator for the Small Business Administration, said,
“We do well, but better during a recession.”

Markey said a trend throughout her region is that distilleries and micro brewers are taking advantage of SBA loan programs. She also noted that more venture capital is coming to businesses in Northern Colorado.

Devereaux said the lending climate is good and helping spur expansions in the area.

“The rate environment will stay low for a long, long time,” he said.

Economic development

Bringing primary employers to the region is important, and banks should support initiatives of groups such as the Northern Colorado Economic Alliance, Scherger said.

“Site selectors look at a region and what’s feeding the labor pool,” he said. “NCEA is on the right track.”

Brase said gridlock on major through fares such as I-25 from Denver Fort Collins, and U.S. Highway 34 between Loveland and Greeley, needs to be fixed. “Even the back roads used as alternate routes are now packed full.”

Benningsdorf fears as the gridlocks continues and worsens, “customers won’t want to travel here and fight traffic of I-25 and 34.”

To fund a fix, Devereaux said, “We need to toll these roads.”

Participants in Wednesday’s CEO roundtable included: Gerry Agnes, president/CEO, Elevations Credit Union; Kristi Benningsdorf, president, First Western Trust, Northern Colorado; Mark Brase, president, Points West Community Bank; David Bruni, community bank president, US Bank; Harry Devereaux, market president, Guaranty Bancorp.; Betsy Markey, regional administrator, U.S. Small Business Administration; Gerard Nalezny, CEO, Verus Bank of Commerce; Luis Ramirez, market president, BBVA Compass; Joe Scherger, chief credit officer, Guaranty Bancorp. Moderator: Christopher Wood, publisher/editor, BizWest Media.