Northern Colorado bankers ride winds of change

LOVELAND – Northern Colorado bankers chafed under what they describe as intense regulations that grew out of the bank failures of the great recession, and they expect change under the current presidential administration. But they don’t expect things to go back to the way they were.

Several Northern Colorado bank executives met at the BizWest CEO Banking Roundtable Tuesday morning at HUB International in Loveland. The roundtable was sponsored by HUB, Elevations Credit Union and EKS&H accounting firm.

Mark Driscoll, market president of First National Bank and current chairman of the Colorado Bankers Association, said bankers across the country are working to change some of the Dodd-Frank Wall Street Reform and Consumer Protection Act provisions. So far, efforts have been unsuccessful. “We may need to break it up and see what is possible. As it stands, the big banks have adjusted, paid the fines and made the upgrades. Where it is brutal is with community banks,” he said. It may be possible to change some of the limits so that regulations apply most significantly with large banks and less so with community banks, he said. “The vast majority of banks in this country are under a billion (dollars in capital), he said.

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Indeed, the regulations have been extremely difficult for banks such as Verus Bank and the Bank of Estes Park. They’ve increased costs, decreased margins and reduced services available to customers.

Mark Kross, chief financial officer of Verus, said regulators have a hard time distinguishing between large and small institutions. “They like consistency, so the regulations on big banks trickle down to the small banks. The challenge for us is keeping the regulators happy,” he said, which means that the bank has to endure more audits and additional stress testing.

Tim Hull, president of the Bank of Estes Park, said the regulations required his small bank to add two people in order to comply. The cost of those individuals comes directly off the bank’s bottom line.

Jay Champion, chief operations officer for Elevations Credit Union, said the regulations and costs flow to the consumer eventually. “They have fewer choices and higher costs,” he said.

As costs to do business rise, more and more smaller banks are swallowed up by larger institutions. Said Hull, “The number of community banks declines by 3 or 4 a year in Colorado.” Families determine that they no longer want to put up with the regulations.

The same is true of the larger banks. As average earnings decline, investors begin to look elsewhere. That means banks can do less to help meet community problems, such as lending for affordable housing.

Driscoll said two factors drive mergers and acquisitions in the banking industry. “Succession plans, and flat out fatigue,” he said. Keith Michalkewicz, business banking manager for Wells Fargo, said mergers help to spread the costs of regulations over a larger enterprise.

The bankers also talked about other major changes to the industry since the great recession. Banks are no longer lending to housing developers. Instead, developers are financing their projects through equity and through real estate investment trusts (REITs). This change has resulted from banks bumping up against their loan limits for commercial real estate projects. Using alternative forms of financing also helps to take pressure off developers. “If the interest clock is running, it creates pressure to build more houses faster, which can result in overbuilding. Equity financing is a longer-term view,” said Driscoll.

Luis Ramirez, market president of BBVA Compass Bank, said he’s seeing far less speculation in homebuilding. Builders are selling almost as soon as they have secured a building permit, he said, thanks to the low unemployment rate and low interest rates.

Ramirez also shed light on another change in the industry, namely the number and size of bank branches. While at one time it seemed like banks were building on every street corner, today it is different. Banks are positioned more strategically and for different reasons.

“Banks have a different reason for being,” he said. Far fewer traditional teller transactions happen in banks because of online banking applications widely used by consumers and businesses.

“Eventually, customers want to talk to a person,” he said. The basic transactions may go away, but when it comes to lending, customers desire in person contact. He suggested that bank branches can be smaller as a result.

Champion, whose credit union is currently building multiple branches, said, “People still want advice. They don’t buy a house every day or do a commercial transaction every day. This is consistent across age demographics. Branches are now about consultation, with less floor space committed to teller lines.”

The bankers also discussed changes wrought by increased cyber security threats. Champion and others at the table were among the 143 million Americans affected last week by the security breach at Equifax. And most frequently, like the Equifax breach, banks aren’t the targets of hackers.

Said Kross, “This is really about finding good third party security providers. We’ve struggled more with customers getting personal computers hacked and then money disappearing from their accounts. They expect the bank to make good on that when the bank didn’t have anything to do with it.”

In response, banks are working to help customers understand best practices – such as two-point authentication and limits on transaction size on any given day. And when they can, banks are checking non-routine transactions. “There’s no substitute for picking up the phone to ask the customer whether that wire transaction amount is correct,” said Michalkewicz.

Russ Henninger, from insurance company HUB International, said in the end consumers and businesses need to focus not just on prevention, because breaches are happening all the time. They also need to consider recovery and restoration.  

Attendees: Jay Champion, COO, Elevations Credit Union; Mark Driscoll, market president, First National Bank; Tim Hull, president, Bank of Estes Park; Keith Michalkewicz, business banking manager, Wells Fargo; Mark Kross, CFO, Verus Bank of Commerce; Luis Ramirez, market president, BBVA Compass; Jim Sampson, HUB International; Gina Cathcart, EKS&H; Mike Grell, EKS&H; Russ Henninger, HUB International; Bryan Watkins, Elevations Credit Union.