CEO Roundtable: Bankers keep an eye on economic uncertainty

FORT COLLINS  — Banking executives across Northern Colorado gathered at BizWest’s CEO Roundtable on banking Tuesday morning at the offices of Flood and Peterson Insurance  to talk mergers, economic uncertainty and the future of community bank branches.

Economic uncertainty at home and abroad

The U.S. financial system has fretted for weeks about the inversion of the yield curve, or when interest rates for short-term Treasury bonds exceed long-term bonds. It has been a historical signal that a recession is coming.

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Verus Bank of Commerce president Mark Kross said several of the world’s central banks have very low or negative interest rates, which puts downward pressure on American interest rates. That, combined with tighter net interest margins, or profits made off its loan decisions, makes for a worrisome period for bankers.

“You’re having an environment where you got deteriorating net interest margins, and yet, maybe at the end of that, there’s a recession,” he said.

Nathan Ewert, Colorado market president for First National Bank, said most banks have stronger balance sheets today than they did in the run-up to the 2008 financial crisis by having more-conservative underwriting, but he believes current market conditions will require banks to be more aggressive in getting business. That includes making deals to the point where institutions might make more non-recourse loans to stay competitive.

“That’s something that remains to be seen as we track down through the rest of the year,” he said.

Global trade, domestic politics and political turmoil abroad are also weighing down confidence in the entire banking sector, especially for companies with large exposure to struggling industries. Greg Harrell, executive vice president of commercial banking at Adams Bank & Trust, said his institution has a wide portfolio of agricultural clients, and the U.S.-China trade war is hurting their bottom lines.

“Good operators are figuring out a way to make it work, and there was a little bit of reprieve in commodity prices earlier this summer,” he said. “Hopefully, farmers took advantage of that, but we’re in our fifth year of low commodity prices, so we continue to keep an eye on that.”

Mark Brase, president of Points West Community Bank, believes that uncertainty will keep businesses and bankers fairly conservative in terms of taking out or approving loans in the next few months.

“I think most people are going to take a wait-and-see approach over the next 12 to 18 months,” he said.

However, the group expressed confidence in the future of the commercial and real estate market due to the expected influx of people moving to the Front Range. Luis Ramirez, Northern Colorado market president for BBVA Compass Bank, sees the region as fairly insulated from larger economic forces, but worries a slowdown in construction could occur if there’s a downturn in local industries such as oil and gas or retail and hospitality, or if the supply of water constricts appetite for new housing.

“So there’s aspects of real estate that seem really unattractive, but you still see groundbreaking in all of our communities,” he said.

Community banks versus mergers, out-of-staters and the internet

Ewert said 70 Colorado banks have either closed or merged in the past decade, which he attributes to a highly regulated environment driving up costs and weakening smaller institutions vying for business against out-of-state and national banks trying to get a slice of the Front Range market.

The rise of online banking has dramatically increased competition for customers and their business, even for services that used to be held by local institutions such as construction financing or local commercial real estate, said Mike Martin, chief lending officer at Blue Federal Credit Union.

“When we’re working in a region, it’s fine, but when someone can just turn on their computer and find a fairly comparable product, even on some of the commercial side, it really does take away from our ability to attract somebody who might just be looking.”

Tom Behr, Northern Colorado market president for First Western Trust Bank, said those new players also drive up competition for deposits from regular customers.

“I would say one of our larger concerns is how do we do that and price those effectively so we can maintain the interest margin that we need to,” he said.

Some of the participants said the rise of a digitally native generation such as the millennials or Generation Y is going to drive demand for highly polished digital user experience, which large banks can afford to build but smaller banks less so. That led to talk about what the future of a small regional bank branch will look like.

Larry Costello, senior vice president at Community Banks of Colorado, thinks local bank branches will morph into places for customers to learn how to do their banking online and through mobile apps instead of making small, everyday transactions in person.

“I feel it moving more into a true service center, and where we can take a deposit if you need to, but I really feel it’s going to turn more into a training environment for our clients,” he said.

Kristi Benningsdorf, senior vice president and private banking manager at Great Western Bank, said the concept behind physical branches could also change to something similar to “Capital One Cafes”, or branded coffee shops with on-site bankers where customers can have casual conversations about their finances.

“I just wonder want that concept is going to look like, because we’re in a new age, and we’ve got millennials thinking in different directions,” she said.

The rise of interconnected apps and online profiles is fueling the size and number of massive data breaches, from Equifax’s major breach to Capital One’s hack of credit card applicants.

Elevations Credit Union CEO Gerry Agnes said banks with tight resources are now in a position where their customers demand more connections to other services, but they have to make sure their information is protected.

“The whole banking system is based on trust, and it gets eroded whenever there are breaches, and people feel horrible about their identity and data being misused,” he said. “And so our system is very, very fragile, and when you have non-bank entities affecting our customer base, that trust is in a very fragile position.”

Labor crunch for tellers, future leaders

The Front Range’s notoriously low unemployment rate is also constraining financial institutions. 

“Talking to a millennial or a 22-year-old and telling them we would love to have you spend your whole career with us is challenging given their perception of bankers and the banking industry,” said Nicole Staudinger, Northern Colorado president for FirstBank. She believes financial institutions have to include strong cultural benefits to attract the next generation of talent, such as giving time off for volunteer work and other personal and professional development opportunities, can help local banks hire and retain.

Cody Fullmer, market president for Bank of Colorado, said his company is rolling out “interactive teller machines” in new branches that act as normal ATMs, but connect customers to a group of tellers based in Nebraska via webcam. Those machines, which are being used by other financial institutions across the U.S., provide the usual banking services except for teller’s checks, he said, without requiring banks to hire extra employees to staff the teller lines and reducing the risk of a bank robbery.

“It’s really been beneficial for us. We don’t have to do extra hiring for lunch hours, opening or closing,” he said.

Wait-and-see for marijuana

In a tense regulatory and economic environment, many of the bankers said they would take a wait-and-see approach before looking at getting into the marijuana industry, even as the drug is winning legality in other states despite its outlawed status at the federal level.

There is support for the SAFE Act, a federal bill that would allow banks to service marijuana businesses that counts 206 co-sponsors in the House of Representatives. On Friday, American Bankers Association CEO Rob Nicols told a podcast that he expects that bill to clear the chamber by the end of October, although passage through the Senate and President Donald Trump could pose a bigger challenge.

Dave Besch, Northern Colorado bank president for Waypoint Bank, said there’s plenty of money to be made in marijuana, but his bank doesn’t have the resources to monitor for illicit money. He said there’s a credit union in Denver that built a safe harbor private bank for the marijuana industry, but that isn’t feasible for most community banks right now.

“Most of these guys that I’ve talked to, they’re running their businesses right,” he said. “…There’s a software program a lot of them use to monitor and make sure that they don’t miss a dime, because if you talk to them, they’ll all say, ‘This is too good, I can’t screw this up.’ I just think we have got to figure out a way to work with them.”

This article previously misattributed quotes between Kristi Benningsorf and Nicole Staudinger and has been corrected.