For banking CEOs, uncertainty reigns

BROOMFIELD — What effect will current economic headwinds have on banks and their depositors and borrowers? Aaron Spear, Boulder market president for Bank of Colorado, had a telling response on Tuesday at BizWest’s CEO Roundtable.

Quoting his bank’s founder, Spear said, “I don’t know what’s going to happen with interest rates, but I’m pretty sure you don’t know either.”

The same goes for President Donald Trump’s proposed tariffs. Roundtable participants from the Boulder Valley who were assembled at accountant firm Plante Moran’s offices in Broomfield had varied views, with Chad Mitchell, Boulder market president for FirstBank, summing up the market and the room: “It depends on who you ask.”

Bonifacio Sandoval, senior vice president for commercial banking at Adams Bank & Trust, acknowledged that “there is a portion of the public that believes rates are going to increase this year as a result of the tariffs.” However, he added, “I’m not quite there yet. I believe rates will hold steady.”

Tom Chesney, president of the commercial banking division at AMG National Trust Bank, and Richard Morgan, senior vice president at the local branch of Edmond, Oklahoma-based Kirkpatrick Bank, seemed more definitive. 

“Tariffs are not going to lead to inflation based on what happened with tariffs in Trump’s first term,” Chesney said, and Morgan added that “rates are going to stay where they are.”

Raju Patel, president of Bank of America Colorado, speculated that “I don’t think rates will do much, mainly because of the increasing budget deficit.”

Although noting that “nobody really feels like they have it figured out,” Susan Moratelli, vice president of MidFirst Bank, had a different view of tariffs’ impact.

“I’m thinking of one client in particular,” she said. “They have quite a bit of inventory in finished goods. They’re planning for growth, but a big concern for them is tariffs. Tariffs in the previous Trump administration did impact their business, and they had to pass those costs on to their customers. Their customers are primarily U.S.-based, but they do a lot of manufacturing overseas and with foreign-sourced components.

“So if we’re talking 20% tariffs, what they explained is, it’s not just the direct impact costwise being passed on, but they tighten up with some of the contracts they have with those factories, and if they have to cut it tighter to control expenses, it creates opportunities for other vendors overseas to swoop in and scoop up that capacity.

“In another four years, things could change again,” she said, “but they couldn’t get back to the robust growth projections that they would have without tariffs.”

Whatever happens, “consumers are adjusting to the rate environment. Consumers are wanting to wait to see,” said Desirae Hiatt, branch manager and assistant vice president at Huntington National Bank, a Columbus, Ohio-based institution that just entered the Boulder market. “We’re thinking the prime is going to go down a few more times, but as far as seeing rates as low as they were during the pandemic, I think those days are definitely behind us. We saw an all-time low then.”

Hiatt noted that her bank is seeing a lot more borrowing in the residential sector. 

“It could be many factors,” she said. “Maybe people are feeling more comfortable after the election — or maybe not as comfortable, but feeling safer in locking in a rate.

“I think they’re knowing too that eventually things will adjust and knowing that this is the world we live in,” she said. “I think they understand that it’s not going to be COVID interest rates.”

Spear said he didn’t feel the current environment is much different than the last couple of years, but admitted that “affordability because of higher interest rates is a headwind in that space. And tariffs could absolutely be a headwind” especially with the cost of lumber and steel.

“When we’re looking at construction budgets,” he said, “it would be prudent to have larger contingencies for things that are out of the builder’s control.”

However, he added, “interest rates don’t look like they’re headed down, so that’s not going to save the day for a lot of these borrowers who might not be in the best position.

“I think we need to see more data on that front,” he said. “We’ll see what the administration’s actual results are, but I think that it’s a huge risk. If tariffs come through our economy, that will absolutely be inflationary.”

Moratelli noted that many commercial and industrial borrowers are opting for longer-term loans.

“The difference is so small,” she said, “and to have that locked in for budget planning, the appetite seems to be ‘Let me lock this in so I don’t have to guess and be whiplashed if things change.’”

Noting that pandemic-era interest rates hovered around 4% and are now closer to 7%, Morgan said that much commercial real estate debt is coming due.

“It’s projected that over $600 billion in commercial mortgages are coming due in each of the next three years,” he said. “So if you’re well over a trillion dollars in debt coming due, that’s going to have to be dealt with. Not all those properties are going to be refinanceable. You just hope that you have a strong relationship and a strong borrower, strong financially, that can stand behind their properties and/or their guarantee.”

The bankers listed other challenges facing banks and their clients as well.

“There’s quite a bit of uncertainty, and I think the concern for us as bankers is the Silicon Valley Banks and some of the failures of a year ago,” Chesney said. “I’m seeing regulators come back into the banks that they regulate, going broader and deeper, looking for how well they’re managed, what kind of governance do they have, what policies and procedures do you have in place and are you following them?

“I do expect, unless the current administration pulls them back a little bit, to have a lot more scrutiny in those areas,” he said.

Chesney also noted the increasing demands to build data centers. He cited “a 600-acre vacant parcel of land that is slated to have an AI campus on it, Everything was proceeding smoothly. They had a letter of intent to acquire the property. But Xcel [Energy] is hesitant to provide the energy that’s necessary. The owner of the property doesn’t want to front a very significant front-end expense in order to bring it to their site.”

Alpine Bank regional president Chris Maughan added, “Data centers take a lot of energy and a lot of water, neither of which we have a lot of.”

Getting insurance to back a loan also has its challenges, Chesney said.

“We’re in a wildfire-prone area,” he said. “I never used to worry very much about insurance and the underwriting process. It was just always taken for granted. But now those insurance premiums are becoming significant — if the borrower can even get insurance.”

In the wake of the wind-whipped 2021 Marshall Fire, Moratelli added that “insurance companies are looking at ‘ember risk’ — a radius of distance from perceived wildfire.”

In the wake of the fire, which destroyed more than 1,000 homes in Louisville and Superior, “homebuilding is still an important piece for the Boulder Valley, replacing the product that was lost,” Spear said. “And home prices have plateaued or even dipped a bit.”

Maughan noted an encouraging trend of owner-occupant purchases of commercial property.

“Small businesses, smaller tenants are stepping up and having an opportunity to acquire their space,” he said.

“I do help business customers to be able to purchase the spaces that they’re in,” Hiatt said. “We’ve been giving a lot more businesses the opportunity to do that through the products that we have to offer, like a fixed interest rate for five years. 0% down, promotions that we have.”

An important piece for a business-oriented law firm is mergers and acquisitions, and Jim Fipp, a partner at Boulder-based Berg Hill Greenleaf Ruscitti LLP, noted that “2024 was probably our slowest year ever on the M&A front. A lot of that was related to election uncertainties. People were kind of on pause waiting to see what was going to happen there and maybe hoping rates would come off.

“Now that the election hurdle’s done, investment bankers are starting to see activity pick up, and it’s starting to trickle down to us on the legal side,” Fipp said. “I think it’ll be a healthy 2025 on the M&A side.”

The overall challenge for bankers, Maughan said, is, “How do we return to growth as an industry? That’s hard for people to track.”

Sponsor attendees at Tuesday’s CEO Roundtable included Ashley Legan and Jim Fipp of Berg Hill Greenleaf Ruscitti LLP; Plante Moran’s Jeremy Wilson; and Bank of Colorado’s Aaron Spear.

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