OVER A CENTURY: BUILDING BETTER BANKS — Helping Coloradans Realize Dreams May/June DATA IS THE NEW OIL HOW BANKS CAN USE DATA TO MAKE BETTER LENDING DECISIONS
contents ©2024 The Colorado Bankers Association is proud to present Colorado Banker as a benefit of membership in the association. No member dues were used in the publishing of this news magazine. All publishing costs were borne by advertising sales. Purchase of any products or services from paid advertisements within this magazine are the sole responsibility of the consumer. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of Colorado Banker or its publisher, The newsLINK Group, LLC. Any legal advice should be regarded as general information. It is strongly recommended that one contact an attorney for counsel regarding specific circumstances. Likewise, the appearance of advertisers does not constitute an endorsement of the products or services featured by The newsLINK Group, LLC. Jenifer Waller President & CEO Alison Morgan Director of State Government Relations Brandon Knudtson CFO & Director of Membership Lindsay Muniz Director of Education Patricia Wells Director of Communications Megan Carruth Executive Assistant Margie Mellenbruch Bookkeeper* Melanie Layton Lobbyist* Garin Vorthmann Lobbyist* Andrew Wood Lobbyist* Caroline Woodhouse Lobbyist* *Outsourced 140 East 19th Avenue, Suite 400 Denver, Colorado 80203 Office: (303) 825-1575 Websites: coloradobankers.org smallbizlending.org financialinfo.org colorado-banker.thenewslinkgroup.org BUILDING BETTER BANKS — Helping Coloradans Realize Dreams 10 14 4 CHAIRMAN’S MESSAGE The Value of CBA Shawn Osthoff, President, Bank of Colorado 5 Center for Bank Advocacy August 2024-May 2025 6 Choosing a Deposit Network and Maximizing Its Value for Your Bank By Steve Kinner, Senior Managing Director, IntraFi® 7 From Transactions to Transformations AI’s Role in Shaping Next-Gen Banks By Dan Bruder, CEO of Blendification, Instructor of Strategy and Entrepreneurship at CU, Boulder 10 Data Is the New Oil How Banks Can Use Data to Make Better Lending Decisions By Charles Groome, VP of Growth, Biz2X 12 CBA Centerpoint Going Beyond the Desk To Hear the Stories of Colorado Bankers 14 CECL: It Doesn’t End with Adoption By Elliott Holmes, Assurance Senior Manager, Plante Moran 16 The Great Liability Rollover Price Taker or Price Setter? By Brian Leibfried, Managing Director of Insights, Performance Trust Capital Partners 18 Data Privacy – Getting Started By Dr. Kevin Streff, American Security & Privacy 20 WASHINGTON UPDATE Courts Pump the Brakes on CRA Overhaul By Rob Nichols, President and CEO, American Bankers Association 21 Beyond Fear Embracing the Duality of AI in Banking By Anne Benigsen, President, CivITas Bank Solutions 22 ATM Terminal Security Fraud and Attack Detection By Levi Daily, CTO, Cook Solutions Group 2023-2024 Issue 6 3 Colorado Banker
The Value of CBA Shawn Osthoff, President, Bank of Colorado CHAIRMAN’S MESSAGE IIt has been my honor to serve as Board Chairman of the Colorado Bankers Association for the past year. While the end of my term draws to a close, CBA’s commitment to fighting for the banking industry and the people of Colorado never ends. At press time, we just concluded the state legislative session. CBA Government Relations Director Alison Morgan and the lobbying team worked tirelessly during this session, monitoring numerous potentially damaging bills, meeting with legislators and testifying on behalf of Colorado’s banking industry. One particularly important fight at the state capitol was related to DORA’s Sunset Report for the Division of Banking and the Banking Board. This report included a recommendation authorizing a credit union to purchase the assets and liabilities of a bank. This recommendation was initially based upon the false assumption that credit unions pay state income tax and there would not be a loss of revenue to the state. Fact: Banks are the economic drivers in Colorado for commercial loans and agriculture loans. Commercial lending is not a credit union’s book of business and credit unions are not meeting their caps for commercial loans in the present market. It was CBA’s stance that this is a legislative policy debate and should be addressed separately so we can fully debate the merits of the issue and add necessary guardrails to hold credit unions accountable to regulators and customers impacted by these decisions. Alison and CBA President/CEO Jenifer Waller recruited and prepped a number of bankers to testify multiple times against the passage of this bill. In early May, the State Senate voted 33-1 to pass the amended version of HB24-1351 Concerning the Sunset for the Division of Banking without the controversial Section 9 which would have allowed a credit union to purchase the assets and liabilities of a bank. In the final hours of the final day of the session, the House concurred with a 53-9 vote, and the amended bill was passed. It was impressive to witness the CBA-lead team of advocates go all-in on this fight against allowing credit unions to buy banks. Advocacy is critical for the good of our industry and seeing new and seasoned advocates in the thick of it was a testament to the good work being done on behalf of banks and their customers all across Colorado. In the fall, and again this spring, I joined Jenifer and other bankers in Washington, D.C., to meet with members of Congress to express our concerns about the glut of regulatory issues facing the banking industry and to explain how those regulations can negatively impact consumers. Actively participating as an advocate for our industry is crucial given some of the challenges and over-regulation we currently face like higher capital requirements, the Credit Card Competition Act and CFPB’s aggressive attack on NSF and overdraft fees. If implemented, these regulations may reduce access to affordable basic banking services for low- and moderate-income individuals and families. Another example of the good work being done by the CBA team involves a Colorado bill to ban “junk fees.” The measure targeted mandatory fees placed on customer bills by companies, such as increasingly common hotel resort fees, surcharges on ticket purchases for events and fees added to personal banking transactions. CBA initially sought amendments in that bill to exempt financial institutions. CBA ultimately opposed the legislation when it reached the Senate due to several unfavorable amendments. The CBA team worked with a coalition to kill the bill in the Senate with only three weeks left in the 2024 session. Another win for our industry. Through these examples, it’s easy to see the value that the Colorado Bankers Association brings to its membership. An association thrives and excels when its membership grows. I am proud of our membership growth and the effort to engage all banks across the state. With new members, we ensure the financial stability of the association, and we benefit from fresh ideas, new energy and an untapped yield of future leaders. Our members help raise our voice in the community. With CBA on our side, I am optimistic about our industry and its future. I have the greatest respect for Jenifer and her team. The CBA team is devoted to providing exceptional work on your behalf. I would also like to take a moment to thank my fellow officers: Kevin Erickson, Brett Wyss and Mark Hall. It has been a pleasure to work so closely with these gentlemen over the last several months. I have enjoyed the opportunities to meet new people and make new connections at events like the upcoming Banker Summit. To represent you and the association has been an honor I will treasure. Though my term is ending, the work will continue. The association is in capable hands. My best to you all. — S.O. Colorado Banker 4
CCBA’s Center for Bank Advocacy is a comprehensive 10-month program designed to develop the next generation of banking leaders. The program includes monthly sessions led by accomplished and notable presenters. Each session builds upon the experiences and knowledge gained in the previous session. The curriculum includes: Center for Bank Advocacy AUGUST 2024-MAY 2025 • Overview of advocacy in the banking industry. • Colorado’s election process, recent results and ramifications. • CBA’s process of determining positions and priorities. • Connecting with legislators. • Federal-level advocacy. • Congressional and regulatory agencies. • Statewide offices’ responsibilities and powers. • Legislative hearings and how to testify. • Participation in a mock hearing. • Day at the Capitol with CBA. • Meetings with public officials. • CBA’s Legislative Briefing & Luncheon with Legislators. Interested? Contact Lindsay Muniz (lindsay@coloradobankers.org) or visit the CBA website (coloradobankers.org) for more information. Josie Bunch Graduate School of Banking Sam Anderson ANB Bank Shae Clark FirstBank Colby Cochran FNBO Matt Gruesback FirstBank Greg Harrell FNBO Brita Jones Bank of Colorado Susana Salamun Alpine Bank Chris Nicholl Vectra Bank Christina Kraft Bank of Colorado Raymond Mendoza Vectra Bank Spencer Davis ANB Bank John Wharton Bank of Colorado 5 Colorado Banker
Choosing a Deposit Network and Maximizing Its Value for Your Bank By Steve Kinner, Senior Managing Director, IntraFi® I In a market where deposit competition is fierce and industry turmoil has placed an increased emphasis on safety, one of the best ways to proactively reassure your most-valued customers could be joining a reciprocal deposit network. Per IntraFi’s quarterly survey of bank executives, as of Q1 2024, 67% of institutions reported that deposit competition had worsened over the past 12 months, with most expecting this trend to continue across 2024. Given this competition, access to millions of dollars of aggregate FDIC insurance across network banks in a reciprocal deposit network can be a valuable tool for any bank. What Do Bank Customers Say About Reciprocal Deposit Networks? Reciprocal deposits (i.e., deposits a bank receives through a deposit network in return for placing a matching amount of deposits at other network banks in increments under the FDIC insurance limit of $250,000) can delight large depositors and bankers alike. Cindy Thomas, a depositor who handles millions of dollars flowing through a property management company in Silver Spring, Maryland, found significant value in the reciprocal deposit products offered by her bank. “[My bank] does all the work for me,” Thomas said. “I’m getting a good rate of return, and it is so easy for me. I can see all the details in one place. I would think that anyone who is doing my type of job would want to use these products.” Erik Burgdorf, the business manager at Immanuel Lutheran, a 175-year-old church and school in St. Charles, Missouri, also uses products available via a deposit network. “When we looked at this product, we said, ‘Yes, absolutely, this is something we need to jump on.’ It was a no brainer,” Burgdorf said. “With the [deposit network] product, our funds are protected, we earn a competitive rate and it does not cost us the significant time and effort required if we were to do this ourselves.” What To Look for in a Deposit Network Not every deposit network is created equal. Consider these questions before signing up: • Does the provider compete with banks for deposits? Some networks may double-dip and pursue depositors, creating a potential conflict of interest. • Does the provider offer multiple deposit product options for placement of funds? The more options, the more flexibility your bank can offer. • Does the provider ever have possession of customer funds? Preferred networks will use highly reputable, established banks for settlement, keeping your depositor’s funds at arm’s length. • Is the bank allowed to set the interest rate? A network that lets your bank set the interest rate enables you to control your profit margin and create customized offerings to retain valued depositors. • Does the provider have relationships with many banks? Larger networks typically mean higher deposit balances can be placed, providing more flexibility for your bank. With the right reciprocal deposit network, your bank can build stronger customer relationships, fund more loans and seamlessly manage its liquidity. IntraFi® is a trusted partner chosen by more than 3,000 financial institutions nationwide. IntraFi’s network — the largest of its kind — brings scale, giving each participant access to tens of billions of dollars in funding, and the highest per-depositor and per-bank capacity. Visit IntraFi.com for more information. Colorado Banker 6
I From Transactions to Transformations AI’S ROLE IN SHAPING NEXT-GEN BANKS By Dan Bruder, CEO of Blendification, Instructor of Strategy and Entrepreneurship at CU, Boulder In an era where artificial intelligence (AI) is redefining industries, its impact on banking through strategic planning and execution stands out. By leveraging conversational AI, banks can engage in more participatory and efficient strategy development, involving employees at all levels in shaping the bank’s future. This technology streamlines efficiencies and fosters a deeply engaged workforce committed to the bank’s mission and community impact. As AI transforms the landscape of banking, it promises a more agile, responsive and hands-on approach to strategic planning and execution, further positioning banks as key drivers of economic vitality and innovation in their communities. Background The banking industry has traditionally relied on a blend of personal service and technological advancements to serve customers. However, the onset of the COVID-19 pandemic highlighted critical vulnerabilities, particularly in terms of maintaining productivity and connectivity in a predominantly remote working environment. This period of disruption brought to light the essential role of software in ensuring continuity and efficiency in banking operations. Generative AI, with its advanced natural language processing capabilities, emerges as an important tool, overcoming the limitations of traditional productivity-focused software. This new wave of AI technology enhances connectivity, facilitates dynamic interactions and offers a more intuitive user experience, significantly impacting the role of software in banks. Common Applications of AI in Banking • Enhanced Customer Relationship Management (CRM): Major banks have begun implementing AI-driven CRM systems that go beyond basic data analysis. For instance, one large financial institution’s use of machine learning algorithms to analyze customer data enables personalized banking experiences, leading to increased customer retention and satisfaction rates. Such AI-enhanced CRMs allow for a deeper understanding of customer needs, predicting behaviors and offering tailored financial advice and products. • Operational Efficiency Through Automation: Another large bank has leveraged AI to streamline operational processes, significantly reducing manual labor and errors. Their AI-powered virtual assistant has handled millions of customer inquiries, showcasing the efficiency and scalability that AI can bring to customer service operations. • Risk Management and Fraud Detection: A third bank’s adoption of AI for risk management illustrates how AI can augment traditional banking systems. By analyzing patterns and trends in vast datasets, AI algorithms can identify potential fraud and security threats more accurately and swiftly than ever, safeguarding customer assets and bank reputation. Uncommon Use of AI in Banking — Strategic Planning and Implementation In the rapidly evolving banking sector, the use of conversational AI is redefining the paradigms of strategic planning and execution. This innovative application of AI technology catalyzes a more inclusive, efficient and dynamic strategy development process within banks. Conversational AI’s role as a professional strategy consultant is impactful. It democratizes the strategic planning 7 Colorado Banker
process by conducting comprehensive interviews across the entire organization, from frontline employees to board members. This approach ensures that every voice is heard and every perspective is considered, providing a holistic view of the bank’s current state and future aspirations. The AI’s ability to process and analyze large volumes of data from various sources, including direct employee input through conversational interviews, internal reports and external documents, is unparalleled. The efficiency of conversational AI in synthesizing this data into a coherent strategic plan framework is groundbreaking. Traditionally, such a comprehensive analysis could take up to a year and cost over a million dollars when outsourced to consulting firms or managed by reallocating internal resources. This process is condensed to a few weeks with AI, drastically reducing time and financial investments. This efficiency does not only save resources but also supports the practice of agile strategic planning and execution. The agile approach facilitated by AI shifts the paradigm from annual strategic planning to a more fluid, continuous process. This process involves the entire organization in both the planning and execution phases, fostering a sense of ownership and commitment to the outcomes among employees. When individuals contribute to building the strategy, they invest personally in its success, applying discretionary effort to achieve the bank’s goals. Moreover, this process addresses a fundamental human need for connection and belonging. Employees gain greater workplace fulfillment, satisfaction and engagement when actively shaping the bank’s direction. The collaborative nature of AI-powered strategic planning leads to heightened employee engagement and a strong sense of community within the organization. Visualize AI-based strategic planning as a two-sided funnel. At the top is a wide entry point where extensive employee input is gathered and valued. This input flows down to the funnel’s narrow middle, where the leadership team, representing a smaller group, makes informed decisions to finalize and activate the strategic plan. At the bottom of the funnel is the strategy execution phase, engaging a larger portion of the organization through AI-supported internal peer groups. This structure ensures a cohesive and comprehensive strategy that reflects collective insight and is agile in its implementation. AI, in this capacity, not only revolutionizes efficiency and engagement within strategic planning but also enhances strategy execution, making it more agile and adaptive to changing circumstances. By integrating AI into strategic planning and execution, banks can achieve a more engaged workforce, a clearer strategic direction and a more competitive stance in the banking industry. Impact on Employee Engagement Adding to the transformative role of conversational AI in strategic planning and execution, it’s crucial to underscore the significant benefits of improved employee engagement that this technology facilitates. The importance of engagement in the workplace cannot be overstated, especially in light of recent findings by Gallup’s “State of the Global Workplace” report. According to Gallup, the global employee engagement rate stood at a concerning low, with only 20% of employees feeling engaged in their work. This alarming statistic highlights the widespread issue of disconnection in the workplace and underscores the urgency for innovative solutions to bolster engagement. The integration of AI into the strategic planning process offers a direct path to addressing this challenge. By involving employees in meaningful conversations about the bank’s future and actively incorporating their insights into the strategic plan, AI fosters a sense of ownership and purpose among staff. This approach ensures that employees are not merely executing predetermined tasks but are actively contributing to the bank’s vision and objectives. As individuals work together towards a common goal, they establish deeper and more meaningful relationships with their colleagues, creating a more cohesive and motivated workforce. The benefits of such improved engagement are profound. Engaged employees exhibit higher levels of productivity, By leveraging conversational AI, banks can engage in more participatory and efficient strategy development, involving employees at all levels in shaping the bank’s future. Colorado Banker 8
creativity and loyalty, directly contributing to the bank’s operational excellence. Furthermore, the sense of fulfillment and belonging that comes from being part of a collaborative and purpose-driven team leads to greater job satisfaction and emotional well-being among employees. This, in turn, reduces turnover rates and fosters a positive organizational culture that attracts top talent. The use of AI not only revolutionizes the efficiency and impact of strategy planning and execution within banks but also plays a crucial role in enhancing employee engagement. Through fostering a collaborative work environment, AI helps build a more engaged, loyal and fulfilled workforce, driving the bank towards greater success and resilience. Why It Matters to Banks Building on the transformative potential of conversational AI in strategic planning, execution and enhancing employee engagement, it is essential to contextualize its specific application and profound significance within the banking sector. Banks play a pivotal role in the economic vitality of communities, acting as the backbone of local, regional and national economies. The fundamental activities of banks, such as accepting deposits and extending loans, catalyze economic growth and development through the money multiplier effect. This economic principle illustrates how banks amplify the initial deposits they receive by loaning out money, which, in turn, is deposited and loaned out repeatedly, significantly increasing the overall money supply in the economy. The Federal Reserve Bank of St. Louis provides insight into this process, explaining how it supports businesses in securing capital for expansion, assists individuals in purchasing homes and enables consumers to make investments that drive economic activity. This cycle of depositing and lending supports the immediate financial needs of community members and fosters broader economic prosperity and growth. Given the substantial impact of banks on community welfare and development, it is crucial for bank employees to fully comprehend their institution’s purpose and the farreaching effects of its operations. Involving employees in the strategic planning and implementation processes through conversational AI enhances their understanding and appreciation of the bank’s role in the community and deepens their commitment to the bank’s mission. This approach ensures that employees are not merely bystanders in the bank’s operations but active participants in fulfilling its communityoriented objectives. The engagement and involvement facilitated by AI empower bank employees to witness firsthand the tangible outcomes of their contributions. As employees gain greater insight into how their work supports local businesses, fosters economic development and assists community members in achieving financial stability and prosperity, they develop a stronger connection to the bank’s mission. This connection fosters a sense of gratification and loyalty among employees, further enhancing their motivation and engagement. The integration of conversational AI in banks serves not only to streamline strategic planning and execution and to boost employee engagement but also to reinforce the understanding of the bank’s critical role in community economic vitality. By democratizing the strategic planning process, banks can ensure that their employees are fully aligned with and passionate about their mission to support and enrich their communities. Given the banking sector’s unparalleled influence on the economic health and prosperity of the communities they serve, this alignment is essential. Therefore, leveraging conversational AI to involve employees in the bank’s strategic processes is a platform for internal improvement and a commitment to enhancing the bank’s positive impact on the broader community. Blendification shapes the workplace by connecting Company Focus and Employee Focus with AI-powered software. This integration of professional expertise with advanced AI software fosters a unique synergy, shaping the workplace into a dynamic environment where employees actively contribute to their company’s direction. Visit blendification.com to learn more. WE MAKE IT EASY LET OUR TEAM HELP YOU SECURE THE DEAL AND LOWER YOUR RISK • UP TO 90% OVERALL FINANCING • UP TO 25 YEAR TERM • FIXED-RATE PREFERREDLENDINGPARTNERS.COM | 303.861.4100 Leveraged financing and refinancing of owner occupied real estate and long-term equipment. Most for-profit small businesses eligible. SBA defines businesses with net profit after tax <$5.0 Million and tangible net worth <$15.0 Million as small. 9 Colorado Banker
H Data Is the New Oil HOW BANKS CAN USE DATA TO MAKE BETTER LENDING DECISIONS By Charles Groome, VP of Growth, Biz2X Here’s how lenders can tap into the wealth of data now available through the cloud and open integrations to deliver the customer experience their clients deserve on every loan application. Data and Credit: How To Grow Lending in 2024 Lending has long been the foundation of the banking industry. However, the way that loan applications are evaluated and underwritten by traditional lenders has failed to strengthen this foundation. Traditionally, banks have relied heavily on historical data and manual underwriting processes to assess creditworthiness and credit risk rating. But such methods often fall short in providing timely and accurate insights into a borrower’s financial health. And in a fast-moving economy, this approach to underwriting often carries hidden risks. This is especially true when the client is a small business where reliable information is hard to come by and business conditions are changing almost every week. In an era where information moves at the speed of light, banks must commit to using the best information available to make loan decisions. It may now be the best way for them to grow. The Challenge of Stale Data in Traditional Lending In the traditional lending system, banks frequently grapple with the challenge of building a credit history for a business borrower. Often the best traditional underwriting strategies depend on information that has aged, such as old tax returns or financial statements. It’s not uncommon for banks to keep their customers waiting for weeks or months in a bid to gather and analyze this historical data thoroughly. Certainly, this can be warranted, especially for larger loans. But there’s a hidden risk that too many lenders are missing when they allow this process to become the rule for all loans: poor customer experience. The drawback becomes particularly evident when there are large shifts in the economy. Think back to the early months of the COVID-19 pandemic. How would a 2018 tax return help you figure out if a business was going to go bust or gangbusters in response to a novel pandemic in 2020? In situations like these, as well as in many day-to-day credit transactions, traditional underwriting techniques fail to take account of information that could be used to better qualify a client. Why Should Banks Be Concerned About Stale Data? If lenders want to grow in the future, they must be concerned about the limitations of traditional lending methods. Delayed decision-making hampers the ability to seize timesensitive opportunities. In dynamic markets, businesses often require quick access to capital to respond to emerging trends or challenges. Many of a lender’s best customers are those who received an extension of credit that helped them capitalize on a market opportunity. To find growth, lenders must be able to find opportunities like these and fund them. A business that may be a good credit risk based on two years of filed tax returns might not be a good risk going forward or may not be able to sustain the proposed debt service based on forward-looking trends. Lenders that fail to price risk accurately will inherently limit their own growth potential. The result can be both missed opportunities for the bank and, on the other side of the equation, a denial of financing to deserving businesses. Colorado Banker 10
The Promise of Alternative Data Sources Unlike the conventional model, where banks heavily relied on historical data and lengthy manual underwriting, the use of alternative data can reshape the way financial institutions approach lending decisions. Alternative data offers a powerful solution to the challenges of traditional lending methods. For example, U.S. lenders using a service like Biz2X can improve lending decisions and reduce portfolio risk by using near real-time data-driven insights from Mastercard’s Small Business Credit Analytics solution on consenting small businesses. The data seamlessly integrates with the existing information a bank has about a client, allowing banks to analyze trends that would not be visible with traditional financial statements. Data like this includes sales trends, giving the lender a timely picture of a business’s economic prospects. The Benefits to Clients from Data-Driven Underwriting Better credit data empowers lenders to grow sustainably by also empowering their clients. Alternative data tools are particularly beneficial for companies in traditionally underserved communities and for those lacking an established financial track record. These companies are used to a rigid banking system that often either keeps them outside of the financial lending system or delays their financing due to endless rounds of review. Alternative data sources offer the opportunity for promising small businesses to prove they are stable enough for additional capital or a new credit line. This speeds up the approval process and offers the opportunity for banks to delight clients, which will lead to these clients increasing their banking services with that same bank. Data Strategy: The New Growth Channel for Banks Adopting alternative data for credit decisions is the undervalued growth strategy for banks and lenders to pursue. The key lies in balancing traditional underwriting discipline with modern, data-driven approaches, creating a dynamic and efficient lending process that benefits both financial institutions and their clients. If lenders want to grow in this dynamic economy, better data must be part of the plan. Biz2X is the digital platform chosen for business lending at banks and financial institutions around the world. Biz2X is built on the insights and expertise that came from a decade-plus of Biz2Credit’s lending experience. That’s why the platform works so well for lenders of all sizes, whether they’re digital lending experts or just starting their online lending journey. Learn more at www.biz2x.com. “Over my 16-year tenure with Bankers’ Bank of the West, every minute of our work has been dedicated to bringing solid expertise, services, and products to ensure community banks sustain a competitive edge. We’ve certainly grown strong as partners, looking out for each other—and we look forward to continuing that tradition.” Bankers’ Bank of the West LOAN PARTICIPATIONS|MERCHANT SERVICES|ATM DEBIT|WIRES bbwest.com | 800-873-4722 www.bbwest.com President and CEO Bill Mitchell We Champion Community Banking Member FDIC 11 Colorado Banker
How did you get started in the banking industry? Banking was supposed to be a summer job for me after graduating high school. I applied at three banks that were right next to each other by my home at the time. The first bank that called hired me as a teller, and I started there in July of 1996. By 2000, I had worked my way up and was a supervisor in the loan call center. In the span of 20+ years, I was a teller, new account rep, loan call center rep, loan processor, loan processor supervisor and finally, an internal auditor. In October of 2016, I was offered an AVP, credit officer position at ANB Bank. Seven years later, I am now a senior vice president/compliance manager at ANB. What makes your bank unique? I would say that ANB’s focus on growth for their employees is one unique aspect. I worked more than 20 years at another institution, and although I am grateful for my time spent there — and it was an amazing bank that I learned a lot from — I have had more career growth at ANB in the last 7+ years than I did in my 20+ years there. A couple of ANB’s core values are to drive success; employees must be rewarded in a fair manner that promotes a consistency of purpose aligned with company objectives. We grow and retain our people by providing career growth opportunities and encouraging professional development through coaching and mentoring. ANB’s core values aren’t just a “list” of feel-good values. We live by these, and they are implemented on a daily basis. I feel I am proof of that. What is the most rewarding aspect of your job? The most rewarding aspect of my job is being able to give the same training, opportunities and career growth to my direct reports, that have been given to me. I take my leadership role seriously, and I try my best to mentor others as I have been mentored. When you were a child, what did you want to be when you grew up? I wanted to be a mom and a teacher. I am a mom of two, but I don’t think being a teacher was in the cards for me after all, and I am so happy I am in banking instead. What do you geek out about? I love to clean and organize, which is super lame, I know. I also geek out about anything having to do with history. I love to read history books, watch history shows and movies and visit historical sites as much as I can. Desiree Castillo Senior Vice President, Senior Compliance Manager ANB Bank CBA Centerpoint How did you get started in the banking industry? I found myself in banking in a roundabout way but also in a way that speaks of community banking. Prior to joining Alpine Bank, I worked at a golf course in the mountains, and one of our customers was a loan officer with Alpine Bank who helped us transition bank accounts to Alpine. Along the way, he added that if I ever considered a career change to look him up. At about the time my wife and I had our first baby, I was looking for a change. He and I connected, and he subsequently connected me with Alpine Bank’s ops supervisor for the region, and the rest is history. Certainly a non-traditional route for me. What do you like to do to give back to the community? I think the most valuable thing I can offer to the community I serve is my time. I currently serve on five boards in the Colorado Springs community, and I love each of them: Downtown Partnership, the Cultural Office of the Pikes Peak Region, Pikes Peak Hospice and Palliative Care, Police Foundation of Colorado Springs, and the Pikes Peak United Way. They each expose me to different areas of the community and stretch me in my service and perspective. What is the most important thing you’ve learned from a career in banking? As one who has a degree in psychology (rather than in finance), I ascribe to what our Bank President Glen Jammaron continually reminds us: Banking is just people dealing with people. The moment I put my focus on something other than people — whether my staff, our customers or the community — I am missing the mark. The world of banking is hard enough; focusing on people and meeting them where they are will do more to change lives than any banking product can. What is your favorite movie or book? “A Tale of Two Cities.” Just a phenomenal period piece, set during one of the most turbulent times in recent history, examining the human condition to the core. But I could just as easily have mentioned “Les Misérables” or “Anna Karenina” or “Crime and Punishment” — all favorites. Matthew Hansen Market President Alpine Bank Colorado Banker 12
How did you get started in the banking industry? I started my career in banking during the fallout of the financial crisis in late 2009. At the time, there were not many jobs available, and the banking industry was not on many people’s list of top career choices. That said, I had previously worked for FirstBank as a teller and understood the company to be quite different from other banks. I was drawn to FirstBank’s strong emphasis on community — “Banking for Good” — and its focus on employees to ensure the long-term success of the company. What is the most rewarding aspect of your job? The most rewarding aspect of my job is building relationships with clients and coworkers. I still have “thank you” notes from first-time home buyers that I had the opportunity to work with in their homebuying experience. I also value the opportunity to work with peers who strive to support each other at every level of the organization. What is the most important thing you’ve learned from a career in banking? In the early part of my career, I learned a lot about the basics of the banking industry and just how integral community banks are to local economies. I worked for a period of time on the western slope in a small community where you could see the direct impact of how financing a construction project worked its way through the various companies involved and how the impact of the project rippled through the community. Who is one of the most influential figures in your life? Two of the most influential figures in my life are my parents. My dad started his own company out of our basement when I was a kid. It taught me a lot about entrepreneurship and the courage it takes to see something through, even during tough times. My mom raised four boys with a strong work ethic and never let us settle for less than our best. Timothy J. Kelly Executive Vice President FirstBank — East GOING BEYOND THE DESK TO HEAR THE STORIES OF COLORADO BANKERS How did you get started in the banking industry? My career in banking began in 1976 when I graduated from high school. I worked at Fort Lupton State Bank until my husband and I started our family. I was fortunate enough to stay home during our kid’s childhood. Being a mom and grandma is my favorite job, but banking has been a true source of joy. Twentyfour years ago, I came back to the same bank, now known as Bank of Colorado, and have enjoyed each day of service since then. During my time here, I have assumed diverse roles, from teller to my current position of senior vice president of operations at the Fort Lupton branch. Working for the Dinsdale family has been a wonderful experience. They truly believe in the community banking model and allow us to operate as such. What is the most rewarding aspect of your job? The most rewarding aspect of my job has undoubtedly been the relationships I’ve cultivated with both colleagues and customers alike. Ultimately, it’s the people — both within our organization and in the community that have made my journey so rewarding. Their trust, collaboration and friendship have given my journey purpose and meaning. I honestly love people! What do you like to do to give back to the community? Beyond my professional commitments, I’m deeply entrenched in our community. I am actively involved in the Fort Lupton Chamber of Commerce (President), Fort Lupton Community Foundation (Chairperson), Weld County Community Foundation Board of Directors, and First United Methodist Church (UMW President, SPRC Chairperson, Finance Committee, Praise Team, Youth Volunteer, Mission Team Volunteer). I have a deep passion for serving others and giving back to the community in any way I can. Tell us something about yourself that most people don’t know. Most people don’t know that my husband is a third-generation commercial beekeeper. Together, we manage and maintain over 1,800 beehives for honey and pollination. Our love for nature and caring for our bees runs deep. Mariann Johnston Senior Vice President Bank of Colorado — Fort Lupton Do you know a deserving Colorado bank employee we should feature? Contact Patricia Wells at patricia@ColoradoBankers.org. 13 Colorado Banker
AAfter years of anticipation and preparation, the Financial Accounting Standards Board’s (FASB’s) credit loss accounting standard, CECL, is now effective for all financial institutions. Larger institutions that file reports with the Securities and Exchange Commission (SEC) adopted the standard for fiscal years and interim periods beginning after Dec. 15, 2019. All other financial institutions adopted the standard for fiscal years beginning after Dec. 15, 2022. Although adoption is technically behind us, institutions can’t stop thinking about CECL now. Working through the adoption of the standard with our clients, we’ve identified several common issues that will require many institutions to enhance and refine their models, supporting documentation, and controls to better align with the standard and support the largest estimate on their balance sheet. The requirement to support critical modeling decisions doesn’t go away after adoption. FASB’s postimplementation review of the standard has also resulted in some additional guidance that institutions are required to comply with. CECL: Lessons From the Field Overreliance on Third-Party Vendors To assist with implementation and the ongoing calculation of the allowance for credit losses (ACL), many financial institutions are using third-party services and purchased applications. Although the methodology employed by most of these third-party models aligns with the standard and provides management with the necessary tools to mechanically perform otherwise complex calculations, the reliance on a third party doesn’t alleviate management’s responsibilities. Management is still required to maintain documentation that supports all significant modeling decisions, from the selection of an appropriate methodology to the ongoing support for all significant assumptions. It’s not sufficient to accept vendor model recommendations without assessing and documenting appropriateness for your specific institution. Inconsistent Qualitative Factor Framework For many institutions, a large majority of the calculated reserve still comprises qualitative factors. Qualitative factors are intended to adjust the quantitative portion of the calculation to reflect the extent to which management expects current conditions and reasonable and supportable forecasts to differ from the conditions that existed for the period over which historical information was evaluated (the lookback period). Institutions are still assessing qualitative factors under the logic commonly used with the incurred loss model by analyzing quarter-over-quarter portfolios and macroeconomic trends; however, this analysis should be identifying differences in the portfolio and economy when compared to the lookback period. Many institutions have also opted to use peer data to drive the quantitative portion of their calculation. When peer data is the basis for the calculation, qualitative factors should acknowledge differences between the institution’s portfolio and the portfolios of the peer group. Qualitative factors should also be supportable on a stand-alone basis. By assessing qualitative factors using this “directional consistency” concept quarter over quarter, it’s increasingly likely that the baseline hasn’t been supported to substantiate the total impact to the calculated reserve. Inadequate Internal Controls While review controls over your ACL calculation are likely similar to the controls that were in place under the incurred loss methodology, many CECL models are more complex and have additional considerations. When developing your controls over the detailed review of the calculation for mechanical accuracy, it’s important not only to consider manual inputs to the calculation each quarter but also to consider the consistent application CECL: It Doesn’t End with Adoption By Elliott Holmes, Assurance Senior Manager, Plante Moran Colorado Banker 14
of significant model settings and selections. Some models may have change management reports that can be reviewed, while other models may require that the detail reviewer manually review setting selections. Review controls for overall adequacy and reasonableness of assumptions also likely require enhancement with most models. While qualitative factors were likely the only assumption that needed to be assessed under the incurred loss methodology, most CECL models rely on additional assumptions that need to be assessed periodically for appropriateness. Some common additional assumptions to consider include: • Segmentation. • Lookback period. • Forecast and reversion period. • Prepayment and curtailment speeds. • Peer group selection. • Economic variables used to apply forecast adjustments. Models that rely on specific loan-level inputs will also require management to consider the appropriate design of the controls to ensure data integrity, such as loan boarding and maintenance review controls. Accounting Standards Update (ASU) 2022-02 Troubled Loan Modifications ASU 2022-02 became effective for financial institutions starting in 2023. This ASU eliminates the guidance for troubled debt restructurings (TDRs) and introduces new disclosure requirements to provide information about certain modifications to borrowers experiencing financial difficulty. Like the guidance for TDRs, identification of modifications for disclosure under this new ASU still starts with assessing whether the borrower is experiencing financial difficulty; however, there’s no longer a need to assess whether the modification constitutes a concession. Instead, there are four specific modification types that require disclosure: • Principal forgiveness. • Interest rate reduction. • Other-than-insignificant payment delay. • Other-than-insignificant term extension. Under the new ASU, loan modifications that meet the criteria for disclosure aren’t required to be individually evaluated for purposes of your ACL calculation. These modifications are assessed the same as the rest of the loan portfolio and should only be individually evaluated if they don’t share risk characteristics with the collectively evaluated population. Institutions should define their criteria for individual evaluation in their ACL policy. If a modification is individually evaluated, there are no longer the same requirements on how to measure the specific reserve. Like other individually evaluated loans, if foreclosure is probable or repayment is expected through the operation or sale of collateral, the calculation is based on the fair value of the collateral. If a discounted cash flow method is used, projected cash flows should be discounted using the post-modification contractual interest rate to derive the effective interest rate, which is also a change from previous guidance for TDRs. Updated Disclosures The disclosures for modifications made during the reporting period that meet the identification criteria are segmented by class of financing receivable and include: • Amortized cost basis by modification type, as well as the percentage relative to the total period-end amortized cost basis of the total class. • The financial effect of the modification-by-modification type. • Receivable performance in the 12 months after modification. • The amount and amortized cost basis of financing receivables that were granted the modification in the preceding 12 months and defaulted during the reporting period. These disclosures are required regardless of whether the modification is considered a modification of an existing loan or a new loan when assessed under the guidance within ASC 310-20. The ASU also enhances vintage disclosures for public business entities by requiring disclosure of gross write-offs by year of origination. This disclosure should cover each of the previous five annual periods starting with the date of the financial statements. However, upon adoption of the ASU, you wouldn’t have to provide the previous five annual periods of gross write-offs. This disclosure requirement is to be applied on a prospective-transition basis so that preparers can build the five-annual-period disclosure over time. Conclusion Although all financial institutions have adopted CECL, efforts to refine models, supporting documentation and controls will continue for some time. As your institution works to comply, common pitfalls such as overreliance on third-party services, an inconsistent qualitative factor framework and insufficient internal controls should be addressed. Institutions should also review the 2022-02 ASU for additional post-implementation guidance from FASB to ensure compliance. In Part 4 of the Plante Moran CECL Guidebook Series, you can find examples of all required CECL disclosures, including the updates from this ASU. Plante Moran is one of the nation’s largest audit, tax, consulting and wealth management firms. Company founders called Plante Moran a “grand experiment.” And while a lot has changed in 100 years, the culture and values have not. Learn more by visiting www.plantemoran.com. 15 Colorado Banker
A The Great Liability Rollover PRICE TAKER OR PRICE SETTER? By Brian Leibfried, Managing Director of Insights, Performance Trust Capital Partners A little more than a year has passed since February 2023, but it feels like a decade; so much has happened in a short period of time. On Valentine’s Day 2023, the Fed Funds Target Rate (FFT) had already risen to 4.75% from just 0.25% on Feb. 14, 2022. Despite that 450 bps increase over just 12 months, very few organizations were experiencing significant upticks in cost of funds (COF) or suffering from deposit run-off. As banks finalized their budgets for 2023, very few expressed concerns about large runoffs or material COF increases. Those of us who were keeping a close eye on this situation, and expressing such concerns, came across a bit like Chicken Little. We had been speaking publicly about the danger of looming, already-in-motion deposit disintermediation since the summer of 2022. We noted that, as in geology, the forces of enough pressure and enough time are also historically undefeated when it comes to banks’ COF responding to sustained, much higher short-term wholesale rates. In February 2023, the distance between banks’ COF and the prevailing wholesale rates reached historical highs. We called this difference a Funding Advantage and said it was destined to deteriorate materially in 2023. Also in 2022, we coined the term “the Beta Trap” and proclaimed something that seemed crazy unless you know where/how to look. In September 2022, we publicly stated that all banks’ ALM models were broken, and most management teams would not discover this unpleasant truth until late 2023 or early 2024. Our examination of historical deposit funding advantages versus current funding advantages, coupled with our insights around “the beta trap,” led to our widely-disseminated study, “Hidden in Plain Sight” (April 20, 2023), which expressed concern that if the FFT remained near or above 5%, much lower ROAs could emerge across the industry in 2024 — dangerously lower for a significant portion of the industry. In February 2023, the surface water looked calm, but just beneath, there was a flurry of activity. One month later, depositors got a wake-up call! First with concerns for safety and FDIC insurance, and second, with an examination of what rate they were earning and how it compared to treasury bill rates. What followed for industry participants over the next two quarters was the acceptance of runoff, remix, or both. Remix often took the form of short-term borrowings, short-term brokered CD issuance, and short-term retail CD specials. Between Q3 2022 and Q4 2023, for banks in Colorado between $250MM and $5B in total assets, the percentage of their total term liabilities maturing or repricing in 12 months or less rose from 10.5% to 19.6%, from a balance of $2.0B to $4.0B. Why was nearly 80% of this new funding secured with a maturity of 12 months or less? For three main reasons: 1. The beta trap issue caused ALM systems to accidentally misrepresent what was coming for COF. Banks’ internal interest rate risk models did not reveal the true risk to NIM and ROA. Why pursue longer liabilities if rates going up further are not seen as a material risk to the bank? 2. The massive yield curve inversion led many to a bias that the Fed would cut rates by year-end of 2023, making the shorter liabilities seem the more prudent choice. 3. Retail customers were attracted to shorter-term CDs, with higher yields and less lock-up than longer CDs on offer. Colorado Banker 16
www.thenewslinkgroup.orgRkJQdWJsaXNoZXIy ODQxMjUw