OVER A CENTURY: BUILDING BETTER BANKS — Helping Coloradans Realize Dreams January/February PRESIDENT’S MESSAGE THE EPIDEMIC OF FRAUD
©2025 The Colorado Bankers Association (CBA) | The newsLINK Group LLC. All rights reserved. Colorado Banker is published six times per year by The newsLINK Group LLC for CBA and is the official publication for this association. The information contained in this publication is intended to provide general information for review, consideration and education. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of CBA, its board of directors or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. Colorado Banker is a collective work, and as such, some articles are submitted by authors who are independent of CBA. While a first-print policy is encouraged, in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission. For further information, please contact the publisher at (855) 747-4003. Jenifer Waller President & CEO Alison Morgan Director of State Government Relations Brandon Knudtson CFO & Director of Membership Lindsay Muniz Director of Education Michelle Provan Director of Communications Megan Carruth Executive Assistant Margie Mellenbruch Bookkeeper* Melanie Layton Lobbyist* Garin Vorthmann Lobbyist* Andrew Wood Lobbyist* Caroline Woodhouse Lobbyist* *Outsourced 140 E. 19th Ave., Ste. 400 Denver, Colorado 80203 Office: (303) 825-1575 coloradobankers.org colorado-banker.thenewslinkgroup.org BUILDING BETTER BANKS — Helping Coloradans Realize Dreams 10 18 2024-2025 Issue 4 3 PRESIDENT’S MESSAGE The Epidemic of Fraud By Jenifer Waller, President & CEO, CBA 5 Celebrating Insight and Impact The Common Sense Institute Free Enterprise Summit Luncheon and Awards 6 Too Many Vendors? Consolidate to One Trusted Partner! By Cook Solutions Group 10 The Resilience of Small Businesses Insights For Lenders By Kent Kirby, Director of Advisory Services, Abrigo 11 Arizona and Colorado Banker Summit 12 CBA Centerpoint Going Beyond the Desk to Hear the Stories of Colorado Bankers 14 Data Privacy: Pass the Hot Potato! By Dr. Kevin Streff, American Security and Privacy LLC 16 Top Strategies for Managing Liquidity in a Falling-Rate Environment By H.D. Barkett, Senior Managing Director, Treasury Desk, IntraFi 18 Tapping Into SBA Refinancing Lower Rates, More Opportunities By Jessica Stutz, Lending Director, B:Side Capital 22 Three Strategic Insights for Secure and Intelligent AI Implementation By Connor Heaton, Director of Artificial Intelligence, SRM Colorado Banker 2
The Epidemic of Fraud PRESIDENT’S MESSAGE B By Jenifer Waller, President & CEO, CBA Bankers constantly express concern about the epidemic of fraud. Customers are being defrauded through payment schemes, romance schemes and even basic check fraud, which is on the rise. CBA is working to provide you and your customers with the resources needed to combat the ever-increasing cost of fraud. Despite a significant decline in consumers’ use of checks, check fraud is on the rise, and criminals are increasingly targeting the U.S. mail to commit check fraud. Criminals steal paper checks sent through the mail. In speaking with law enforcement, there is speculation that criminals have infiltrated the post office, making stealing checks much easier. They use chemicals to “wash” the check in order to change the amount and the payee. This has become very organized. CBA heard stories of homeless individuals being paid to cash checks CBA is working to provide you and your customers with the resources needed to combat the ever-increasing cost of fraud. fraudulently made out to them. In 2022, financial institutions filed more than 500,000 suspicious activity reports to FinCEN related to check fraud, a 130% increase over check-fraud-related SARs filed in 2020. Skimming devices are still being used at ATMs. Once a customer’s card data and PIN are stolen, thieves can then use the data to make a counterfeit card and withdraw money from the customer’s bank account. Migration to EMV-enabled chip cards and ATMs has helped reduce skimming. Most U.S. ATMs are EMV capable, which fights this type of fraud by creating a one-time code for each transaction, limiting the ability of a thief to steal and replicate data. While this has reduced skimming, we now see fraudsters resorting to new tactics — like “shimming” — to steal data. In this fraud, criminals insert a device into the ATM’s card reader to intercept or manipulate the chip data. Every day, thousands of people fall for fraudulent emails, texts and calls from scammers pretending to be banks. These are commonly referred to as phishing scams. The communication is designed to trick individuals into providing confidential information. Victims of phishing scams can lose hundreds or even thousands of dollars. The FTC estimates that consumers lost $8.8 billion to phishing schemes and other fraud in 2022. Scammers are taking advantage of the expanded use of digital banking platforms and tricking consumers into giving up their personal and financial information. Consumer education is the most powerful weapon in the fight against phishing. The best estimate of total fraud comes from filed SARs. The total number of identity-related SARs filed was $351 3 Colorado Banker
billion. CBA is working to get you and your customers the resources needed to combat the ever-increasing cost of fraud. CBA and our counterparts across the U.S. and the American Bankers Association are lobbying for the FCC to crack down on text spoofing/fraud schemes by establishing a database of customer-reported spam text and increasing enforcement. The industry is pushing for a White House Office of Fraud and Scam Prevention. A national check-verification system is being explored. There are numerous anti-fraud campaigns to educate customers: #BanksNeverAskThat and #PracticeSafeChecks. The American Bankers Association created a fraud directory. This is an expanded resource that helps banks connect with other institutions to resolve warranty breach claims for checks as well as claims for unauthorized and/or fraudulent transfers for wires, ACH, RTP or FedNow. The directory of fraud contacts is searchable by bank name, city, state or FDIC number. Access to the database is only available to banks that provide their fraud contacts. ABA members and nonmember banks are invited to participate. The more institutions that get involved, the more helpful the directory will be for the industry. Several years ago, CBA ran legislation to create the Colorado Fraud Investigators Unit (CFI), which is housed within the Colorado Bureau of Investigation (CBI). Their focus is identity theft, fraud and cybercrime. CFI has the ability to aggregate many crimes committed in multiple jurisdictions. This is extremely helpful where local law enforcement may not have the resources needed to aggregate multiple small-dollar cases. Resources CBI 24-Hour Identity Theft & Fraud Hotline (855) 443-3489 CBI Victim Assistance Program (English and Spanish) (303) 239-4242 cbi.stopidtheft@state.co.us cbi.victimsupport@state.co.us FBI Denver Division (303) 629-7171 The FBI can be extremely helpful at stopping or recovering funds fraudulently wired if promptly reported through their Internet Crime Complaint Center. File a complaint with the FBI’s Internet Crime Complaint Center (IC3) at www.ic3.gov. Local law enforcement also has resources for banks and bank customers. CBA is here to help; do not hesitate to reach out. Colorado Banker 4
Celebrating Insight and Impact THE COMMON SENSE INSTITUTE FREE ENTERPRISE SUMMIT LUNCHEON AND AWARDS TThe annual Common Sense Institute (CSI) Luncheon and Awards ceremony has become a cornerstone event for fostering meaningful discussions on public policy and economic growth. This year’s gathering was no exception, as leaders from business, government, academia and the nonprofit sector came together to celebrate innovative ideas and impactful contributions to our communities. Held at Empower Field at Mile High, the luncheon brought together over 150 attendees who shared a common goal: to advance practical, data-driven solutions to today’s pressing challenges. A highlight of the luncheon was the presentation of the annual CSI Awards, which honor individuals and organizations that have made significant contributions to public policy and economic development. Colorado Bankers Association CEO and President Jenifer Waller was the proud recipient of the Champion of Prosperity award. Other award winners included Jim Johnson, 2024 Free Enterprise Trailblazer; and Aurora Mayor Mike Coffman and Fort Collins Mayor Jeni Arndt, Visionaries for the Future. These outstanding individuals exemplify the spirit of free enterprise through their leadership and commitment to fostering economic opportunity and prosperity for Colorado’s future. The keynote speaker, former Arizona Gov. Doug Ducey, and moderator, former Colorado Gov. Bill Owens, discussed the future of free enterprise in Colorado. As the luncheon drew to a close, one theme resonated above all: the importance of common sense and collaboration in addressing complex challenges. The Common Sense Institute continues to play a vital role in shaping policies that foster economic vitality and social well-being, and events like this luncheon serve as a powerful reminder of what can be achieved when we come together to share ideas and solutions. For more information about the Common Sense Institute and its initiatives, scan the QR code. Jenifer Waller is pictured with Kevin Erickson, CBA Board Chairman, and Jennifer Luce, CBA Board Treasurer. Jenifer Waller is pictured with Kelly Caulfield, CSI Executive Director and Shawn Osthoff, President, Bank of Colorado. https://www.commonsenseinstituteus.org/colorado 5 Colorado Banker
D Too Many Vendors? Consolidate to One Trusted Partner! By Cook Solutions Group Discover how too many vendors impact your financial institution or business. Boost efficiency by partnering with a single trusted vendor for streamlined risk management and simplified processes. Here are three main reasons to consolidate to one secure service partner: 1. Efficiency: One quality vendor for everything means one phone number, one email address and one secure online interface to manage all your equipment and services. 2. Security Integration: When your security can integrate with your ATM Fleet, the solutions are endless. 3. Savings: Bundling typically saves time and money, which can translate to thousands of dollars over time. Vendor due diligence is extremely important, especially with today’s cybersecurity risk landscape. How Many Vendors Do You Manage, and Does Your Bank Feel the Pain? Having too many vendors impacts profits and budgets and prevents efficiency. Plus, managing an overload of different vendors can be exhausting, labor intensive and a time suck. Having too many vendors can lead to several operational, financial and strategic challenges for an organization, including: 1. Increased Complexity: Managing multiple vendors means coordinating with various contracts, performance metrics and communication channels. This can complicate procurement, logistics and operations, leading to inefficiencies. Colorado Banker 6
2. Higher Administrative Costs: Each vendor relationship requires time and resources for management, including contract negotiation, invoicing and vendor performance tracking. More vendors means more resources are needed to handle these processes, which can drive up administrative costs. 3. Fragmented Communication: With many vendors involved, there’s a greater risk of communication breakdowns, especially if information is siloed across different vendors. This can result in delays, misunderstandings and inconsistent service quality. 4. Security and Compliance Risks: Every vendor relationship can potentially expose the organization to security and compliance risks. Each additional vendor increases the number of access points to sensitive data and operations, heightening the risk of breaches or regulatory noncompliance. 5. Loss of Bargaining Power: With spending spread across many vendors, the organization may lose the leverage that comes from consolidating purchases with fewer providers. This can lead to less favorable pricing and terms. 6. Reduced Strategic Focus: A multitude of vendors may distract from the organization’s core goals. Decision-makers might spend more time managing vendors rather than focusing on strategic growth initiatives or customer needs. 7. Quality Control Challenges: Ensuring consistent quality becomes harder with more vendors, as they may vary in standards, reliability and expertise. Inconsistent quality can lead to customer dissatisfaction or disruptions in service delivery. Organizations often benefit from finding an optimal balance of vendors and offerings. This approach allows for better control, streamlined processes and often more strategic partnerships. Why Should Your Bank Consider Consolidating to One Vendor? Using a single vendor can bring several key advantages to an organization, especially in terms of simplicity, cost-effectiveness and strategic alignment. Here are some of the main benefits: 1. Simplified Management: Working with one vendor streamlines communication, billing, performance tracking and contract management. This reduces administrative workload, saving time and resources. 2. Cost Savings: Concentrating purchases with one vendor often enables bulk discounts, volume-based pricing or loyalty incentives. Additionally, it reduces hidden costs related to managing multiple vendor relationships, like contract negotiations and vendor onboarding. 3. Enhanced Vendor Relationship: A single-vendor relationship allows for deeper collaboration and stronger partnership-building. The vendor may be more invested in understanding and meeting your organization’s specific needs, leading to more tailored services and support. 4. Improved Quality and Consistency: With one vendor, there’s more consistency in product or service quality, as standards don’t vary across multiple providers. This reduces the likelihood of disruptions and helps maintain a consistent brand experience for customers. 5. Better Accountability: When one vendor is responsible for delivering services or products, it’s easier to hold them accountable. There’s no ambiguity about who’s responsible for an issue so that problems can be resolved more efficiently. 6. Streamlined Technology and Integration: Many vendors offer integrated solutions that work seamlessly within their ecosystem, eliminating compatibility issues and simplifying troubleshooting. This is particularly valuable in areas like software, where different systems need to communicate effectively. 7. Increased Agility: Decision-making and issue resolution are often faster when working with one vendor, as there are fewer dependencies and less complexity. This agility can be crucial in industries that require quick adaptations or responses to market changes. 8. Stronger Data Security and Compliance: Managing data security, privacy and compliance requirements is often simpler with one trusted vendor, reducing the risk of breaches associated with multiple access points or varying compliance practices. However, make sure the single vendor is a trusted partner. Balancing these factors carefully can maximize the benefits of single-vendor relationships while mitigating potential downsides. Vendor due diligence is extremely important, especially with today’s cybersecurity risk landscape. Many vendors are not vetted correctly, don’t comply with federal regulations and do not hold the proper licenses or security certifications. Have you performed vendor due diligence lately? 7 Colorado Banker
The following are three primary areas to consider when performing vendor due diligence: 1. Trusted Partner Values That Match Your Institution’s • Deep understanding of the financial institution’s culture and expectations. • Provide training in technology trends and product research and development. • Knowledge of financial institution’s compliance requirements, risk landscape and industry standards. • Quarterly service level reporting and preventative maintenance tracking. • Effective management of subcontractors. • Provide equipment tracking and budgeting support and five-year technology road-map development. 2. Risk Compliance and Legal Certifications Are a Non-Negotiable • Soc 2 Type 2 certification reports are an industry standard. • Proof of insurance and liability, including a minimum of $5 million. • Laptops and devices are audited, secured and encrypted. • Employee and subcontractor background checks and drug testing. • Business continuity plan (i.e. effective work-from-home policies and pandemic protection strategies). • Industry experts with professional certifications on staff. • Compliance with all federal, state and technical industry certification requirements. 3. Innovative Automation and Secure Remote Technologies to Future-Proof Efficiency • Multiple non-proprietary solutions representing different brands. • Open architecture with integration capability and encryption. • Solution targeting customer pain points. • Platform creep reduction strategies (reducing the number of at-risk platforms/systems). • Performance and efficiency improvements. • FTE efficiency or reduction through technology or managed services. • Technology migration and conversion experts. • Guide the implementation of AI and analytics. If you find yourself with too many vendors even after performing vendor due diligence, one way to ensure you are receiving superior service but still provide an exit strategy is negotiating an all-inclusive service agreement with a 30-day out no penalty clause. This can provide the firm SLAs your institution requires for service and the flexibility to switch providers if necessary. Essentially, this is like having no contracts but still having an SLA to lay everything out. This also requires the vendor to earn your trust daily by providing extraordinary service both physically onsite and remotely, using managed services and providing a seamless, secure online interface. Colorado Banker 8
| Bank Stock Loans | Loan Participations | ATM/Debit | International Services | | Cash Management | Securities Safekeeping | Merchant Services | 800-873-4722 | NE: 888-467-5544 | www.bbwest.com Where community banks bank Est. 1980 – 40+ years of service to community banks “As a service provider exclusively focused on community banks, Bankers’ Bank of the West is here to help strengthen our clients and the communities they serve.” Across the western states and Great Plains, we’re the place where community banks bank. That’s because we provide the services, technology, and expertise to help you extend your resources, deliver for your customers, and stand out in your market. 5 reasons to partner with us BBW - President and CEO - Bill Mitchell You can unlock efficiencies and cost savings. We can provide sophisticated solutions and economies of scale because we’re powered by hundreds of community banks across our region. Our priorities are aligned with yours. You can expand your capabilities. We’ll never compete for your customers. You can count on prompt, reliable service. • Independent loan review • Loan and credit administration consultation • Strategic planning facilitation • Management, staffing, & succession planning • Acquisition & expansion • BSA/AML compliance • Regulatory risk consultation President, Jim Swanson President, Anne Benigsen • Consulting • Phishing Tests • Vulnerability Management • Security Monitoring Cyber/information security, strategic planning, independent loan review, AND MORE. Consulting Services $ 8.6B assets under management $ 1.9B daily transaction value processed/settled Serving more than 60% of community banks across 7 states
Business Credit Line Utilization Is Up As rates stay high, concerns about credit risk and borrower health are top of mind for bank and credit union leaders, especially as it relates to lending to small businesses. In conversations with community banks and credit unions across the country, we’re hearing about a significant increase in line utilization, raising questions about both liquidity and credit risk. However, recent data from Abrigo shows that privately held companies across the U.S. are displaying their financial resilience. They’re borrowing more, but they’re also managing their leverage and meeting debt obligations — even as they feel the pressure of high rates. For financial institution leaders and their lenders, this data would indicate that there are opportunities to grow the small business loan portfolio in a safe and sound manner, particularly with rates apparently peaking. A recent U.S. bank survey of 1,000 small businesses found strong optimism about the future among owners. Abrigo’s proprietary analysis comes from the largest real-time database of private-company financial statement information in the United States. Thousands of banks, credit unions and accounting firms use our risk management and lending solutions, contributing to this cooperative data model for banking intelligence. Nearly all U.S. businesses are privately held, and most are small, so the unique, aggregated view into how these private firms perform provides leadership teams with insight to make informed decisions about the large and growing small business market. Steady Debt Service Coverage Despite Rising Rates The debt service coverage ratio (DSCR) is a fundamental measure of cash flow strength. The latest data from Abrigo shows that even with a 350-basis-point increase in interest rates, the average DSCR for privately held businesses was 5.75x in 2023, nearly unchanged from 5.73x in 2019. Businesses are feeling the pinch but handling it well, with enough cash coming into service debt as contractually agreed. Improved Leverage Ratios Many businesses have taken a more cautious approach to borrowing in the rising-rate environment. Abrigo’s data shows that the debt-to-equity ratio has decreased from 4.10x to 3.45x. Despite increased utilization, the reduction in leverage indicates that companies are prioritizing financial stability. Leverage actually decreased, showing that companies are not overextending themselves. Longer Working Capital Cycles Drive Line Utilization Businesses are holding inventory longer (81 days in 2023 versus 72 in 2019) and extending receivables (31 to 41 days). Those trends have driven an increase in Days Needed Financing from 77 to 93 days. Companies are borrowing more to cover operational costs but continue to pay suppliers on time, with payables remaining under 30 days. Companies need more working capital, but they’re still paying their suppliers as they should. The Resilience of Small Businesses INSIGHTS FOR LENDERS By Kent Kirby, Director of Advisory Services, Abrigo Colorado Banker 10
Strong Interest Coverage Interest coverage ratios, another critical indicator of a company’s ability to meet interest payments, have remained strong. Interest coverage rose slightly, from 10.67x to 10.80x, indicating the increase in interest rates hasn’t derailed businesses’ ability to meet interest expenses. Abrigo receives more data daily, and the preliminary data indicates that the increase in rates and the end of stimulus measures are finally being felt. The rate decrease in September came at just the right time to prevent further financial stress. Early 2024 figures show a dip in DSCR to 4.62x. However, leverage continues to improve. Historically, increased line utilization, particularly in somewhat benign times, has been a cause of concern since higher utilization can reduce a borrower’s “dry powder” for downturns. However, Abrigo’s data shows that businesses are meeting obligations and reducing overall leverage. As banks and credit unions weigh small business portfolio expansion, monitor loan demand and assess the health of borrowers, private companies’ financial condition sheds light on the option of adding new, creditworthy borrowers in a higher-rate environment. The Board’s Role in Guiding Supportive Lending Responsibly Directors play a key role in guiding portfolio growth responsibly by setting policies that allow the financial institution to respond to business owners’ cash flow needs while balancing risk and growth objectives. The real issue for many bank and credit union leaders is how to add incrementally to that portfolio in a profitable manner. Investing in small business lending technology, such as automated loan processing that allows for easy lender intervention and supports Section 1071 reporting, can foster growth in a way that enhances risk management. Automating administrative tasks lets lending teams dedicate more time to building client relationships, making informed decisions quickly, and maintaining compliance with minimal disruption. Privately held companies are showing adaptability in today’s economic climate. By leveraging data on their business performance, banks and credit unions can confidently offer client-centered solutions that reinforce trust and strengthen their role in helping small businesses and their communities continue to thrive. 11 Colorado Banker
Gregory Boushelle Senior Vice President Umpqua Bank How did you get started in the banking industry? I started as a teller in banking during college and have worked virtually every job within the banking industry, including in collections, retail sales, analytics, lending and leadership. What a great industry to have an influence on the community. What makes your bank unique? Culture! All businesses, and banks in particular, talk of relationships and culture. I have found that Umpqua Bank is just more focused here. Umpqua creates an environment where our associates have a chance to grow, connect and do meaningful work … together. Our tagline is “Do right TOGETHER, committed to helping individuals, families and businesses thrive.” T: Build TRUST through credibility. O: Take OWNERSHIP of personal and company goals. G: Pursue GROWTH for you, your customers and your communities. E: Practice EMPATHY to increase understanding. T: Embrace TEAMWORK to improve outcomes. H: Serve others with HEART. E: Bring ENJOYMENT to everything you do. R: Form lasting RELATIONSHIPS with customers and each other. What is the most rewarding aspect of your job? Beyond helping and watching clients grow and succeed, the most rewarding aspect of my job over the years has been in the mentorship, teaching and training of young up-and-coming banking professionals, helping hone their skills and watching them thrive in the banking industry. It is the PEOPLE! What is your favorite movie or book, and why? I am an avid reader, so this one is tough. Ayn Rand’s “Atlas Shrugged” was an epic achievement in creative writing about the human process of being in business, working for a greater cause, with a strong heroine and deep sense of the inequality and dangers of government intervention in capitalism in the name of “the greater good.” CBA Centerpoint Jackie Devine Director of Community Outreach Alpine Bank How did you get started in the banking industry? I grew up on the Western Slope of Colorado in Grand Junction and my dad is a lifelong banker (40+ years). So, I think you could say I was destined to find my way into banking. I grew up knowing Alpine Bank from the Western Slope. When they made the decision to come to the Front Range, I knew I wanted to find a way to join the company. What do you like to do to give back to the community (either personally, or as a bank representative or both)? Giving back is a passion of mine and I get to give back in my job as well as personally. I love volunteering and have a strong passion for supporting young girls in our community (I have two young daughters) as well as people with intellectual differences. I am honored to serve as a board member for Girls Inc. of Metro Denver and Special Olympics of Colorado. It is so rewarding to see firsthand the difference these organizations make in our communities. What is the most rewarding aspect of your job? I get to serve the community every day. Sometimes it is through the philanthropy from Alpine Bank and other times I give back to causes that are important to me personally. I am thankful every day that I get to work for a company that truly values community. And I feel so fortunate to continue my family’s legacy in the banking industry here in Colorado. When you were a child, what did you want to be when you grew up? I always wanted to be an FBI agent. I think this goes back to serving the community and helping people. I am not crime-fighting in my current job, but I am lucky enough that I get to help people. What do you listen to on your morning commute? I am a crime junkie, so I love true crime and anything murder mystery. I am more about entertainment while driving rather than education. Colorado Banker 12
GOING BEYOND THE DESK TO HEAR THE STORIES OF COLORADO BANKERS Juan A. HerreraMadrigal Apprentice Vectra Bank Colorado How did you get started in the banking industry? I began my journey in the banking industry through an apprenticeship at Vectra Bank Colorado provided by CareerWise. I started out as a customer service associate at the Vectra Bank Colorado downtown Denver branch, where I learned the skills needed to excel in the banking industry, as well as the importance of building a strong relationships with clients. What makes your bank unique? What makes Vectra Bank Colorado so unique is how we exceed the standard for our clients. We are a regional bank here in the west with locations throughout Colorado and a branch in New Mexico. With a motto of “Big enough to count/small enough to care,” this shows how much we value the relationships we hold with our clients, as well as how we hold ourselves to the highest of standards. Vectra Bank Colorado was built on the values of taking great care of our clients and employees. What do you like to do to give back to the community (either personally, as a bank representative or both)? At Vectra Bank Colorado, we are fortunate enough to offer many volunteering options. Employees can participate in various community projects to give back. We regularly donate our time and resources to The Food Bank of the Rockies, Denver Health, Mile High United Way and Habitat for Humanity, to name a few. What is your favorite movie or book, and why? My favorite book is “The Fred Factor,” written by Mark Sanborn. A mentor recommended it to me. It is based on a true story about a mail carrier named Fred here in Denver. Fred constantly goes the extra mile when delivering mail, something that is overlooked, but he sees the opportunity to make a difference in the lives of the people he serves. Who is one of the most influential figures in your life? My parents, Leticia and Juan Herrera, are, without a doubt, the most influential figures in my life. They made me into the man I am today and always gave me their full, unconditional support. They motivate me to do the best I can every day! 13 Colorado Banker
M Data Privacy: Pass the Hot Potato! By Dr. Kevin Streff, American Security and Privacy LLC My last article stated, “Just when you thought the world could not get any more confusing, the Consumer Financial Protection Bureau (CFPB) finalized and published its rulemaking for Dodd-Frank Act Section 1033. Section 1033 introduces consumers’ personal financial data rights, including consumer access to financial records linked to the financial products and services involved.” Well, in the past 30 days, the data privacy world has continued to muddy the waters and not provide clarity as to what banks are to do to promote data privacy. As I travel around the United States and speak to bankers, it is clear that most bankers understand that data privacy is important and that they need to do something in this space; however, what is equally clear is that banks do not have a clue where to start. CFPB 1033 has an implementation time frame of six to 60 months, depending upon your asset size, so how important is this issue if a bank has five years to address it? The published CFPB 1033 ruleset states that banks under $850 million never have to comply with CFPB 1033! Eighteen Colorado Banker 14
So, what does this mean for your bank? Get educated! states have enacted dedicated state data privacy laws, but all eighteen states have carve-out exclusions for banks! Why? Because the banking sector is supposed to lay down their own rules and govern themselves. They have not done so. The federal government has tried twice to pass comprehensive data privacy legislation. Still, both times, the bill was written in a way that could not be supported and did not touch any organization that was not a big data broker. Does anyone want to take this data privacy issue seriously and help banks understand their requirements? Is there anyone who can put together a thin layer of data privacy requirements as a foundation to get started with data privacy protection at a bank? We always talk about how our sector is based upon customer relationships and trust, yet lawmakers and regulators are leaving the sector alone and driving firm requirements in every other industry. The reality is that it is easier to point the finger at each other while most countries have already passed broad privacy legislation. Canada, Asia, Mexico, Europe and the like have all passed comprehensive data privacy laws, with Europe’s requirements quite onerous. In fact, with GDPR, any organization cannot share data without consumers explicitly “opting in.” The privacy model in Europe is that data is “owned” by the consumer and businesses have to ask to use it. All U.S.-based laws and requirements state organizations can share data but must give the consumer the ability to opt out — very different requirements. Can you imagine if, at your bank, you couldn’t share any data with any third party unless you have express consent? Can you imagine not being able to use data for anything other than the primary reason it was obtained unless you have explicit consent? The data privacy hot potato continues to get passed around. Bankers clearly understand it is important but do not know how to efficiently get started. The CFPB took a bite of the apple with CFPB 1033 but then blamed the states for their “banking sector” exclusions. The feds blame the states for having too onerous requirements (like in California) but then don’t even pass a light version of data privacy rules. The political machine wins, and banks and consumers lose as consumers are not assured of their rights and banks are left guessing where to start and how far to go. Can you blame banks for not doing anything, waiting until the murky water clears before wasting time and resources? So, what does this mean for your bank? Get educated! The short list of tasks includes: • Assign someone to take the lead in understanding data privacy. • Get someone trained or certified in the CFPB 1033 Rule and/or data privacy management. The place to get started is education. The data privacy sky is not falling here! However, it is important to begin the data privacy journal beyond Reg. P of privacy notices. 15 Colorado Banker
WWith the Fed cutting rates by a full percentage point since September, bankers are rethinking their strategies for funding and liquidity management. Declining interest rates may tighten the spread between earning assets and liabilities, requiring bankers to adjust to the changing environment. Here are three strategies bankers can leverage now to walk this tightrope: 1. Examine and Reprice Short-Term Liabilities: Falling rates will impact profitability. To counterbalance, banks will need to reprice a portion of their liabilities, reducing interest paid to some depositors. While some customer runoff will be inevitable, bankers should prudently consider their approach, as cutting rates too swiftly (or for too many customers) could lead to unexpectedly large losses in funding. Thoughtfully considering which classes of customers will see the first-rate cuts (preserving higher rates for higher-value depositors), in conjunction with using short-term funding solutions, can help banks maintain desired funding and optimal liquidity levels. 2. Assess Whether to Repay Long-Term, Fixed-Rate Liabilities: Banks will also need to check their longer-term liabilities and decide if they are worth holding or paying off early and replacing them with shorter-term, lower-cost deposits. Fortunately, the math behind this decision is easy — bankers will just need to compare the prepayment penalty against the cost of continuing to pay above-market rates. Top Strategies for Managing Liquidity in a Falling-Rate Environment By H.D. Barkett, Senior Managing Director, Treasury Desk, IntraFi Colorado Banker 16
For banks that make the decision to replace their longer-term liabilities with shorter-term funding, ICS One-Way Buy is a simple way to acquire floating-rate funding tied to an index of the bank’s choice. Institutions that are looking to reduce the burden of longer-term liabilities but still desire fixed-rate funding may benefit from leveraging CDARS® One-Way Buy, which allows banks to acquire large blocks of fixed-rate, wholesale funding and mitigate margin compression — while paying a single, all-in rate with no transaction fees apart from the cost of funds. 3. Pay Attention to Your Bank’s Securities Portfolio: The changing shape of the yield curve over the past two years has forced some institutions to take considerable losses, and, in 2023, even contributed to several notable bank failures. Most institutions have fortunately weathered the storm, though they may be holding on to unrealized losses. This latter group may be in luck — as rates decline, those once-underwater securities now have a chance to come up for air. Banks should monitor the yields of formerly upside-down bonds against the cost of funding. These potentially recovered securities can be helpful to counterbalance any losses incurred in paying off long-term liabilities, offsetting at least some of the prepayment penalty. These are far from the only considerations facing banks during a fundamental shift in rates, but by prioritizing these items, banks can act quickly to boost profitability during this period of change, setting themselves up for even greater success once rates settle. Solutions, such as IntraFi’s ICS or CDARS services, can provide both short- and long-term wholesale funding alternatives, as well as deposit-gathering and liquidity management tools that banks can use in any rate environment. IntraFi is not an FDIC-insured bank, and deposit insurance covers the failure of an insured bank. A list identifying IntraFi network banks appears at https://www.intrafi.com/network-banks. Certain conditions must be satisfied for “pass-through” FDIC deposit insurance coverage to apply. To meet the conditions for pass-through FDIC deposit insurance, deposit accounts at FDIC-insured banks in IntraFi’s network that hold deposits placed using an IntraFi service are titled, and deposit account records are maintained, in accordance with FDIC regulations for pass-through coverage. Deposit placement through an IntraFi service is subject to the terms, conditions and disclosures in applicable agreements. Deposits that are placed through an IntraFi service at FDIC-insured banks in IntraFi’s network are eligible for FDIC deposit insurance coverage at the network banks. The depositor may exclude banks from eligibility to receive its funds. Although deposits are placed in increments that do not exceed the FDIC standard maximum deposit insurance amount (“SMDIA”) at any one bank, a depositor’s balances at the institution that places deposits may exceed the SMDIA before settlement for deposits or after settlement for withdrawals or be uninsured (if the placing institution is not an insured bank). The depositor must make any necessary arrangements to protect such balances consistent with applicable law and must determine whether placement through an IntraFi service satisfies any restrictions on its deposits. ICS, CDARS and One-Way Buy are registered service marks of IntraFi LLC. H.D. Barkett is senior managing director, Treasury Desk at IntraFi. Mr. Barkett has been involved in banking and financial services for more than 30 years, working with financial institutions on issues involving asset/liability management, liquidity management, risk assessment and management, and portfolio hedging. With the Fed cutting rates by 75 basis points since September, bankers are rethinking their strategies for funding and liquidity management. 17 Colorado Banker
Tapping Into SBA Refinancing LOWER RATES, MORE OPPORTUNITIES By Jessica Stutz, Lending Director, B:Side Capital Colorado Banker 18
HHelping borrowers secure lower interest rates on their owner-occupied commercial real estate isn’t just good business — it’s a game-changer for their financial health and your lending portfolio. The SBA 504 refinance programs empower you to provide clients with long-term, fixed-rate solutions while generating new lending opportunities. It’s a win-win for everyone involved. What is the SBA 504 Refinance Program? The SBA 504 refinance options are part of the U.S. Small Business Administration’s 504 loan program, designed to assist small businesses with fixed-rate financing for major fixed assets. The two refinance programs, 504 Refinance and 504 Refinance with Expansion, allow owners to refinance existing commercial real estate loans and realize improved cash flow as a result. Key Benefits 1. Low Interest Rates: The 504 program offers long-term fixed interest rates, typically lower than conventional loans. 2. Cash-Out Option: Borrowers can refinance eligible commercial real estate debt and get cash out for business expenses such as payroll and utilities, pay off a business line of credit or credit card, and refinance other eligible debts secured by the commercial property. 3. Extended Terms: With terms up to 25 years, monthly payments become more manageable, improving cash flow. 4. Loan-to-Value (LTV): The program allows up to 90% LTV for refinancing, helping businesses retain equity while reducing financial burdens. 5. Refinance Existing SBA Debt: The refinance options allow for the refinance The SBA 504 refinance programs empower you to provide clients with long-term, fixed-rate solutions while generating new lending opportunities. of existing 504 or 7(a) debts under certain conditions. Eligibility Criteria The operating business does need to meet general SBA requirements. A few key requirements include ensuring it is a for-profit business located in the United States and meets SBA’s small business size standard. (The tangible net worth should not exceed $20 million and the two-year average net income should not exceed $6.5 million.) Also, each SBA 504 loan financing or refinancing commercial real estate must be 51% or more occupied by the borrowing operating business. In addition, there are some requirements specific to a 504 refinance project. Additional Refinance Requirements • At least 75% of the proceeds of the debts to be refinanced must have been used for 504 eligible purposes, such as purchasing or constructing owner-occupied commercial real estate. • 100% of the debt to be refinanced must have been for the benefit of the operating business, not any other affiliated business or individual. 504 Refinance This program provides a business with the opportunity to refinance existing commercial real estate debt meeting the 75% test, as well as cash out on some of the equity existing in the property. This can include refinancing existing SBA 504 or 7(a) debt as long as a lowered payment will be achieved. The total LTV can now go up to 90%, without any cap on the amount of cash out for eligible business expenses (EBE). The cash out for EBE can include funds for business operating expenses such as employee salaries, utilities and marketing expenses, as well as pay off existing business credit cards or lines of credit. A recent improvement is that the EBE can also include the payoff of debts secured by the commercial property, but used for business operating expenses and not meeting the 75% test. 19 Colorado Banker
Key Points • Debt refinance with cash out, up to 90% LTV. • The operating business needs to have been operating and generating revenue for two or more years and project debt service coverage. • Commercial real estate debt being refinanced needs to be on permanent terms and in place for at least six months. • Cash out can’t fund any equipment purchase, property renovation/construction or fund any business acquisition. It’s limited to funding business-operating expenses or debts used for business-operating expenses. • Generally, on-time payments for debts proposed for refinancing 504. 504 Refinance with Expansion This program provides a business the opportunity to refinance existing commercial real estate debt meeting the 75% test, and utilize the existing equity to help fund a planned expansion. The total loan to value can go up to 90% but may be lower if the business has less than two years of operating history or the property has limited use. The refinance amount is capped at the amount equal to the expansion dollars. For example, if a business needs $1 million to fund an addition to its existing commercial property, it can refinance up to $1 million in existing commercial real estate debt. A lowered payment on the refinanced portion must be achieved as a result of the refinance if the existing debt isn’t structured with a demand or balloon feature. Key Points • Expansion funding with the ability to refinance existing debt, up to 90% LTV. • There isn’t any minimum length of time the operating business has generated revenue, but it needs to demonstrate the ability to expand and project debt service coverage. • No cash-out option available. • Debts proposed for refinancing must have 12 months or more of on-time payments. Why Bankers Should Leverage the SBA 504 Refinance Program This program isn’t just a refinancing tool — it’s an opportunity to strengthen client relationships and grow your portfolio: • Deliver Tangible Value: Help your borrowers secure lower rates, reduce monthly payments and unlock cash flow for reinvestment demonstrating your commitment to their success. • Enhance Client Retention: Providing solutions like SBA 504 refinancing sets you apart as a trusted advisor, fostering long-term loyalty. • Boost Portfolio Performance: Offering fixed-rate, long-term financing benefits not only your borrowers, but also your institution’s stability and growth. The SBA 504 refinance program is a powerful tool for small businesses to reduce costs and fuel growth. If you’re seeking a pathway to financial stability and expansion, consider exploring this option with a Certified Development Company. Colorado Banker 20
A letter from the CEO of a Colorado CDFI bank. We’re a Colorado bank just like you, but CDFI too… No doubt you’ve heard about the new CRA rules soon to take effect. As a CDFI, did you know First Southwest Bank (FSWB) can help you increase your impact as a community bank and achieve your CRA compliance goals? It can be as simple as creating a deposit relationship or generating loan participations with FSWB. And, we created a technology platform, known as HelloBello (hellobelloapp.com), that makes it easy for community banks like yours to connect to FSWB…for low cost, risk-mitigating funding, and resources like technical assistance, grants and education for your clients. First Southwest Bank can help you create impactful investments, restore economic vitality in Colorado’s markets, and achieve your CRA compliance goals. I encourage you to reach out to me to learn more. Please give me a call at 970-422-5054 or send an email kent.curtis@fswb.com. Sincerely, Kent Curtis Chief Executive Officer & President First Southwest Bank kent.curtis@fswb.com 970-422-5054 ALAMOSA | CENTER | CORTEZ | DURANGO | PAGOSA SPRINGS | SAGUACHE Certified CDFI. Member FDIC. EOE. EHL. SBA Preferred Lender.
T Three Strategic Insights for Secure and Intelligent AI Implementation By Connor Heaton, Director of Artificial Intelligence, SRM The advent of generative artificial intelligence (AI) and large language models (LLM), like OpenAI’s ChatGPT, is significantly disrupting the financial services landscape. Previous applications of AI in banking focused on purpose-built use cases such as fraud detection, loan decisions and marketing strategies. However, the emergence of generative AI solutions represents a significant shift, enabling financial institutions to complete hundreds of disparate tasks. Generative AI and LLMs have democratized the field, making AI widely available, cost-effective and intuitive to apply across several domains. This increasing pervasiveness and accessibility necessitate the need for financial institutions to implement strategic policies and tools to control AI usage. AI Integration Brings Risks While generative AI offers many benefits, financial institutions must be wary of inherent risks. It is estimated that three in four employees are using AI tools secretly, which can increase the vulnerability of sensitive data. Despite AI assistants being versatile tools, they often lack specialized context, requiring financial institution employees across all roles to receive additional training to ensure all outputs are accurate and avoid bias. AI is also changing the fraud landscape as data leakage poses a significant threat to financial institutions of all sizes. Although banks and credit unions have effectively combatted fraud in the past, AI allows malicious actors to conduct crimes quicker and more effectively. Since generative AI tools are easily accessible, any data entered by employees and vendors can be extracted by criminals or exposed during a data breach. Account holders are particularly vulnerable, lacking the means and experience to identify fraudulent schemes adequately. This is prompting financial institutions to invest resources into customer education and processing design, helping to reduce vulnerability to known fraud methods. Vendor Selection Becomes a Priority Selecting the appropriate generative AI vendor can be overwhelming, considering how saturated the market has become. There are countless variations and productizations of LLMs, and staying informed on the vendor space can be resource-intensive for both banks and credit unions. The vendor selection process may seem daunting, but financial institutions can simplify this process in several ways. Although thousands of product offerings are on the market, Colorado Banker 22
www.thenewslinkgroup.orgRkJQdWJsaXNoZXIy MTg3NDExNQ==