Bankers cautiously optimistic amid uncertainty
There are a host of individual data points that, if viewed in a vacuum, would seem to indicate that trouble is brewing within the economy, Boulder Valley area bankers say. And yet, a holistic vantage point provides ample reason for cautious optimism.
Despite persistent headwinds — elevated interest rates, concerning levels of consumer and government debt, office buildings without tenants, for example — the region’s economy remains “stubbornly robust,” Firstbank Boulder market president Chad Mitchell said during Bizwest’s CEO Roundtable on banking, held Tuesday at the Broomfield offices of Plante Moran.
“Banks are looking strong right now,” Midfirst Bank vice president Susan Moratelli said, but clients have paid close attention to recent ripples within the industry such as the 2023 Silicon Valley Bank collapse.
A potentially wary client base, Ent Credit Union senior vice president Chris Chippindale said, means bankers must spend more time asking: “Have we built in convenience? Have we built up loyalty?”
Still, bankers said, clients are beginning to acclimate to what might be considered a new economic normal.
“People have reset their expectations” for interestrate levels, Bank of Colorado Boulder market president Aaron Spear said.
The same goes for investments, AMG National Trust Bank commercial banking president Tom Chesney said, as “clients are getting used to lower rates of return on their portfolios.”
Across industries, but especially in the banking sector, all eyes are on the Federal Reserve Board, with local bankers somewhat split on their expectations for near-term rate adjustments.
“The employment market is good,” which “puts sustained pressure on employers” and “upward pressure on wages,” a recipe for ongoing inflation and therefore elevated interest rates, Alpine Bank regional president Matt Teeters said.
Kirkpatrick Bank senior vice president Richard Morgan agreed, noting that current conditions are creating “a lot of pressure on the Fed to keep things where they are.”
While Chesney said he “could see three rate cuts in the second half of the year,” Flatirons Bank CEO Kyle Heckman said there is a “nonzero chance” that rates could be pushed even higher.
Interest rates, of course, are a major driver of both residential and commercial real estate, sectors that bankers are closely monitoring.
On the residential side, “affordable housing is a big issue we have to deal with all along the Front Range,” Elevations Credit Union chief operating officer Ray Lindley said, but the region’s high quality of life is a backstop against cratering demand.
The commercial real estate space — particularly the office subsector, which has thus far failed to rebound after the COVID-19 pandemic proved that many employees can (and prefer to) work from home — is perhaps more concerning for bankers.
“Real estate in Colorado has been quite good,” FNBO regional vice president Gretchen Wahl said. However, landlords are grappling with “a lot of office vacancy,” a phenomenon that has spillover effects for their lenders.
The result, Morgan said, could be that “more properties are going to be given back” to lenders through foreclosure.
Despite the ongoing woes in the office market, developers and landlords could find success by embracing “creative uses” for properties that have historically been home to traditional business parks, Adams Bank & Trust senior vice president of commercial banking Bonifacio Sandoval said. Macerich Co.’s plan to redevelop the aging Flatiron Crossing mall into a mixed-use entertainment, housing and employment district could serve as a test case for this approach.
In an ideal world, the housing-affordability and office-vacancy issues could be addressed in tandem through the repurposing of underutilized commercial space. But unfortunately, Wahl said, it is rarely “financially feasible to turn an office building into an apartment building.”
Looking ahead , 2024 appears to be a year rife with uncertainty.
“The (United States presidential) election is a wild card,” Mitchell said. “… This year is a year to maintain and try to grow if you can.”
Emerging artificial-intelligence technology is another wild card, one with the potential to both help financial institutions optimize their bottom lines and help bad actors scam banks and their clients.
“What keeps me up at night is fraud,” Chesney said.
Despite the questionable quality of his sleep, Chesney said that by and large, bankers remain “pretty bullish, and we think things are going to work out pretty well in the coming year.”
The CEO Roundtable was attended by sponsors Sean Nohavec and Jim Cowgill of Plante Moran; Aaron Spear of Bank of Colorado; and Juliana Massaro and Ashley Cawthorn of Berg Hill Greenleaf Ruscitti LLP.