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Economic Forecast A banking perspective Don Childears President and CEO Colorado Bankers Association Who we are The Colorado Bankers Association represents more than 90% of : • The $142 billion in assets held by banks in Colorado • 141 FDIC insured, regulated, traditional banks operating in Colorado • 21,722 men and women who work within a Colorado bank CBA focuses on creating a stronger economy and helping Coloradans realize dreams by building better banks. Scope of Colorado banking • Banks – 141 (89 Colorado charters, 52 out-of-state banks) • Employees – 21,722 – exceeding $1.0 billion payroll • Offices – 1,519 – not counting delivery of services via ATM, telephone banking, internet banking, mobile banking • Assets – $142 billion • Capital – $11.1 billion • Loans – $86.6 billion – Helping Coloradans Realize Dreams • Voluntary contributions to community groups – $87 million/year • Taxes – Historically pay $½ billion annually in income taxes General health of financial sector • Record run of record low rates – impacting bonds, equity investments, cost of credit • What’s the future on interest rates? • Multiple CO economies: metro & north, other Front Range, resorts, rural ag – each further segmented, experiencing varying amounts of unemployment, population growth, construction • There is no one Colorado economy General health: continued Many variables in ag, mining & oil/gas, construction, data, technology, education, health care, tourism, but a few generalities from banks’ perspective: • Concern about potential over-development in sectors (like higher priced apartments), so banks cautious in lending – given CO’s boom/bust history • Demise of much of mining and the price of oil impacts not just workers and companies, but whole communities, tax-dependent governments Generalities Ag production • Low commodity prices are hurting ag producers. In past, they already would be in trouble. This time high equity (little debt) buys time so we don't anticipate broad actions until next fall – by banks and/or regulators. • Compounding factor? Trump attitudes on trade could hurt ag exports and further depress prices? Generalities: continued Infrastructure • Infrastructure spending: spurred by Trump’s plans or stymied by those concerned about deficits? • With already tight state budget, CO spending on infrastructure (transportation) is political issue: no room in state budget now, so dependent on “new” revenue (hospital provider fee) or ballot initiatives in 2018 (or 2017?) where education and social service sectors compete for same $$ and only one of them or none will pass. Generalities: continued • Health care – who knows where health insurance segment is headed? Much tied to result of Obamacare. • Tourism – taught again how dependent we are on Mother Nature. • Population – continue to be Mecca for millennials? Banking Banks’ earning pressures + rising expenses + over-regulation + scarce capital = consolidation • Loan demand is strong now, but that is expected. • Could be substantial loan losses if economy falters. Regulation Regulation is killer: • CBA display on 2,400 page Dodd/Frank Act • Others thought we were insane when we predicted in 2010 that 20,000 pages of regulations would come out of that (6½’ of paper) picture • Not all rules adopted and surpassed 24,000 pages. • Expect 30,000 pages when done – above 8’ ceiling. • All that is on top of previous regulations. • The cost of compliance and risk of noncompliance are driving factors in small banks selling to larger ones. Banking regulation: continued • Complex regulations, for example: TRID mortgage disclosure form (2 merged into 1) has 1,000 pages of instructions – liability if there is any deviation. • Some community banks have stopped making mortgage loans because of this volume, complexity and cost of compliance. Adds to consolidation pressure, so fewer competitors. Regulation: what it means for customers • Almost no credit to low income individuals despite banks believing they are creditworthy because they fail government standards. • Small business owners must jump through many expensive hoops and experience lengthy delays to get credit. • Trickle down: requirements for big banks imposed on smaller ones as “best practices.” Political • Already touched on federal issues • Initiatives with economic impact • 69 – State Single Payer Health Care System, defeated 4:1 • 70 – State Minimum Wage, adopted • Construction defects – possible, great effort to promote, optimistic (but legislative leaders always start there) Marijuana • Trump’s “states’ rights” view, or his AG pick Jeff Sessions’ “enforce federal law” view? • Congressional action not in near future despite majority of states permitting. • Consolidation in marijuana industry. • 10 people control nearly 20% of Denver’s 1,046 active medical and recreational licenses. • Silver bullet du jour doesn’t work. National economy • Various regulatory relief bills – There is momentum, but many bigger, high-impact issues • • • • • Infrastructure Tax reform Obamacare Immigration Trade agreements • Banks will be working hard to achieve regulatory relief in 2017, to strike while the iron is hot • That means restoring flexibility so they can lend to customers now precluded by government regulations Thank You Colorado Bankers Association One Sherman Place 140 East 19th Avenue, #400 Denver, CO 80203 Phone: 303-825-1575 www.coloradobankers.org www.financialinfo.org (consumer information) www.smallbizlending.org Colorado Bankers Association Government Relations team: CBA Don Childears Jenifer Waller Amanda Averch Colorado Legislative Services Melanie Layton Jim Cole Garin Vorthmann Zoey DeWolf Hogan Lovell Craig Umbaugh Other partners