The year in preview: Banking

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Wells Fargo expects that it, as well as the banking industry as a whole, will be using “big data” to help expand their business. File photo.

What life will be like in Idaho’s banking industry in 2019 depends a lot on what the national and global economies do. December saw the stock market edging into bear territory, the bond market teasing the inverted yield curve typically presaging a recession, and the Federal Reserve Bank raising interest rates, which slows down lending.

Idaho and the nation have enjoyed one of the longest bull markets in history, but there have been signs that the party is coming to an end. That said, enough fundamentals remain strong that it may take a while unless something untoward happens.

“In 2019, I anticipate that Idaho’s economy and population will continue to grow nicely,” said Brian Berrett, chief financial officer for Idaho Central Credit Union. “I anticipate that the rate increases we’ve been experiencing over the last year or two will slow down. However, there could be a slowdown in lending due to any new increases on top of the ones we’ve already had.”

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Robert Spendlove

Robert Spendlove, senior vice president and economic and public policy officer for Zions Bank predicted that 2019 will be “characterized by uncertainty because of the inverted yield curve,” where long-term bonds have lower rates than short-term ones.

“Due to increases in interest rates, there has been some pullback on lending, particularly in the refinance market,” he said. “People refinance because they can get a better interest rate, but with interest rates increasing, offerings are going away.”

The economic situation – whatever it is – will also affect credit unions, said Lynn Heider, vice president of public relations for the Northwest Credit Union Association, which represents Idaho credit unions.

“The Fed is expected to continue to incrementally increase interest rates,” she said. “It is even more prudent for consumers to consider credit unions in this environment because they will find more competitive interest rates on their loans, credit cards and savings accounts.”

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Bipin Sahni

Financial institutions are using data – in quantities so large that it is known as “big data” – more to help improve their business, said Bipin Sahni, head of innovation research and development for Wells Fargo.

“Data is the next gold rush,” he said. “While there has been movement across the industry, there are still breakthroughs to be made in surfacing and acting on meaningful insights. Organizations will be looking to use data to bring new value to customers and team members.”

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Idaho Sen. Mike Crapo

Big data is also likely to be a focus of Congress after 2018’s Economic Growth, Regulatory Relief and Consumer Protection Act.

“If I am again chosen to lead the Banking Committee, I expect our focus will largely be on ‘Big Data’ and privacy issues, and whether we can give people the tools they need to protect their privacy and opt out of data collection, and I believe we can find consensus in this area with our House counterparts,” said Sen. Mike Crapo, R-Idaho. “Both chambers have also shown bipartisan support for legislation that will help to facilitate capital formation. There are also multiple expiring programs and charters that will need to be reauthorized, like the National Flood Insurance Program, the Terrorism Risk Insurance Act, and the Export-Import Bank. Last, I do expect us to address housing finance reform in some fashion, as it is the last piece of unfinished business from the financial crisis.”

And until we know for sure, there’s nothing wrong with preparing for a recession, Spendlove said, joking that economists have predicted nine of the last five recessions.

“When is it going to happen, how bad is it going to be, and what will cause it? You can’t tell,” he said. “If you have an emergency fund of three to six months’ of expenses – even though it’s really tough to lose your job or have your business go bankrupt – you can fall back on that. What’s the worst-case scenario if you don’t? You have a lot of money and no debt.”

The year in review: Banking

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First Interstate Bank entered the Idaho market in 2017 with the purchase of Bank of the Cascades, including this Kuna branch. Photo by Sharon Fisher

2018 was a pretty darn good year for banking.

“Idaho-headquartered banks registered a strong increase in earnings, with a 39 basis point rise in the average return on assets ratio, compared with one year prior,” said Mary Hughes, deputy director for the Idaho Department of Finance. “Compared with banks nationwide, Idaho-headquartered banks have higher average capital, a stronger net interest margin, lower concurrent loans and net charge-off ratios, and more robust asset, loan, and deposit growth rates. These are, in part, a reflection on Idaho’s strong economy.”

That strong economy helped Idaho grow, almost too fast. “Many people have moved here from other states to take advantage of the job market, housing market and way of life,” said Brian Berrett, chief financial officer for Idaho Central Credit Union (ICCU).

That wasn’t always good news. “The housing market in Idaho continued to increase and even caused some housing shortages in certain markets,” he said. “Houses in the middle to lower price ranges sold very quickly, while houses on the upper end of prices haven’t been moving as fast.”

That said, it was a pretty darn good year for banks nationwide, too. Aside from the strong economy, there was S.2155, the Economic Growth, Regulatory Relief and Consumer Protection Act, which Congress passed in May to reduce the amount of regulation required from the federal government for smaller banks. That legislation was sponsored by Sen. Mike Crapo, R-Idaho, chair of the Banking Committee.

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Idaho Sen. Mike Crapo

“The 115th Congress was incredibly productive for the Banking Committee,” Crapo said. “We ushered dozens of bills through the committee and into law, one of which was the Economic Growth, Regulatory Relief and Consumer Protection Act. We also passed important sanctions legislation, and legislation to protect our national security interests.”

In fact, the national news was so good that interest rates went up. “The Federal Reserve aggressively raised rates that impacted short-term rates,” Barrett said.

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Dave Glaser

But even that provided an opportunity for some banking sectors, such as community development financial institutions.

“Because of uncertainty in the economy and interest rate pressures, we’re seeing more banks tightening their credit,” said Dave Glaser, president of MoFi, a CDFI that covers Idaho, Montana and Wyoming. “MoFi has seen a steady increase in its small business lending activity in the Treasure Valley over the last four years. In 2018, we will lend more money to Idaho small business than in any other state we serve. The flexible, responsible capital we provide is more important than ever to ensure a sustainable, inclusive economy in Idaho.”

Idaho’s success in banking led to growth in the industry, whether through acquisition, as on the bank side, or by organic growth, as on the credit union side.

First Interstate Bank – which just entered Idaho though acquisition in 2017, when it acquired Bank of the Cascades – apparently decided it liked the place, and made three more acquisitions in 2018: Inland Northwest Bank in April, followed by Idaho Independent Bank and Community 1st Bank in October.

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Mary Hughes

Hughes attributed these moves to the strength of Idaho’s banking industry. “These are a reason why out-of-state banks want to expand in Idaho, and our banks are attractive targets for acquisition,” she said.

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Kevin Riley

Kevin Riley, president and CEO of First Interstate BancSystem, Inc., said one of the highlights of 2018 was his company’s expansion into Idaho markets.

“Culturally, it felt like a natural extension to our pre-existing footprint, a network of community banks committed to giving back to the places we call home while delivering exceptional customer service,” he said.

Credit unions – which are used by more than half of Idahoans, one of the largest proportions in the country – also grew. Nowhere was this more true than for ICCU, the state’s largest. It announced a variety of new and renovated branches, as well as an Innovation Center in Rexburg to demonstrate new banking technology, a new data center in Chubbuck, and what will be a new regional mortgage and call center in Meridian, where the company bought a more than 50-acre parcel along Highway 84.

“Nearly one million Idahoans belong to a credit union – 55 percent of the population,” said Lynn Heider, vice president of public relations for the Northwest Credit Union Association (NWCUA), which represents Idaho credit unions. “We expect that when new economic data is released early next year, it will indicate that membership has grown as more consumers become aware of the benefits that not-for-profit cooperative credit unions can deliver to them.”

For example, as of September, Idahoans saved $22.4 million on interest from loans and credit cards, and earned $27.7 million in account interest, compared with what they would have spent or earned with banks, according to a report from the Credit Union National Association.

Houses passes S.2155, Idaho Sen. Crapo’s banking deregulation bill

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The House of Representatives joined the Senate in voting to roll back banking regulations instituted after the 2008 recession. File photo.

The House of Representatives on May 22 passed S.2155, a bill intended to roll back some of the regulations of the Dodd-Frank law for smaller banks, by a bipartisan vote of 258 to 159.

The bill was sponsored by Idaho Sen. Mike Crapo, chairman of the Senate Banking Committee and passed the Senate on March 15 by a bipartisan vote of 67 to 31. Idaho’s two Congressmen, Rep. Raul Labrador and Rep. Mike Simpson, both voted in favor of the bill.

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Idaho Sen. Mike Crapo

“This step toward right-sizing regulation will allow local banks and credit unions to focus more on lending, in turn propelling economic growth and creating jobs on Main Street and in our communities,” Crapo said in a statement.

It is widely expected that President Donald Trump will sign it, perhaps as soon as within ten days, because he ran on a campaign pledge of gutting Dodd-Frank. When it would take effect is more complicated because the bill has many sections, said Lynn Heider, vice president of public relations for the Northwest Credit Union Association (NWCUA), which represents Idaho credit unions.

Credit unions and banks alike, which had heavily lobbied Congress, lauded the bill’s passage. Formally known as the Economic Growth, Regulatory Relief and Consumer Protection Act, the bill removed some of the more stringent regulations implemented in 2010 in response to the 2008 recession, but which community banks and credit unions found onerous.

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Trent Wright

“Today’s passage of S.2155 by the House of Representatives was a win for all constituents, families and businesses,” said Trent Wright, president and CEO of the Idaho Bankers Association, calling it “commonsense fixes to ill-fitting financial regulations that have limited the ability of banks to serve their communities.”

The legislation increases, from $50 billion to $250 billion in assets, the threshold at which banks are deemed so big and plugged into the financial grid that if one were to fail it would cause major havoc. Those banks currently are subject to stricter capital and planning requirements.

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Troy Stang

Also, one provision of the bill will classify credit union loans on 1-4 unit rental housing as real estate loans instead of business loans, freeing more capital for loans to Main Street businesses, according to the NWCUA. Northwest credit unions have $1.3 billion invested in loans on that type of housing, said Troy Stang, president and CEO of the organization.

In another example, Dodd-Frank had doubled the amount of data that banks had to collect to offer a loan, from 24 data fields to 48, covering demographic areas such as sex and race. S.2155 said that banks that originate fewer than 500 loans per year were exempt from the new data requirements. Dodd-Frank also implemented more stringent capital requirements, which would be rolled back for community banks under S.2155.

Critics of the bill said it doesn’t really address the problems community banks face, and at the same time it takes away tools from regulators. In addition, because the bill raises the threshold for banks that are subject to enhanced regulatory standards from $50 billion to $250 billion, some are concerned that smaller banks might be more subject to mergers and acquisitions because of the higher ceiling – actually resulting in fewer community banks.

The Associated Press contributed to this story.

Idaho credit unions grow through mergers, membership rule changes

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Idaho Central Credit Union. File photo.

What makes a financial institution successful? It depends.

“There is not a single factor that can explain growth,” said Lynn Heider, vice president of public relations for the NWCUA, which represents Idaho credit unions after its merger with the Idaho Credit Union League. “It could be particular loan promotions, employment groups that join a credit union, a bank pulling out of a rural community, and so on.” The top five credit unions gave varying reasons for their success.

Results from the fourth quarter of 2017 from the National Credit Union Association showed Idaho credit unions with the highest percentage asset growth, according to analysis performed by the Northwest Credit Union Association (NWCUA).

In the case of Freedom Northwest, formerly Kamiah Community Credit Union, growth came from a change in the field of membership, said Scott Garrett, president and CEO. The credit union showed 39 percent asset growth, including 41 percent in real estate loans, 32 percent in auto loans, and 205 percent in business loans, according to NWCUA. Previously, members had to live in Lewis or Idaho counties; now, anyone who joins the Kamiah Chamber of Commerce and pays $20 can join, he said. That meant people in the more urban areas of Nez Perce County, and even Clarkston, Washington, can now join, he said.

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Todd Christensen

Members are drawn by Freedom Northwest’s approach to lending, which is more personalized because it keeps all the loans on its books rather than selling them on the secondary market, Garrett said. “The national market has 10 to 12 criteria, and you’re either in or you’re out,” he said. “They don’t tend to do well at evaluating items in the context of each other.” That approach also works with the properties themselves, such as bare land, properties over 20 acres, and those with shared road agreements – a common situation there, he said.

Second was Idaho State University Credit Union, with 34 percent asset growth composed of 8 percent real estate loans and 23 percent auto loans, according to NWCUA. The reasons for this growth were simple: Idaho State University Credit Union acquired Scenic Falls Federal Credit Union, of Idaho Falls, in 2017, said CEO Robert Taylor.

Third was Idaho Central Credit Union, with 25 percent asset growth, 25 percent real estate loan growth, 23 percent auto loan growth, and 40 percent business loan growth, according to NWCUA. No big change in particular accounted for that growth, said Laura Smith, director of public relations for the Chubbuck-based company.

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Laura Smith

“Our asset growth percentage is based on increases in real estate, auto and business loans,” she said. “We love that we get to help our members put down roots in Idaho by buying homes and starting businesses here. As we continue to grow membership and assets, we’re able to increase the products and services we offer as well as our support and investment in our local communities.”

Fourth was Capital Educators Credit Union, based in Meridian, with a 19 percent asset growth, 25 percent real estate loan growth, 17 percent auto loan growth, and 77 percent business loan growth, according to NWCUA. Growth was attributable to the addition of new members and growth in assets per member, said Todd Christensen, senior vice president of marketing and business development. The organization, which he believes is the oldest in the state, has branches throughout the Treasure Valley, as well as in Twin Falls, he said.

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Members Preferred Credit Union. Photo courtesy of MPCU.
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Greg Johnson

Fifth was Members Preferred Credit Union, based in Idaho Falls, with an asset growth of 12 percent based primarily on an 18 percent growth in auto loans, according to NWCUA. “As much as I’d like to think it’s something I did, a lot of it is the economy,” said Greg Johnson, president and CEO. “Most of it is used car loans.” Members also changed its field of membership a few years ago, from medical and professional. “Mostly it’s just been word of mouth,” he said. “We don’t do advertising at all, actually.”

This story was corrected May 2 to show that Scott Garrett said membership used to be limited to anyone who lives in Lewis or Idaho counties.