Callaway Bank’s legacy in limbo

FULTON—Callaway Bank President Bruce Harris knew there would be concerns about the bank’s future and worries about him once word got around that he had been diagnosed with terminal lung cancer, with no heir apparent.

A Harris has run Missouri’s oldest independent bank since 1897. Bruce Harris’s great-great uncle, Thomas Harris, was among the bank’s founders in 1857. His great-uncle Will was president from the turn of the 19th century until 1957, when his uncle John became president. His father, Overton Harris, was president from 1981 until 1999, when Bruce Harris took over the bank’s leadership.

Harris orchestrated some of the biggest changes in Callaway Bank’s history, including an aggressive expansion into Boone County, and the bank has more than doubled in size in the eight years he’s been president.

So, right after breaking the news in late October to members of his family and his board or directors, Harris, 53, who doesn’t smoke and exercises regularly, sent an e-mail message to his employees informing them of his diagnosis.

“I said to them, ‘I may be the lightning rod for the bank, but you, the employees, are the bank to your customers, and that’s not changing,’” he recalled in an interview at his office in Fulton. “I’m not the bank. Many of our customers wouldn’t know me if they saw me walking down the street.”

Seven Harris family members are working at the bank: Overton, Bruce and John (seated) and (back row left) Tom, Tanner (Russel), Glenn and Martha.

“The Harris family maintains a major presence at the bank. Overton, who turned 80 last Tuesday, and John, 90, are still on the board of directors. Four other members of the family work at the bank, including Bruce’s brother, Tom, the director of security and building maintenance, and his 25-year-old son, Glenn.

Callaway Bank, like all successful independent banks, continues to be an attractive target for purchase by a larger bank.

Because of mergers and acquisitions, the number of independent banks in Missouri is roughly half of what it was just 30 years ago, and Callaway Bank’s expansion into the neighboring market was initiated so the bank would remain competitive with the big banks.

Harris said there have been inquiries about buying the bank since he became ill. But it’s not for sale, he said. As long as we are making a positive difference in the communities we serve, there is no need for us to sell,” he said. “We are very viable.”

The search for a successor
Overton Harris, who wrote what he called a banking “declaration of independence” a decade ago and criticized “the huge concentration of assets in a few hands,” agreed with his son. He said during a family photo session for this article, “There is a definite niche for independent community banks.”

Jerry Sage, director of the Missouri Independent Bankers Association, said Callaway Bank is one of the most respected— and staunchly independent—banks in the state. “They would do everything they could to make sure it says locally owned and run.”

LEFT: 2006 President’s Cabinet. Back Row, Left To Right: Paul Craghead, Sr. Vice President; Doug Webster, Senior Vice President; Carl Brandenburg, Senior Vice President; and Mike Imhoff, Senior Vice President. Front row, left to right; Kim Barnes, Senior Vice President; Bruce T. Harris, President; Rick Gohring, Executive VicePresident; and Gary Meyerpeter, Senior Vice President.

Bruce Harris said the bank has deep strength in management and that won’t change when he’s gone. “That could be tomorrow; it might be a year from now. Shoot, who knows? It might be two,” he said.

The board’s search committee is looking internally and externally for Harris’s successor and will make its recommendation to the board in June. The search committee is led by Columbia Daily Tribune associate publisher Vicki Russell, a member of the bank’s board of directors. So far, no clear favorite has emerged, but the board is looking into likely candidates.

Tom Harris, the only family member who is an officer in the bank, is not applying for the job. After a recent reorganization that Harris directed, the highest-ranking officers below the president are: Richard Gohring, president of the Callaway County market; Gary Meyerpeter, president of the Boone County market; and Kimberly Barnes, the chief operations officer.

John Harris Jr., the president John Harris’s son and Bruce Harris’s cousin, was a vice president at Callaway Bank from 1990 to 1997. He left Callaway after Bruce got the president’s job and now works in Columbia as an investment banker for Kansas City-based Country Club Bank.

John Harris Jr. declined to comment when asked whether he planned to seek the president’s job again, referring questions to the bank.

Bruce Harris said that as of last week his cousin had not applied for the job. Bruce Harris acknowledges that he created turmoil at the bank after he took over as president and began ramping up operations and making the move into the neighboring county.

“We lost over 25 percent of our work force in the first six months of my presidency,” Harris said. “At the time, I’ve got to tell you, I’d wake up in the morning and look in the mirror and say to myself, ‘Whoa, what am I doing wrong?”

But now, things look different.

“Hindsight tells me it was probably a real good thing for us,” he said. “We had to make some changes.”

Gambling on growth
Harris said the expansion into Boone County “was a big gamble. There was no guarantee we would be successful.”
But he believed it was necessary. “I felt we were vulnerable; we were at risk,” he recalled.

Callaway Bank has about a 50 percent market share in Callaway County, but the local economy is growing slowly. In 1999, the bank had about $145 million in assets and faced the same problems of other small banks that were competing with national banks and large regional banks.

“They had a lot of money to throw at technology, products, marketing and people, and it just cost a certain amount of money to be in the banking business,” Harris said. “Barriers to entry to our business were rising, and so we had to grow and generate enough cash flow to offer the same or better products as the big banks.”

Callaway Bank opened a branch in south Columbia at Forum Boulevard and Chapel Hill Road in 1999, and it was so successful that another was opened on West Broadway in 2002 and Lake of the Woods last year.

“It was a pretty aggressive move,” John Harris Sr. said. “We had a lot of competition there. But it’s worked out pretty well so far.” Bruce Harris and his management team also pushed innovation, including commercial electronic deposits, what the bank calls “absolutely free checking” and upgrades in its checking technology.

At the same time, Harris and the board resisted the allure of sub-prime lending. The bank actually increased lending standards before the fallout in the sub-prime market. “We were getting a little nervous about the economy and we wanted our borrowers to have more liquidity on the balance sheet,” Harris said. “That decision cost us a lot of business.” Now, with the economic downturn, some of the customers who borrowed from other banks are having difficulty keeping up with payments “and the banks are saying, ‘We’re going to close you out.”’

In Boone County, “we told our developer customers we wanted a year’s worth of interest on that loan carried on the balance sheet, in cash,” Harris said. Other banks were willing to lend 100 percent of the purchase price.

“Now things have slowed down, and there are people out there who have these subdivisions and they can’t sell those lots for what they’ve got to sell them for to get out from under them,” Harris said. “Banks are being pressured to move those bad loans off their balance sheets, so they are being pretty hard-nosed about it. They’re foreclosing or asking those people to re- finance at other banks…

“Maybe we got lucky in our call, but we’re not fighting a bunch of bad loans,” he said. “Our credit quality right now is exceedingly strong. Customers who stuck with us and took our advice are sort of glad they did I think.”
Harris acknowledges that Callaway Bank is conservative. “We’re here for the long haul, and we want our customers to be here in the long haul as well,” he said.

As recession looms, Harris said “We don’t think 2008 is going to be a great year. Part of this sub-prime issue is fueled by the national press, but part of it is real. I am fearful that the Fed is going to find itself in the position where it cannot continue to lower interest rates to offset the recession but has to raise rates to offset inflation.”

President Harry S. Truman visits with Tom Vansant and Will Harris in the bank lobby in 1954.

Overton Harris said he sees some similarities between the economic situation now and conditions in the mid-1980s when he was president and dealing with record-high interest rates and inflation.

“The term stagflation has surfaced again,” he said.

Farmers in the ’80s were deeply in debt, and the bank, which had a high concentration of agriculture loans in its portfolio, decided to write off numerous loans.

“Odie and John really worked through some tough times with some people,” Bruce said, referring to his father by his nickname. “We took some heavy losses back then in order to help these farmers who got in trouble.”

But the bank is bigger and more diversified now, with one third of its assets derived from Boone County.

“We feel like our loan-loss reserve is superadequate,” Bruce Harris said.

In 1998, when Overton Harris announced his plans to retire and Bruce Harris was picked to be the next president, the board allowed for a oneyear transition period.

The board quickly has started its search for the next president, Bruce Harris’s successor, to allow for another transition period.

Harris, who is remarkably upbeat and open about his condition, said with a laugh, “It is my fervent hope that there is a relatively long transition.”