A CBT Q&A: Callaway president leads MIBA
Harris has been in banking for 33 years and took over leadership of the Fulton-based bank in 1999. He orchestrated some of the biggest changes in the bank’s history, including an aggressive expansion into Boone County, where it is now the eighth-largest community bank, with branches at Chapel Hill Road, West Broadway and Lake of the Woods.
CBT: It’s been a tumultuous year in banking. After warnings that the financial industry was on the verge of collapse, and the bailout of financial institutions deemed too big to fail, Congress passed a $790 billion stimulus bill in February. Still, 165 banks did fail this year. Now Congress is considering a wide-ranging overhaul of financial industry regulation. The American Bankers Association opposed a recent House bill on industry regulation, and the Independent Community Bankers of America supported it. What is MIBA’s position on the pending federal legislation?
Harris: I think you are referring to HB 4173, which was opposed by the ABA and supported by the ICBA. It should be noted that the ABA is heavily funded by the large banks, and the ICBA is totally committed to representing community banks. That is an important distinction in Missouri for two reasons. First, even Missouri’s largest banks are really community banks by their nature. Secondly, there is real regulatory reform in HB 4173, which is aimed at the larger banks and the shadow banking industry. The cost for those reforms would be borne by the big banks if the bill finally passes both houses in substantially the same form as HB 4173.
MIBA feels strongly that there is going to be regulatory reform for banking for three reasons: 1. The need for reform is there for the Wall Street banks and the shadow banking industry. 2. The public perception of banking as a whole right now is less positive than it could be. 3. The Democrats have the votes to do whatever they want to, and they are not going to come back to their constituents and tell them that they have done nothing to rein in those greedy bankers on
Wall Street.
A good example of this is the Consumer Protection Financial Agency that is created in this bill. MIBA believes that community banks should be carved out from that additional oversight and that community banks should not be required to pay the tab for this additional layer of bureaucracy. Of course that means that the big banks will suffer the additional regulatory burden and cost.
Community banks such as Callaway didn’t participate in the risky lending practices that led to the financial crisis but are getting hit with huge increases in fees used to insure that the FDIC can cover the cost of bank failures. Then in September, the FDIC asked banks to prepay their estimated risk-based assessments for the next three years rather than for just the next quarter. Are community banks getting the short end of the stick?
Yes and no. Yes in the sense that we did not, as a group, cause these problems, but we are going to pay for them. No because the FDIC system was set up originally and still operates on the premise that the banking industry would provide the funding for deposit insurance.
Of course at the time and really up until the mid 1980s, banking was a cottage industry. When the interstate banking bill was passed, we became more interconnected as an industry. As such, it is probably past time for us to rethink how we need to fund deposit insurance.
House Bill 4173 (referred to above) does just that. Instead of basing premiums on deposits, HB 4173 bases premiums on assets. This makes sense for two reasons. The first is that my bank’s balance sheet is funded more than 90 percent by domestic deposits. That number would hold true for most banks in Missouri and almost all community banks. Citigroup or Bank of America, on the other hand, might only have 35 to 50 percent of their balance sheets funded by domestic deposits. Secondly, it usually isn’t deposits that get you in trouble in banking; it is assets. Using the funding formula in HB 4173, all but one or two banks in the state of Missouri would pay much lower premiums to the FDIC. The big banks premiums would go up substantially.
Some independent bank leaders have voiced concerns that community banks continue to face overly aggressive examinations that can hinder small-business lending. Do you share those concerns?
At the risk of potentially offending some of my regulatory friends, I would say yes. I have been lucky to make a lot of friends in the banking business during my 33-year career, and there certainly are stories of overzealous and inflexible examiners out there, and those stories are not confined to Missouri. But we need to understand the situation in which the regulatory community finds itself.
I once heard an examiner say that examiners were not problem solvers; they were problem finders. I personally think examiners should also work with bankers to be problem avoiders prior to the fact. However, there isn’t a banker that I am aware of now who doesn’t have more problems to deal with than we did, say, two years ago. These are quite difficult times, and the regulators’ function in our system is to accurately assess the condition of their banks at a point in time.
Speaking in broad terms, the regulators must certainly own up to the mistakes that they have made or are making, but we as bankers must own up to and recognize our mistakes. On balance I would say that this will be behind us in a year or so.
Mortgage rates have reached their lowest levels in 60 years. But in March, one of the key Federal Reserve programs that has helped drive down the rates, the purchase of mortgage-backed securities, will expire. Some analysts predict rates will increase significantly in the spring. What’s your take on interest rate trends and the impact of a jump? (One opinion I’ve heard is that home sales will surge at the first sign that the rates are rising.)
The budget forecast that we used for 2010 was that rates would remain relatively flat until the fourth quarter, at which time we will likely see some upward trend. In the past the Federal Reserve has moved aggressively when they decided to move. As long as unemployment is north of 10 percent, we just don’t see the Fed raising rates significantly.
In terms of the impact of a jump in rates, I think it is dangerous to have a one-dimensional discussion about that topic. As you suggest, housing sales might tick up a bit because people want to take advantage of the “bottom” in interest rates. But from a small-business perspective, the cost of borrowing would go up, which means less profits to hire more people. Certainly, there would need to be thought given to the impact on the dollar of higher rates and what that would mean to us in mid-Missouri. Finally, people on fixed incomes might be excited because certificate of deposit rates are so anemic right now. Sounds a lot to me like the old golf saying: “Somebody likes every shot.”
How is The Callaway Bank weathering this uneasy financial climate?
Much like every other bank I can think of right now. These are difficult times. Some of our borrowers are suffering from that. We have more problem assets than we did two years ago but nothing systemic. My banker friends across the state and in central Missouri tell me they are spending more time than they would like working with borrowers, trying to find
common ground and buying time to work through this recession.
We are no different. If we have a borrower who is experiencing difficulty, and they are willing to step up and work with us on a realistic basis, we are willing to sit down at the table to talk. Banks with strong capital and a solid core balance sheet have more options at their disposal to work with customers. We are one of those banks in this market.
On a more personal note, more than two years have passed since you informed the bank that you had been diagnosed with cancer. How are you doing?
Thanks for asking the question. I am quite well, actually. Not cured, mind you, just quite well. In October of 2007, my doctor told me I had seven to nine months left to live. Here we are now 26 months later, and I am still vertical. You might say I am my own statistic unbothered by what other statistics might indicate.
As difficult as these times are economically and politically, I am invigorated by the challenges and the ability I have as a community banker to affect, in a positive way, the lives of people in the communities that we serve. We have a lot of things to be thankful for in mid-Missouri, and I am happy that I can be one part of that equation.
I had scans done Dec. 21. Dr. Vellek at Missouri Cancer Associates told me my scans were boring. He couldn’t find any evidence of active cancer in my body. I think he also said at one time there was no medical reason that I should still be alive. You don’t know how cool it is to be boring to Mark Vellek.
My cancer will return; I am not cured. The funny thing is that I don’t spend any time worrying about that. I am alive, invigorated and able to be active in challenging times and work with customers, board members and employees whom I respect in communities I am proud of. What my future might hold from a health perspective is almost inconsequential to me. My family, Dr. Vellek and I will have plenty of time to deal with that when the time is right.
Three Missouri banks on Forbes list
Three Missouri banks with operations in Columbia made the top 10 of a Forbes list of the best banks in the United States.
UMB Bank, based in Kansas City, ranked second behind Bank of Hawaii. UMB was listed as having $10.2 billion in assets and a nonperforming loan ration of 0.7 percent.
Commerce Bank, also based in Kansas City, ranked third, with $18 billion in assets and a nonperforming loan ratio of 1.6 percent.
Central Bancompany, based in Jefferson City and the parent of Boone County National Bank, ranked eighth. It had $9 billion in assets and a nonperforming loan ratio of 1.7 percent.
Forbes used researchers from SNL Financial to examine the health of the 100 largest banks and thrifts and listed the best 10 and the worst 10. The firm, based in Virginia, looked at eight financial measures that gauge asset quality, capital adequacy and profitability. The size of the banks ranged from a community bank with $5.2 billion in assets to Bank of America with $2.3 trillion of assets.
Mariner Kemper, CEO of UMB Bank parent UMB Financial Corp, said the ranking “shows that the regional banking model works. UMB sticks to our time-tested prudent business practices, such as making loans within our territory, building relationships with our customers and understanding that strong underwriting practices produce quality results.”