CEO Roundtable: Banking

Each month, we gather around the table with a different group of Springfield business leaders to discuss industry trends, workforce and company operations. Join us as we get a behind-the-scenes look into our business community from the C-suite.

Springfield Business Journal Executive Editor Christine Temple sits down with bank leaders Jason England of Arvest Bank, Tony Lewis of The Bank of Missouri and Monte McNew with Guaranty Bank to discuss a wide range of topics impacting banks and their customers.

An excerpt from the podcast follows.

Christine Temple: I want to start off with the impact of the Fed’s interest rate cuts that we’ve seen this year after a cooling of inflation that we’ve experienced. Another 25 basis points are expected to be reduced for the Fed funds rate in December. How have you seen that impact within your operations and client activity?
Tony Lewis: I think the purpose and the impact was to spur excitement and potential activity. Ever since July it was at 8 1/2%, and just in three or four short months we’ve seen a 75 bips (basis points) decrease. It was an indication that inflation was somewhat controlled and heading towards a soft landing. From our bank’s perspective, what it’s done is compressed our net interest margin, and so how we’ve chosen as a bank to get deposits from our customers to lend out to the community – we’re paying them this year over 5% interest for that, and that’s our decision to do that as opposed to borrowing that money from the Fed. It’s repriced our portfolio of all variable-rate notes, and what the direct impact from what the Fed board is doing is compressing our margin.
Monte McNew: I’d say that’s obviously true for some places. Some banks are asset sensitive versus others are liability sensitive. So this lowering of it while obviously adjusting the floating rates on the loans, oftentimes it also adjusts the floating rate on many of the deposits. You see both sides of that.
Jason England: We think we know what the Fed’s going to do, and you look into your crystal ball and then something else comes out and changes. And so we’ve thought that we would have a drastic reduction in interest rates. We didn’t realize how fast they would go up, how fast they would come back down, and it looks like they may be slowing down a little bit. So I think it’s just a wait and see and watch – just keeping your finger on the pulse and see where the interest rates are going. I think that they’re going to go down slower than we anticipated even 30 days ago.
Temple: So how are you seeing your clients respond to that kind of change in the marketplace? Is it making money more accessible to them?
McNew: It does in some situations. We always think about the loan side, but on the deposit side, you’re getting people kind of now that they see the rates lowering and feel that that’s the direction it’s going. You’re seeing them trying to get different types of products that might go longer, might be fixed longer, because they really enjoyed the last couple of years these higher rates, so they’re wanting to hold onto them as long as possible. The deposit side probably is much more of a challenge to make your clients happy than the loan side.
England: The deposit customers for years have been underpaid for their deposits, and now they’re getting to reap some of those benefits. It was short-lived, because now rates are going back down. Some of the loans that we do, the maturities are much longer, and so you may have a person still fixed at 3-4% today that’s going to be repriced. So I don’t think all the lending customers have felt the full impact of the higher rates yet. A big chunk of new business has, but the repricing of your portfolio is starting to get over halfway. There’s still another half to go, so, curious to how that changes people’s plans in the future. The thought was maybe rates would come down fast enough that they wouldn’t be as impacted as they were previously – but like I said, it’s sort of come up with a plan, wait and see what the Fed does and then adjust to that.
Lewis: Yeah, I completely agree with both Monte and what Jason have said from the depositor perspective. From the real estate investor, from a developer perspective or a business developer perspective, their underwriting now changes. Whenever it was 75 bips higher in July of this year, now a deal may pencil out a little bit better than what it would, but it still hasn’t come down enough for it to really open the capital markets, as far as traditional banking is concerned. The construction costs have somewhat stabilized; they’re still high. Labor costs continue to rise, but what it does is it spurs that excitement and activity.
Temple: What are some of the pressures that you all have been facing, and how have you changed the way that you’ve done business and opportunities even into next year?
England: I think that you have to really focus on your operations and deliver as efficient as you can. And so while there’s pressure on income, you can shovel more, right? You can get more income and you can focus on streamlining the operations. So I think we’ve done both of those. We’ve hired more salespeople to help continue to shovel and really focused on software and utilizing technology to become more efficient. So we’ve really doubled down as an organization. Hopefully, in the balance it comes out to still be a net positive for us.
McNew: I think you too have to look at different revenue streams, right? Loans are always more obvious than deposits, but there’s also non-interest income. There’s several different avenues or levers that you can pull in banking; they’re non-interest income and you’ve got to pay attention to those and see what you can do. Those tend to be like the mortgage and some of the other things like that. So mortgage is a little softer as you pointed out over the last couple of years, but you’ve got to look at those different revenue streams.
Temple: How are you getting a younger generation to say, I think I do need a bank, even though there’s all these other options that are telling them they don’t.
England: We invest in going to universities and working with students on setting up the right behaviors as they’re exiting, going into professional careers, to make sure that t hey have that connection. I have a son that’s in that age group. Most of the things they have done in their life has gone away from personal connections, and so we have to force ourselves almost back into their lives to say there is a reason that this form of business exists. You will need somebody to help walk you through a purchase of a house. Somebody says, I don’t know why they haven’t made an app for it. Well, that’s a complicated transaction if you’re 18 or 20 or 25 and you’ve never gone through it. So yes, are we looking at marketing ways to get in front of them? It’s a one-person-at-a-time approach though, and once you make that connection, they typically stick with you for a long time once you help ‘em out.

Excerpts by Karen Craigo, Reporter