The Springfield Regional Economic Partnership held a series of workshops on May 31 at the Hilton Garden Inn tied to the importance of local economic development as part of SREP’s annual partners meeting. A State of Banking roundtable discussion featured banking executives Ron Hawley, area president of Regions Bank; Mark McFatridge, president and CEO of Metropolitan National Bank; and Bill Monday, chairman, president and CEO of O’Bannon Bank.
The following are excerpts from the roundtable.
On residential vs. commercial lendingMonday: “As a result of the financial crisis of 2008 and the housing market, a lot of the banks that got out of their normal lending patterns and got into land development, (commercial real estate), speculative lending, it kind of bit them on the balance sheet. … The thing we learned was to stay true to our traditional credit underwriting, our credit standards. On the commercial side is where we tend to have a little more risk.”
McFatridge: “The last couple of years a lot of us have been focused on cleaning up our balance sheets on the commercial side. Today, we’ve gotten our balance sheets under control, and we are now able to look forward. Now, the activity, unfortunately, is trading deals between banks on the commercial side. We’d love to have more activity, more organic deals on the commercial side. On the residential side, the last several years there has been a lot of focus on refinancing, but now we are starting to see purchases again.”
On recession lessonsHawley: “One of the good things that did come out of the financial crisis for our bank, and I think most banks across the United States, was the ability to figure out who you are, what you are supposed to be (and) how you should lend money again. It was really an opportunity to take a look at what we do, and get set up for when the market does turn around. For us, we put ourselves in a solid capital position. We have way too much liquidity and would love to lend money.”
On regulationHawley: “We are now in a pendulum that has swung where we are very heavily regulated. The regulations that were passed a couple of years ago, Congress has worked through about half of (the Dodd-Frank Act), so we’ll have another round of regulatory changes coming.”
Monday: “We are, after all, a business. We are not a nonprofit. The banking industry is here to make money. I think, right now, it is looked at more as a public utility, and that’s just not the case.”
On low interest ratesMcFatridge: “When we are in this low of a rate environment, our margin for error disappears. When you get a project in front of you and it is a little on the gray side, you’ve got to (step) back and say, ‘Is it worth it?’ For the good of us, we really do need to be in a rising rate environment. That’ll help the bank’s profitability. That will give us an opportunity to work in those gray areas, but it’s not going to happen anytime soon. We’re talking low rates now through 2015.”
Monday: “There are too many banks going after too few loans. That presents a challenge in the marketplace for us. If you are not careful, you can lower your guard on credit quality, and that gets back to your risk model. It is a challenging market.”
On foreclosures
McFatridge: “One of the things the foreclosures have been doing on the residential and commercial side is affecting property values and how they are appraised. You may go to buy a house or a commercial building and be willing to pay $1 million, but if they start looking at comparable properties and that value comes in at $800,000, then you’re going to have to come up with a large down payment to get to that 80 percent loan-to-value side of things. We need to get the foreclosures finished – and they’ve slowed dramatically – to help get property values up.”
Hawley: “We are on the down side of that cycle, so banks are having to reserve less for loan losses. The good news is on both (residential and commercial real estate) foreclosures are dropping significantly. I think we’re past the major hurdle.”
On long-term fixed ratesMcFatridge: “We’ve been in such a low-rate environment that when you start locking up things for seven years and 10 years, it is pretty disconcerting because we really have no idea what is going to happen. You can forecast it, but seven years is a long time. I had hair seven years ago.”
Hawley: “There are adjustable rate mortgages out there, but quite honestly, with the rate environment as it is, we would certainly recommend getting a fixed rate and locking that in.”
