Page 2 The Banker’s Advocate
HILLYARD Continued from Page 1
banks to get into some pro- jects deeper than they should. One example of this is a bank going outside its normal trade area for profit and loan growth. Q: During this down- turn for the banking indus- try, what are some of the most common decision- making pitfalls Arkansas bankers have fallen into? A: The use of borrow- ings from the Federal Home Loan Bank and of brokered deposits has caused too many banks to grow their balance sheets beyond their abilities to manage them. One com- ment that I heard over and over was, “If I don't make that loan, my competitor will.” The rush to make the loan caused too many loans to be made and funded without proper cash flows or global cash flows being done on the borrowers. In the “old” days, a borrower would be loyal to a local bank and do all his business there. But now you will see the same borrower in every bank you go into borrowing at the legal loan limit. So when he gets into trouble, he could put 20 percent of the bank’s capital at risk. So many times, we find the same collateral cross- pledged at other banks. Q: Have you learned
any new “lessons” during the downturn? A: Yes. The inability of management to adequately manage (A) loan growth,
NOT ALL BUSINESS: When he is not scrutinizing a loan file or peppering a young examiner with questions, Larry Hillyard enjoys a day off in a duck blind. Other passions include his farm in Chickalah, Arkansas, and investing for retirement.
(B) branch growth and (C) concentration of credit growth seems to be the major cause for the prob- lems that banks are facing now. You’ll notice I never mentioned the word “economy.” Marlin Jack- son was the Commissioner during the 1980s and a great believer that the economy was never the main reason for a bank being placed on the “problem” list. He always felt it was a direct result of management’s greed or inability to make changes in an ever-changing world. Q: If you could gather every Arkansas bank presi- dent into the same room at the same time, what would
your message be to them about the “crisis” and the future of banking in Arkan- sas? A: The last “crisis” lasted only a few years and dealt with much smaller numbers. Capital calls then would require only a few hundred thousand dollars to a few million. Now, we only talk in terms of mil- lions. And because of trust preferred securities and TARP, bank holding com- panies have gone into a great deal of debt at the same time their bank sub- sidiaries are dealing with a problem loan portfolio. These banks have put themselves into a tight situation for several years
December 31, 2011
to come. However, those that have managed them- selves through these trou- bled times appear to be doing quite well. I truly believe that there is a future for banking in Arkansas. Everywhere I go in Arkan- sas, there are community banks that compete against the top 30 national banking firms. The community bank is winning these bat- tles for market share be- cause they know their cus- tomers. Every bank’s board of directors and management team has to manage to its size and abili- ties. Banks that are $150 million and below can be, and are, managed differ- ently than banks with more complex balance sheet structures and multiple branches. Q: Dodd-Frank remains
at or near the top of the “radar screen” of bankers in Arkansas and the rest of the country. Do you con- sider regulatory burden a problem for Arkansas banks? A: Dodd-Frank now
overshadows banker com- ments about the status of northwest Arkansas when I sit down and talk to them. Their main complaint cen- ters on the amount of time and lost revenue that goes with the Dodd-Frank bill. Some banks are experienc- ing lost revenues of $10,000 to $20,000 per month in fee income. Lar- ger banks appear to be do- ing alright adapting to the bill, but smaller banks with limited personnel are hav- ing a harder time adapting.
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