Ingram's Magazine July 2022

9 percent. Interest rates still remain at historic lows.” It’s really a question of perspective for many. “Some business owners may have little to no experience managing increased borrowing costs and priori tizing investment decisions, and they should look to their banker for guid ance,” Tyson says. “I am optimistic that even as we return to a more normalized interest-rate environment, we will con tinue to see demand both from borrow ers and from investors.” It is tough to know, banking execu tives say, what the longer-term effects of rising rates will be and how long they will last. “This uncertainty,” Close notes, “causes hesitation in investment deci sions, innovation, and strategic plan- ning towards a focus on monitoring the short and long-termimpact the increased rates have on their business. When you defer key decisions, it invariably ham pers development and growth.” In the short term, the effects are al ready showing up. “Rising interest rates typically slow downnewcommercial construction and (capital-expenditure) investment, es pecially when coupled with rising cap rates as well,” said Paul Holewinski, president and CEO of Academy Bank. “We are starting to see this slow down generally in the market. Kevin Barth, one of the region’s deans of banking, was a trainee at Com merce Bank the last time the federal funds rate was flirting in double digits, a time when the nation also was recov ering from a spike in energy prices. Un like then, the nation wasn’t confronting a supply-chain crisis like today’s, and the global economic impact of Soviet intervention in Afghanistan wasn’t pro ducing the shocks of Russia’s current dalliance in Ukraine. So anyone looking for historical paral lels is advised to keep a broad perspective. “It’s pretty clear rates aren’t going down any time soon; they’re probably going up,” Barth said. “But even if rates went down today, it wouldn’t do any thing about the price of gasoline or fuel, and they won’t do anything to help iron out the supply-chain issues. If those things get worked out sooner, including in Ukraine, things might calm down. Otherwise, the Fed will probably have to increase rates even more.”

Like Close, he sees the potential for apullbackbybusinessexecutives.“When rates rise this high, people have to ad just the way they look at a new project, new construction, new investments in equipment and facilities. You have to see if projects or investments pencil out and get a positive returnwithhigher rates.”

tion volume would be if the Fed Funds rate goes to 4-5-6 percent, at these levels that would mean that the Prime rate would be between 7 percent and 9 percent, which is much higher than what the Fed has telegraphed, and the market is expecting in terms of rate in creases.”

“Even if rates went down today, it wouldn’t do any thing about the price of gasoline or fuel, and they won’t do anything to help iron out the supply-chain issues. ”

— KEVIN BARTH, CHAIRMAN/CEO COMMERCE BANK KANSAS CITY

If a company is starting a project that might not be done for a year or two with construction financing, he said, “they’re going to need to be careful. Who knows where long-term rates are going? People are more cautious when there’s not a stable interest-rate environment. It takes a while to adjust to that.” That risk extends beyond loan in tegrity and into overall profitability it- self.

If that happens, Holewinski said, “I expect a broad-based decline in new loan originations maybe 20 percent to 30 percent from 2021 levels, and poten tially higher for certain product types.” Clearly, though, we’re not toeing that precipice just yet. “To a large extent, it’s still too early to tell” what the rising-rate impact will be, said John Russ, president of com mercial banking at UMB, the region’s

Concentration at the Top Bank portfolios of net loans and leases in the Kansas City region show the 10 largest lenders controlled nearly 84 percent of lending volume marketwide through 2021.

Net Loans and Leases

Rank

Bank

1 2 3 4 5 6 7 8 9

UMB Bank, National Association

$16,977,349,000 $15,034,930,000 $7,098,043,000 $4,197,838,000 $1,756,245,000 $1,632,146,000 $1,438,811,000 $1,219,827,000

27.98% 24.78% 11.70%

Commerce Bank

Capitol Federal Savings Bank

CrossFirst Bank

6.92% 2.89% 2.69% 2.37% 2.01% 1.23% 1.11%

North American Savings Bank

Academy Bank

Security Bank of Kansas City

Country Club Bank Bank of Blue Valley Corefirst Bank & Trust

$746,617,000 $675,089,000

10

Market total

$60,671,451,000

Top 10 Market Share:

83.69%

“Right now, the Fed Funds Futures market is projecting a Fed Funds Rate of 3.25 percent at the end of the year, so another 150 basis points in rate hikes,” Holewinski said. “While it is impossible to predict with any certain ty what an expected decline in origina

largest by assets. “You’ve got all these different factors that are swirling out there, but largely, there’s been little ef fect yet.” Only recently, Russ said, had cus tomers called trying to lock in longer- term rates, but you could easily count

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I n g r a m ’ s

Kansas City’s Business Media

July 2022