2 min read November 2022 — Steven Mack, CEO of Texas Heritage Bank, spoke with Invest: about the future of banking, his own experience within the industry and what sets his community apart. Despite economic uncertainty and rising interest rates, the bank has been able to adapt to the challenge, he said.
How is the shifting economy impacting your work?
The changes arose quickly at the beginning of this year, as a result of the increased national inflation and the responses to that from the Federal Reserve and the Treasury Department. As far as the banking world in San Antonio, our deposits have continued to grow and the same has been true for some of our competitors. At the same time, loan demand is tailing off, to the extent that we have remained flat year over year, which we were not expecting. I think the rapid increase in interest rates, coupled with the uncertainty that comes along with inflation and other challenges in the economy, put a lot of borrowers on the sidelines. A year ago, there was cheap money everywhere. That has completely changed. We’re now in an environment where we believe rates are going to continue to go up on the short end of the yield curve, potentially even on the long end. As a result, we are closely following the Fed because this information regarding the future is important to our work.
What are the biggest concerns small and medium-sized businesses are facing?
Rising costs, particularly labor costs, are the biggest concerns for our business clients. We’ve seen a significant change in the marketplace in terms of hiring and retention of employees. The higher labor costs are starting to really impact decision-making for business owners and the result of that is that a lot of hiring has slowed. I haven’t heard of anyone saying that they have a hiring freeze but I don’t see a lot of growth coming in. The other side to that is borrowing costs, with the prime rate at 6.25%. We expect that to go up another 75 basis points, at least that’s what the market is telling us. That is a significant change in costs for small to medium-sized businesses; they’re putting projects on the shelf, including acquisitions of equipment, as they decide to hold off and wait. The Federal Reserve is really trying to slow the economy down. We’re beginning to see the effects of the Fed’s actions, so that’s starting to happen.
How is the bank adapting to higher interest rates?
I’ve been in business for 40 years and the last time I remember interest rates rising this quickly and having such an impact was in the 1980s when I first started in the banking industry. It’s kind of deja vu. It’s been a long time but I’m trying to remember all the lessons I learned back then. I would describe our approach as trying to keep our powder dry; we are being very careful and measured about the investments that we are making. We continue to be interested in making loans to small to medium-sized businesses as they need them, there’s just not much demand in that arena. Instead, we are taking advantage of the bond market, particularly the U.S. Treasury market, and making investments in that arena. We’re doing that at a very measured pace as we are waiting to see how high long-term rates go before we begin to invest more heavily. At the present time, in terms of profitability, the bank is doing very well.
What has your experience as a banker been like and how do you see the profession progressing?
The banking industry has been very good to me, I have found it to be a satisfying and fulfilling career. I enjoy the opportunity to watch the American capitalist system bear fruit. There are a lot of different ways to make money in this country: to build a business, start from scratch. Entrepreneurism is alive and well in this country. Our elected representatives and bank regulators need to support small and medium sized businesses. Small businesses create the most jobs in this country and there is nowhere else in the world that has a dynamic economy like we do. We want to continue to see that happen. I think that is one of the benefits of coming in as a young banker: you have the opportunity to help families, entrepreneurs and small businesses continue to grow.
What separates San Antonio from other markets?
Our bank is based in Boerne, so we’re on the outskirts of the northwest side of San Antonio, where we also have an office. We get the benefit of living and working in a beautiful hill country community and also the benefit of doing business in San Antonio. I continue to believe that San Antonio’s economy will weather whatever economic storms are in its future, primarily because we have a more diverse economy than other places and because we have a business-friendly state government that supports business growth. San Antonio is unique with the military and government offices and installations we have here that help to stabilize the economy. Tourism is another strong component for San Antonio and the hill country. In comparison to the Dallas-Fort Worth area, which has some Fortune 500 companies, San Antonio thrives on its family-owned, small to medium-sized businesses.
What are your expectations for the local economy moving forward?
I think there will continue to be growth here in Boerne and in northwest San Antonio. We have seen a lot of residential construction. With interest rates high, I think we will see some slowdown on development and businesses are going to be very careful about the acquisitions that they make. The next couple of years we will see things slow down but I believe this region is one that will come out on top and regain its momentum fairly quickly once things settle down.
What role does the Boerne community play in your work?
As a community bank, we are eager to serve our community in whatever way we can. We are very keen on helping the families and individuals that make up Boerne and our market and providing them with opportunities. I’m particularly pleased with the team we have, I can’t say enough about their dedication to doing excellent work. We have a very strong work ethic in this community and in Texas that I’m proud of and hope to continue supporting.
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