Spotlight On: Mike Koch, Regional President, Happy State Bank, a division of Centennial Bank
February 2025 — In an interview with Invest:, Mike Koch, regional president of Happy State Bank, shared that interest and mortgage rates remain a significant challenge for banks, plans to strengthen their community banking roots in the Dallas-Fort Worth area, and why there is a significant block of customers or opportunities for community banks.
What have been some major highlights for Happy State Bank, a division of Centennial Bank, in Dallas over the past 12 months?
I think this has been a notable year for us in all aspects of our operations. We entered the year cautiously, feeling fairly uncertain about where the economy was going to go and how the markets would perform. However, we are happy with where we have ended up. The market has seen some softness in part of the commercial real estate sector and our one-to-four family space, but it has not been as severe as we initially thought could happen. Despite these challenges, we have managed to grow through them. If I think back to 2024, we forecasted that we would be flat through the year, but it has turned out to be better than we projected and we are pleased with our results. This does not mean we are going to take our eye off the ball regarding possible risks in the market, but it has been a good year overall.
What is your overview of the current state of the banking and financial services industry at the moment?
I will share a couple of things. First, I will tell you it is a tale of two cities. You have banks that were strong enough to actually grow through this time, and we have had a number of banks in our marketplace that have had to contract or tighten up. They have reached a point where, because they are overextended in some areas, they need to tighten their belts. We have been fortunate in that we have not really seen any bank failures, though there is definitely some probability or possibility of that occurring in the coming year. It is a time where all of us are being laser-focused on what it takes to do what we must do to keep out of trouble.
We looked at the year cautiously, and we are excited about what has happened through the year and about our posture. I am planning on growing our presence in the Dallas Fort Worth area. I am looking geographically at new opportunities for locations and searching for new people to continue to expand our presence in the marketplace. It is an exciting moment for us, but there are banks that cannot say that. They are just hanging on and dealing with the task of taking care of their customers.
One thing about Happy State Bank is that two years ago we were acquired by a larger bank, Centennial Bank. Now, Happy State Bank, a division of Centennial Bank, is a subsidiary of a $23 billion bank that is conservative, which means that we are not the lowest-priced in the marketplace relative to rates, and we are not offering the most aggressive terms. However, we are lending today just as we did a year ago and two years ago. Next year, I will be in business doing what I am doing today. The leadership in our economy, the businesses that drive it, sometimes take a while to realize it, but they really do need a steady, rock-solid partner that is going to be there in season and out of season. Happy State Bank, a division of Centennial Bank, has that kind of strength and posture.
Considering that Happy State Bank, a division of Centennial Bank, works with a wide range of services, which services or products do you expect to be the main drivers of growth in the coming years?
Happy State Bank, a division of Centennial Bank, on the whole, is a community minded bank that was primarily invested in small businesses in the community. We have had the ability to engage in larger projects, whether that involves commercial real estate or larger industrial support and C&I-type loans. We had the capacity, but we really focused on being a community minded bank in the Dallas-Fort Worth market. Specifically, we have built this bank more along the lines of being a commercial bank, where we did not engage as closely with small businesses in the community minded banking sector. One of my current focuses, which is beginning to show some results, is my intention to reinvest in our community minded bank roots, specifically in the Dallas-Fort Worth area.
I believe that over the next few years, you will see us become more involved in business banking for small businesses and the lower end of the middle market tier. That is kind of our focus, and I think we will find great growth in that area. I believe there are many good community minded banks and that there is a significant block of customers or opportunities for us that have emerged in the banking world who would be better served by a smaller bank.
When I look at growth opportunities in terms of branch banking, I am considering a more traditional community minded bank-type footprint, as opposed to being located in an office building on the interstate.
From your perspective, what are the primary challenges taking place at the moment in the banking industry, and also how is Happy State Bank, a division of Centennial Bank, addressing these challenges?
Firstly, there is a real large challenge which is always there, and that is interest rate risk. Interest rate risk means that if we put 4.5% loans on our books three or four years ago and then interest rates rose, the cost of our deposits went up and the cost of our other sources of funding went up as well. There are banks that are literally funding 4.5% mortgages and having to borrow 5% to do it today, which is a huge risk.
But there is also risk when rates go the other way. If rates flip in the other direction, your deposit rates are high. If the deposit rates that you are paying for depositors fall faster or slower than the prime does, now, that is out of whack in the opposite direction. What we have done, and what we will continue to do, is that we are focused on our balance sheet and on making sure that we do not put ourselves in a place of undue risk there as we focus on protecting ourselves in those environments.
Secondly, I think that people are concerned about the one-to-four family space, home construction, and home sales. Mortgage rates are falling. I do not know if they will fall as fast as people want. I think the magic number is 6%. If mortgage rates drop below six, which means 5.8%, I actually think the market will jump right back to what it was. The market has been pretty strong considering the high interest rates, and that is largely because people are still moving to these markets. This is still a place where people want to be. The industry is growing, and people are moving here for jobs, which has managed to prevent a significant downturn.
There is some pent-up demand that will happen. There are a lot of homes for sale in the Dallas-Fort Worth market that are not selling as fast as people want, specifically existing inventory. Existing homes are not selling as quickly, but new homes still manage to sell. There is a lot of latent inventory that looks risky, and it is a risk to those who cannot hold on or need to sell. I think that will turn around sometime in the next few months when those rates change.
What are some technological innovations that Happy State Bank is implementing in order to improve the overall client experience and service?
Happy is always looking for new ways to enhance our technology for our customers. The reality is that those issues are costly, and secondly, they take a long time to implement. There are things we are in the middle of at this moment that I cannot disclose, but over the next two to two and a half years, those changes will dramatically impact our delivery process.
When you do these things, you normally do one and then bolt pieces onto it. It is not a one-time solution, but rather it is a series of solutions. We are doing the foundational work now that will allow us to implement those incremental builds starting in two years. Every time you do that kind of thing, you have thousands and thousands of accounts that are impacted with every tweak. It is a big deal.
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