CLEVELAND, OH — When Marc Stefanski became CEO of Third Federal Savings in 1987, “Cheers” and “Murder, She Wrote” were national TV favorites, President Ronald Reagan was nearing the end of his second term and the World Wide Web hadn’t yet been invented.
Today, Stefanski, 63, is celebrating three decades of leadership at the Cleveland financial fixture. Yes, that’s a really long time to run a bank.
Through all of it — including the savings and loan crisis of the late ’80s, the everyone-should-buy-a-house push of the ’90s, the housing bubble of a dozen years ago and the recent financial meltdown — Stefanski has navigated the turbulence. He’s proud of sculpting a bank that touts the best savings and mortgage rates, not bells and whistles.
How rare is Stefanski’s 30-year tenure as chairman and CEO?
Third Federal Savings is one of 110 banks in the United States that are significant in size, with at least $10 billion in assets. Among them, only three have CEOs who have served longer than Stefanski.
Founded in a bar by Stefanski’s parents at the end of the Great Depression, Third Federal built a reputation as an honest lender with the best rates in town. It wasn’t about making money. It was about helping people. Under Marc Stefanski, the bank has broadened its mission, investing in community projects, helping schools, building affordable housing and even helping employees lose weight and stop smoking.
“I admire Marc greatly,” said KeyCorp Chairman and CEO Beth Mooney. “Not only is he a solid banker, he’s a good person. I think Northeast Ohio is a far better place because of his leadership.”
Fellow banker Jerry Kelsheimer, region chair of Fifth Third Bank, said Third Federal “is a formidable and respected competitor” that has also dedicated itself to access to healthcare, education and neighborhood development. “It is apparent that Marc cares much for and about others and I have great admiration for that.”
There have been ups and downs. Third Federal basks in its 29-year record of earning the highest financial strength rating. The bank has never laid off an employee. In the last few years, it expanded its lending to 20-plus states. But Third Federal tangled with regulators a few years ago, mostly over administrative issues. Mortgage lending fell sharply during the financial crisis. And locally, Third Federal used to be the third-largest bank in Cleveland by deposits. Now it’s No. 5 as as Citizens (Charter One) has grown and Huntington bought FirstMerit.
Still, the throwback bank says times are better than ever, especially since it just posted its best quarter in a decade.
Stefanki and I recently sat down for a wide-ranging chat about whether Third Federal will ever sell to another bank, why the bank doesn’t have ATMs or a mobile app, and why Stefanski doesn’t mind making mistakes. We start out catching up about each others’ kids, and we talk about how birth order can affect people’s personalities. That leads to the first question:
Q: Where are you in the birth order in your family?
A: The youngest. Yeah, see, first-borns are perfectionists. Babies like myself, we’re not perfectionists. We like to have the most fun . . . Do you know 80 percent of all airline pilots are first-borns or only children? Pilots like to be in control and you want them in control because they are precise. Me, as a baby, I’d say, “Oh, what’s that button for?”
Q: How did being the baby of the family affect how you managed the company?
A: We have a lot of fun here. That’s part of the culture. I know (my birth order) is part of the reason why. We have values of love, trust, commitment to excellence, treating one another with respect and having fun. That’s part of our value system of how we operate the company, how we make decisions with our products and services, how we train people here. It’s just been something we’ve been doing ever since i took over in 1987.
Q: Did the bank not have as much fun before you were CEO?
A: It was a different place and time. My father was a product of the Depression. He was at a company that closed its doors in 1929 and when you closed the doors back then, they closed for good . . With him it was always, business first, family second. I kind of reversed that. And I found that I can make my family a priority and still run a pretty good company.
Q: So about the company. Your profits were up 10 percent in the first quarter. You pulled back on reserves set aside for bad loans. Your stock is doing pretty well. What are you working on now?
A: The biggest thing we’ve been struggling with is consumer confidence . . . People have been holding back on going out and looking for a home because they want to sell their house first. They don’t want to get stuck with two homes . . .
For a lot of people, their 401(k) never really recovered (during the last decade). I think you’ve found Wall Street has done very well. And some of the smartest people have been making money again. And that’s great. But the guy on the street, the job security hasn’t been there. The general consumer confidence hasn’t been there and that affects housing . . . (But) this year our loan applications are up about 30 percent from last year at this time (for purchases). We’re back to a kind of cyclical environment. First time in 10 years. And that is good. That means consumer confidence is coming back.
Q: is being CEO 30 years one of those markers like, oh, turning 50, and you kind of reflect back on life? How has banking changed in 30 years?
A: The regulatory environment is a lot tougher than it was. I think the competition is a lot stiffer . . . We used to know our competitors across the street and we knew what day the loan committee met and we knew who was on their loan committee and we knew where their fields of concentration were, where they wanted to make more loans than they did last quarter and last year.
So we knew a lot about our competition. Now today it’s all big business. We’re one of the few remaining, true community banks in the country. Even though we’re big, $14 billion, we run our company as if it’s a small company. Customers are first. Strategy second . . . We treat every customer as if they’re a VIP. You know what’s important here — we don’t have quotas. No one is on commission. That’s a big deal in today’s banking environment.
Wells Fargo, for example is typical of how things operate in our industry today. We never felt we could do the best service for our customer if someone is on commission and they get something out of it.
Q: You say that if things are going well, the bank doesn’t have a big reason to want to change. But clearly the bank has had to change over your three decades as CEO. Regulations and technology probably have been the biggest drivers. So how has the competition from the big banks and technology changed the way you do business?
A: We’re able to reach different markets. We are in 23 states now. And we’re able to reach different markets without brick and mortar, which is very cost effective . . . We’re in a price-sensitive business, where, no matter what market we’re in, usually the best price gets the most business . . . We can usually beat every company out there. Right now we have a lowest rate guarantee, so if you find a rate that’s lower than ours, we’ll match it or beat it.
Q: Speaking of competition, you and I have talked in the past about how many banks would be likely to disappear in the future. Here are the banks we’ve seen sell out in the last few years: FirstMerit sold to Huntington, ParkView sold to First National Bank of Pennsylvania, Lorain National sold to Northwest, Valley Savings sold to Westfield, Ohio Commerce sold to People’s, Western Reserve sold to Westfield. And those are just the bigger deals. Are you surprised at the consolidation?
A: No, not at all. In fact a lot of that is driven by regulatory environment because, it’s been so tough, you have compliance officers who are in high demand. At a small company, the compliance officer could be getting paid more than the CEO. And so, when those kinds of economics are going on within your company, you begin to wonder, is it worth the effort?
And it has been very, very tough. It’s been a trickle-down effect from the regulations. This goes way back. … It’s unintended consequences. Sheila Bair, the former FDIC chairman, said it in her book about how it affects community banks and smaller banks that have a great purpose in this country, but they’re being choked by the regulatory process. When you add that to the more competitive environment that the bigger banks have brought to the table by putting a branch on every corner, that makes it harder for a smaller bank to survive.
Q: One of the promises of this administration is rolling back some of the banking regulations. Is that do-able now? If I’m a small bank and I already sold because of regulations, then that sucks for me. Do you think some of the regulations that have become reality in the last seven years can be rolled back?
A: I think what they’re hoping to do is you have banks that are $10 billion (in assets) or greater right now, and are subject to everything, and you have ones that are a little bit less and are subject to most everything. I think what they’re going to try to do is move that threshold to something higher than $10 billion. Maybe $25 billion. Could be $50 billion. Because realistically, banks of that size, while very big, are not a systemic risk (if they fail).
The other thing we’ve talked to legislators about is tying regulation to not just the asset level, but also the capital ratio. If you have a higher capital ratio (like Third Federal has), you’re going to be less risky to the deposit insurance fund.
Q: You guys are still going hard on promoting adjustable-rate loans, 5/1 and 3/1. Are these still really popular?
A: Yes about half of our originations are adjustables. It’s a good deal. We give them the option, if rates are changing, they can pay a fee and extend the rate they’re getting for another five years. Or another three years. We call that the option ARM.
Q: When we talked in the past, you said one of the things you were most proud of was never having laid off an employee. You have more than 1,000 workers. Is that record still intact?
A: It is. And our turnover rate is 5 percent.
Q: I’m sure there were probably times, especially when everything was hitting the fan, that you had to bite the bullet in order not to let anybody go.
A: We just redirected a lot of people to different parts of the company. Collections was a big deal. Compliance ended up being and still is, a big deal. Internal audit was a big deal. The regulatory environment almost required us to shift people around. In fact, we added about 100 people to our compliance area just to meet the regulatory requirements.
Q: I’m sure that track record helps company productivity because people are so appreciative of not having to worry about getting laid off during a downturn.
A: Yes. And when we evaluate our associates here, it’s based on a value system. You know, how do they work with others? We’re big on relationships and relationship management. How well are they working with their fellow associates? That’s our No. 1 criterion.
Q: Do you ever see a day when Third Federal would sell to another bank?
A: I would never say never. However, the objective here is to keep this model intact as a tribute to my parents and hopefully I’m able to pass it on to the next generation because I’m just a steward. I’m here just for a very short period of time.
This is a good thing we have here. It’s a good thing for the community. It’s a good thing for the people we employ here. It’s been great for the Stefanski family. We would do ourselves a disservice if we sold the company. It would almost be a slap in the face to the people who helped build this company to put ourselves up for sale.
Q: And you’d have no guarantee that the core values you have held so close would stay intact?
A: Stop. Teresa, it’s a Camelot. This doesn’t exist outside of these four walls. It’s certainly Camelot. If you notice too, most of us are sitting at tables, in the lunchroom, throughout the bank, that are round. It’s no coincidence. We have a rotunda. We have a round cobblestone area. That’s to emphasize that everyone has an equal say at the table. Every associate has a brick. It’s a big deal. This is a community effort that helped build this company and it’s a community effort that keeps it together.
My job and the Stefanskis’ job is to maintain that and keep it going for the sake of the community. Because if we’re gone, you’re going to pay higher (mortgage) rates. And your rates on your savings are going to be worse.
Q: On the flip side, would you see Third Federal making a significant acquisition?
A: Well, you know what? We never say never. We’ve looked at companies in the past but it’s hard to find companies that run anywhere close to the way we run. Their businesses may be more diversified, which means we would have to liquidate parts of the business. Or the way that people were treated, culturally, would be a huge mismatch. So we like to grow and we like to actually acquire customers one at a time. We’re pretty good at that.
Q: You said if Third Federal weren’t here, the community would see higher mortgage rates. How much of an impact do you think you have on the competition here locally, banks such as First Federal of Lakewood, Dollar Bank, Geauga Savings, other banks that have been known as having lower rates? Do you think if you weren’t here that mortgage rates around here would go up and savings yields would go down?
A: Yes, yes I honestly do. Here’s what we learned in the late 1970s and 1980s. There would be no fixed rate market right now in Cleveland if it wasn’t for Third Federal. Because every other bank in town, our competition, didn’t offer a fixed rate mortgage in the late ’70s, early ’80s. And we did throughout that whole mess that took place and then the savings and loan debacle. We kept our fixed rates. So I’d say that my dad was instrumental in maintaining fixed rates in this marketplace for sure.
Q: Switching topics, technology. You have long been proud that you weren’t about bells and whistles. You don’t have ATMs. You don’t have online bill pay. You don’t have a mobile app. Are you going to have to change?
A: We have online banking . . . If people want to transfer between accounts, they can do that. We’re working on our mobile banking right now. You really have to look to the not-too-distant future. That’s where everything is going. You cannot find anyone who doesn’t carry that cell phone along with them. . . .
Q: Some of it is demographics?
A: Yeah, our customers are getting older and they’re dying. The Baby Boomers won’t be here in a little while and we’re going to stuck with the millennials, and they think differently.
With Facebook and Twitter and the whole social media thing . . . it’s continuing to explode and it’s never going to go away. We have to be able to adjust. The point is that we as individuals have to adjust and Third Federal as a company certainly needs to adjust. Any company that’s going to survive has got to be able to make those adjustments that will allow them to be competitive in whatever rate environment there is, whatever socio-economic environment there is, whatever is going on in the world.
Q: What are you most proud of during your time as CEO?
A: There’s an old story about a father and son in the business. When the father gives up the reins to the son, and the son takes over, if the son does well, the father had a good business. If the son doesn’t do well, the son screwed it up.
So I’m just happy to be able to be here for a period of time to be the steward of this organization and to be able to pass it on to the next generation. … I’ve tried to enhance it along the way, with a strong relationship environment, based on our value system, that creates a culture that I think can’t be duplicated. You can replicate it, you can’t beat that into someone, you can’t regulate it. You can’t regulate ethics. But if you treat someone the way you want to be treated, with love and genuine concern and respect and trust, you’re building a strong foundation of a company that is built to last.
Q: Flip side: What’s your biggest regret during your time as CEO?
A: I don’t really have a regret.
Q: Oh please. There must be something that you later viewed as a mistake that you would have done differently.
A: You mean shoulda, coulda, woulda? Honestly, I’m not saying this trying to be haughty or narcissistic. I’m just saying that everything that’s occurred, I’ve used as a learning experience. So nothing goes wasted. If it’s a good experience, we want to do that again and keep doing it. If it’s a bad experience, we’re going to learn from that and we’re going to move on. …
Q: So if something happens that didn’t go so well, you view it that if you learn something from it, then it’s a net positive.
A: There’s a difference between a bad decision and a mistake. A mistake is you don’t know any better. Something happens and you go, “Oh my gosh, I’m never going to do that again.”
A bad decision is different because you know better and you’re choosing to not do what you know to be the right answer. So people forgive mistakes. Bad decisions, it’s harder (to forgive).
Q: Let’s talk community issues. You have the Slavic Village housing development to buy abandoned and blighted properties in the area. And the tutoring program for Slavic Village students and you built the football stadium for Cleveland Central Catholic High School and other teams a few years back. Any other community projects going on?
A: We have our P-16 project, which is a commitment to education in this immediate neighborhood. That takes a family from when they’re having a child all of the way up through the college years. Basically it’s an educational program.We support other local community organizations. The Boys & Girls Club of Cleveland is down the street. They’ve been great partners. We built that assisted living place across the street (Broadway Place Elderly Apartments). We financed the shopping center down here (Broadway Shoppes.) And we’ve given a lot of love and support and money to St. Stanislaus and Holy Name and Central Catholic.
Q: And then of course there’s Rhonda’s Kiss, the charity you started in the name of your late wife to help Clevelanders with cancer.
A: It’s just another way to emphasize the importance of family and honoring Rhonda, who was the only girl I dated for 40 years. We were married 33 years. It’s a program we developed to raise money for people who are going through cancer and cancer treatments. People in need. We provide things like rent payments and wigs and different things that you and I may not even think about but a lot of people can’t afford.
Q: What do you still want to accomplish as CEO?
A: Being able to pass on the company to the next generation.
Q: So does that mean you want to make the company stronger or more profitable or what?
A: We’re not necessarily a profit-driven company. Sure, we need profits. I always talk about a company’s purpose. As a human being, we breathe air to live. But our sole purpose isn’t breathing air. Same thing with a company. A company needs to make money but that’s not the sole purpose of a company. There are other things that go along with that — the community involvement, doing things that are going to help enhance people’s lives. Our focus isn’t on the numbers per se, but it’s how we’re doing to love and support the community. And make a little bit of money along the way too.
Q: What do you want your legacy to be?
A: We have a different game plan, a different environment here. . . . If you can build a culture of love and trust and respect and have fun along the way and you make money and you’re doing meaningful things in the community and you have a family business, that’s a good thing. . . . Is it my legacy here? No. Was I a good dad, was I a good husband? How my family is doing is as important as anything. And you know, I’m blessed. I recently remarried. She has two children. So now my family is bigger.
Q: I’m assuming you don’t have any planned date of retirement?
A: I don’t even know what that word is.
Q: Do you have more certainty about who the next generation will be?
A: I have five children (ages 21 to 32), and nieces and nephews. I’m only 63. But life is short and very unpredictable. You never know. I would have never thought my wife would have passed away, so we have to be realistic in how we all approach that. Obviously there’s succession planning that goes on here. We sort of take it one day at a time and thank the Lord for each day. It’s obviously a gift from God