Q&A with Joseph P. Campbell, CEO of Royal Bancshares

An interview transcribed last week for yesterday’s edition of the Philadelphia Business Journal.

Name:campbell-joe.png Joseph P. Campbell
Title: President and CEO
Company: Royal Bancshares of Pennsylvania Inc.
Education: Embry-Riddle Aeronautical Institute, associoate’s degree, 1966; University of Florida BA and BS in corporate finance, law and secondary education, 1970
Career History: Royal Bancshares general manager of real estate division in Chester County (1970-1981); Royal Bancshares board of directors (1982-1991); Royal Bancshares managing director (1991-1999)

1. The bank has been owned largely by the Tabas family since 1980, when the name changed from Bank of King of Prussia to Royal Bank. How has that affected its development?

It was the smaller of two banks owned by two brothers… we were looking for a vehicle to get into the banking industry and wanted something that, as I like to say, already had the cash register ringing. We walked in the door and applied our management style to it. It was positive from day one… We gave it a larger regional scope, in moving branches from King of Prussia to Philadelphia. We wanted to make it a larger bank… we took our business model, our biggest asset that we knew what the other side thinks. We are not bankers by training, we came into it another way. We’ve stayed with what we knew, real estate, and grew in new ways.

2. You started as a bus boy at Tabas family hotel in Downingtown 40 years ago and became president and CEO. How has that experience affected your view of business today?

Dan Tabas was really my mentor, and there’s no greater ladder to success than having a great mentor… We’ve always looked at our business on a family basis. Every shareholder meeting I go to, I say… your employees are your greatest asset. Everything in life is a people business. Success or failure can be tied to how you treat people in business. The teller downstairs has a more important job than I do. I can be out of the office on a Wednesday… and no one would know. If that teller was out, she’d be missed.

3. Why did the company decide to add Royal Asian Bank in 2004? What has it brought to the company?

We’re not traditional bankers. We’re looking for other ways to serve the community and our shareholders. We have a leasing company, a capital marketing company, a tax lean division, different things. Something I loooked into was the Asian market. In resarching I found the Asian community was good to lend to. They come and learn the language, know the value of educaiion… They might operate a dry cleaner and live above… You look at default rates, and they’re lowest of all ethnic groups. When you have all of that you have a good borrower… [That type of bank] goes to population centers, rather than expanding like a donut, like we do. They serve that ethnic pocket. They’ve been very successful. They started as a divison of Roayal Bank. Now they are stand alone bank on their own. It’s been a great success.

4. How has the fact that the bank generates such a large percentage of its revenues from real estate lending affected it during the recent credit crisis?

It slows down; there’s no question about it. …with a slow down in lending, it affects our current performance, by taking additional reserves than we would originally. That’s the immediate impact. For future earnings when things are slow, people think ‘Jees should I do this expansion to my shopping center…’ that’s lack of confidence in market. That’s some of the reason I’ve tried to diversify our interests.

5. Does Royal Bank need to generate more non-interest income to deal with the prolonged flat yield curve that has made it harder to generate profits from deposits and loans?

Non interst income has become more important today in the current climate. Fortunately, we had the wisdom of seeing that coming two years ago. We would have loved to know four years ago though, but we’re on the right track. When we went into the leasing business… we weren’t interested in owning 100 percent of a company. Our model is a little different… we are entreprenuers; they are entreprenuers, not employees, so we own only 60 percent. We can be the big brother, have the availability to fund their success. They own 40 percent. We’re parners, not employers and employees.

6. Why did Royal Bank have the accounting problems that led to the delayed third and fourth quarter earnings reports?

Basically what we decided when the market was turning was we wanted to reevaluate our loan practice. We wanted an outside consultant… it becomes extremely hard when you have that many groups working together, the time lag that is invoved.. We had to wait for the process to work out. So we were sitting back for these reports. The outcome of it was good but we were waiting for info from outside accounting firms so things could match with our internal auditors. It became a process. … It was worthwhile.

7. Many of your clients are local developrs, how are you working with them and their difficulty with the recent credit crisis?

You have to work with them. They’re your customers. It’s nothing they necessarily did… We’ve seen some positive signs in the rental market. The interesting thing is what we have to overcome is more perception. People have to feel comfortable making decisions. You can have the best product in the world and it won’t matter otherwise. No it’s a cycle. Everything in real estate is cycle… That is something we understand. Maybe we have a developer. The problem is they can’t get a mortgage. That’s a product that we can give them, that’s something we’ve never done before. It’s one important ingredient we can offer to help our clients, not bad financing, but those that deserve it.

8. Banks had terrible third and fourth quarters. How long do you see this credit issue affecting banks and what can they do to combat it?

A lot of the bad third quarters will be related to good first and second quarters a year from now. …It’s putting money from your left pocket to the right pocket. The idea is in time the economy gets better and you’re going to get back that money. Some looked and everyone is taking a bath third and four quarter, so it’s time for some scrubing. All the banks did a lousy job in earning. But, they fortified their balance sheets, and will recover a lot of that money in future quarters.

9. Is the local banking world too crowded? Do you suspect we might see some consolidation in the next year or two?

That’s a model for banks. Some get into banking, and they only plan on being in for 5 to 7 years. Its a regular model, as other people want to expand and get into market, there is always that potential. You want to grow your bank, what are you options? Turn into an area, buy branches, commit $50 million in Bucks or Berks County, or I’m gonnna buy a bank that already has a foundation there, same money, less work.

10. Where do you see Royal’s niche in the local banking world and how does it distinguish itself from other community banks?

On feedback from exisiing customers – I ask the customer, what I think is somewhat irrelevant – lenders and management have been in place for years. Our lenders’ average experience is 20 yeas in real estate.. Not just all the brains in the world but day to day experience. W analyze. We can deliver the product. We have a local presence. We can have an answer faster than any regional bank.