PETER DESILVA

UMB BANK

Interview with Peter deSilva, President and Chief Operating Officer, UMB Bank.

As President and COO of UMB Bank, how would you describe your approach to leadership?

When I joined the bank in January of 2004, it was clear that the culture of the 97-year-old financial institution was well established and it was a culture of enduring success. UMB had a history of integrity, customer focus, excellent service supported by the best people, and high standards of performance. To go to the next level, we had to contemporize the culture, not change it.

There were two main areas of focus. The first was updating the structure to be more reflective of how our clients wanted to be serviced. Secondly, we had to reframe how we were perceived in the marketplace. When I moved to Kansas City I heard comments like, “UMB is the bank that doesn’t make loans,” and even, “now that I have a relationship with UMB, I have arrived.” These were the working perceptions, but not the reality we wanted to have. Although, on the one hand, we were proud that we were perceived as a quality bank with a responsible approach, it was also an incorrect assumption if it was perceived that we only did business with a small segment of the population. Our culture has always been and always will be about quality and integrity. We just needed to freshen our approach to the marketplace.

How did you affect that change?

It starts and ends with people; it is both really simple and really complex at the same time. Our goal was to accelerate growth to 2-3 times the current levels. Since that time, we have more than doubled earnings. To do that, we had to find, retain, and develop a team second to none. Next, we had to create a strategy that leverages our strengths and minimizes our weaknesses. We have been successful with both, as more and more people are recognizing what we are doing in this community, observing our lending, and noting that we have become aggressive in pursuing good quality business and the highest standards of customer satisfaction.

Can you share some of the key elements of your strategy?

Essentially, we are doing more of what we have always done well. We have a wonderful investment management unit called Scout and, we have seen a big increase in our book of business due to finding the right people and increasing our investment in it. We also have paid attention to where some of the largest payment sources are in the country, such as in healthcare. Healthcare is currently 18% of the economy. In response, we are doing much more with HSA and FSA accounts and becoming a resource for healthcare-related organizations

Although we dealt with a lot of high wealth individuals, our personal wealth management group didn’t have a true private banking offering. We have rebuilt the team and today it is a major part of our growth and success

We have also repositioned our balance sheet by shifting our loan emphasis, increasing higher margin products (like credit cards and home equity loans), and diminishing low margin activities (like indirect auto loans).

Without changing our lending parameters, we also are making more loans. By investing in great employees who have a passion for UMB, our culture, and what we do, we have converted employees into ambassadors. Our leadership team is engaged in building great community and public relations.

What is your personal leadership style?

My leadership style is collaborative—to a point. I am vigilant about getting input, but I am not afraid to make the final decisions. I spend a great deal of time focusing on people—interviewing, training, and retaining people. I believe the leadership team needs to be made up of individuals with complimentary strengths—it is important that we challenge each other. I don’t need a bunch of mini-me’s.

Has your leadership style worked equally well in other organizations in which you have worked?

I have evolved as I have gained experience. Today I am better able to delegate and hold people accountable. That is why I put so much emphasis on people; if you have the best people who you trust, it is easier to give up control. My job is to lead, set strategy, hire people, to ensure execution, and adjust the plan as we go. Some people never learn how to do that—it is harder than it sounds. It is probably difficult to fully judge a leader until they leave. If the organization falls apart, then they did not develop a sustainable model. Some examples I have seen include Starbucks and Apple (before Steve Jobs returned). Now these situations might be really unique. Or it could be a flaw in leadership style, as the leader didn’t adequately prepare the organization for the future.

What is the difference between a leader and a manager?

Both managers and leaders have a responsibility to help shape the strategy and culture of the organization and execute against the strategic plan. However, managers tend to be more tactical and short-term oriented; they worry about getting things done. You need both strong leaders and managers in truly effective organizations. Managers that love what they do, working with people and monitor performance are particularly important in the middle of the organization. Leadership is partly art and partly science—you know it when you feel it. You can sense when people have a certain command. Leaders are willing to take risks, get people to follow them, have a good communication style, and the ability to get a team to perform at a higher level than they would if you weren’t there. Leaders help people believe they can do something they didn’t know they could. It is not about your own success. If you are about helping others be successful, you can multiply the impact you have—in UMB’s case by 3,200 people.

Who are your leadership role models?

My leadership style is a mosaic of the many people who have had an impact on me—my parents, my teachers, and religious leaders in my faith, among others. I was also blessed to have good mentors at a young age. I worked for Fred Knapp at Fidelity Investments early in my career. He approached me in 1996 to move from Boston to Cincinnati, which for our company was a big part of our organization with over 600 people. But at the time I said “no.” Six months later, he asked again and told me he would support me, and if in two years things had proven out, I would be back in Boston. He believed I could help the company build something special there. The whole time I was in Cincinnati, Fred come out every week and didn’t really do anything; he came in late and read the paper. I didn’t understand that at the time.

About a year after I returned to Boston, I was talking to Fred’s boss at a cocktail party and he mentioned the extraordinary job the company thought we did turning around a difficult situation. He also mentioned that it was a tough decision to send me, since no one but Fred really believed I could do it. I about dropped my glass. The next day, I talked to Fred and asked him to tell me what happened. He said that not everyone thought I was ready, but he did. I understood then why he came up every week. He was giving comfort to the executive team that he was looking out for the project. The lesson I took away was two-fold: first, take a risk on the right people, but secondly, if you take a risk on people, build a fence around them so they can’t fail. I spend 1/3 of my time on developing and engaging people.

UMB Bank was recently named Forbes’ Best Bank in the continental US. How did Forbes make that determination?

An important thing to note, too, is that Commerce Bank was ranked #3 by Forbes, so Kansas City is blessed to have two strong super regional banks, which means credit is more readily available, and as a community we are not faced with the severity of problems others are. Forbes has done this evaluation every year. It is based on a number of financial measures including asset quality and leverage ratios. It is an honor. Other recent affirmations of our banking practices include our CEO, Mariner Kemper, being named Community Banker of the Year by the American Bankers Association last year. We also received recognition for the Best Annual Report last year. It is not just about what we have done, but how we have done it. We did it the old-fashioned way through hard work, focusing on our strengths and relationship management. I already mentioned that 1/3 of my time is spent on employee development, the second third of my time is with customers, and the last third is strategy and administration.

What are the implications for UMB Bank from earning that designation and where does UMB go from here?

The first thing is to not to get hung up on it—success is fleeting. While we will reference these accolades in our advertising, of course, we will continue to build the company. Our larger strategy is remaking the company into a diversified financial service company. A significant part of our earnings coming from non-banking services. Banking is our core service and we are in the process of extending the strengths into related opportunities.

The banking industry is in the midst of much change; what are the top few things that you believe MUST change industry wide and how is UMB making that happen?

There is no doubt regulatory changes are coming. There are currently 702 banks on the troubled bank list (or 8%) —the highest ever. While this doesn’t represent 8% of assets, as many of these are smaller banks, we will undoubtedly be a smaller industry with fewer players with a new regulatory framework. In Washington, the face of industry has been investment bankers, not commercial banks. Unfortunately they have co-opted the name bank to represent investment banks, which has not been a good thing for our industry. They don’t represent us.

Congress seems committed to punishing the industry, exacting a price and causing problems. Shadow banking systems like mortgage brokers, pay day loans likely do require more regulation. Requiring banks to carry more capital than they have recently also makes sense. The challenge is that the new consumer protection agency could have a chilling impact on banks by telling us what we can do and cannot do. Some of the consequences will include reducing risk and slowing new product development and innovation. We are also not a fan of removing the Federal Reserve Banks from their regulatory role. In the proposals, The Fed will only regulate the top 50 banks, which means all the power will be back in Washington and New York.

Fees are often attacked as one of the undesirable attributes of banking. How do you address that issue?

There has to be an economic value proposition to offer a service. Free checking grew up out of competitive reality. Free checking for a good customer creates no problems for them or us. Banks do have a lot of cost in offering checking services, but recently have paid for it by fees from Non Sufficient Funds and Overdrafts. Free checking will die as there is more scrutiny on NSF fees. If the economics are not viable, it won’t exist. The new model will be open and transparent; fewer fees but fees for basic services. On July 1, Bank of America and Citigroup will no longer offer overdraft protection. We will allow clients to opt-in if they want it. We think that consumers whose credit is refused at the point of sale will be embarrassed, and that will have a bigger negative impact on most consumers, and those consumers will be willing to pay a reasonable fee. Following new regulations, we will ask clients to opt-in if they want it.

Change will be evolutionary, not revolutionary, with a dichotomy of traditional to online models. We need to have relevant options for each generation. Over time, we will see fewer and fewer brick and mortar branches. We will also see more behaviorally-based pricing, similar to the auto industry. Long term, there will be massive change as power switches to hand-held devices over the next 20 years.

Are banking leaders across the country discussing how to enhance the future of banking in the eyes of the public? What role has UMB played in any discussions?

There have been some discussions sponsored by the ABA and other conferences. The ABA tends to represent larger banks, but generally, we agree. There are specific issues we care deeply about and will take a stand, working with the legislature. Right now in Washington there are a very small number of people controlling the power, such as Chris Dodd and Barney Frank.

Who do you admire in the banking industry, outside of UMB, for the leadership they have provided in turbulent times?

We talk regularly with like-minded banks such as Commerce Bank, Cullen Frost in Texas and Northern Trust, to name a few. We have tried from time to time to work together on issues of major importance and will continue to do so on appropriate issues.

If you were asked to boil down your leadership wisdom into one piece of advice, what would it be?

The simplest path to success is to check your ego at the door, and if you have the best people, put the light on them.

Biography

Peter deSilva joined UMB Bank as President and Chief Operating Officer in January 2004. In May of 2004, he also assumed the positions of Chairman and Chief Executive Officer of UMB Bank, n.a. Prior to joining the Company, he was employed by Fidelity Investments from 1987 until 2004, serving as Senior Vice President of Operations and Customer Service. Mr. deSilva has extensive direct experience regarding the operations, investment services, financial performance, and products of the Company, gained through his position as Chief Operating Officer of the Company and his prior operations experience at a national financial services company.