Banks react to changes in economic landscape

Since Jan. 1, the prime lending rate has changed eight times, millions of income tax refund checks have been issued, and retirement plans got a boost after a new law was passed that raised the contribution limits for IRAs, 401(k)s and other qualified retirement plans starting in 2002. All of these attempts to stimulate the national economy have had some discernible effects on the banking industry in the Springfield area.

According to Charles Gottas, president of Systematic Savings & Loan Association, changing interest rates have had the greatest effect on his customers.

"Rates on certificates of deposits have dropped, and some investors have seen a reduction in income," Gottas said. "At the same time, the disposable income of some of our customers has increased because they've taken advantage of the lower interest rates and refinanced their homes."

Refinancing increase

John Himmel, vice chairman of Commerce Bank of Springfield, also has seen an in-crease in the number of homes that are being refinanced. According to Himmel, the loan department at Commerce Bank has been extremely busy since the beginning of the year refinancing home loans and originating new ones.

Changing interest rates also have affected many banks' operating margins, and most people within the banking industry would like to see interest rates and the stock market stabilize, according to R. Bradley Weaver, president of UMB Bank, which has 19 branches in South-west Missouri.

"We're all looking for certainty in an uncertain market right now, and it's just not there," said Weaver.

Diverse economy

Despite these concerns, Weaver said the Springfield market has remained fairly stable, thanks to the city's diverse economy.

"I don't think we're going to experience the shock some other cities have, which rely heavily on one segment of the economy, such as tourism or manufacturing," he added.

Todd Parnell, president of The Bank, agrees. However, he has seen a slowdown in upper-end residential home construction. "Right now, it's kind of a mixed bag," he said. "Some of our customers are taking advantage of the lower interest rates and they're refinancing their homes or building new ones. Many of our commercial customers also are taking advantage of the lower interest rates, and they're building and expanding. Others are being more cautious. It really depends on the commercial customer and the health of their industry they're in. Some segments of the economy are doing better than others right now, but overall, I believe the economy here in southwest Missouri is strong."

Other stimulus

Other changes designed to stimulate the economy have affected the banking industry as well. On June 7, President George Bush signed into law the Economic Growth and Tax Relief Reconciliation Act of 2001. Millions of taxpayers received refund checks for as much as $600, which was triggered by a change in income tax rates that was made retroactive to the beginning of the year.

"Approximately 75 percent of our customers just cashed their tax refund checks," said Barbara Johnson, senior vice president of operations at People's Bank of the Ozarks, which is located in Nixa. "The remainder deposited the money into their existing accounts. Most people didn't get enough money back to start a CD."

In addition to the tax refund, the 2001 Tax Act also raised the contribution limits for IRAs, 401(k)s and other qualified retirement plans. Under the new law, the limit on Roth and traditional IRAs will jump to $3,000 next year and increase to $5,000 by 2008. The limit on 401(k)s and other employer-sponsored retirement plans also will increase to $11,000 next year and continue increasing to a maximum of $15,000 by 2006. Those who are 50 and older also will be allowed to make "catch-up" contributions above and beyond the regular increases.

"I believe baby boomers like myself will take advantage of the change, and they'll be putting more money into their retirement plans," said Steve Smith, senior vice president of People's Bank of the Ozarks.

"I'm not sure how much that will affect the banks, though. Most employers now, even small employers, have set up retirement plans for their employees, and the IRAs we do are primarily for self-employed people," he added.