Great Southern, Mid-Missouri go after U.S. Treasury funds

The federal government is now a sizeable shareholder in Great Southern Bank, and at least one other Springfield-based bank has invited the U.S. Department of Treasury to buy shares of its preferred stock.

The Treasury Department launched the Capital Purchase Program in October to help recapitalize financial institutions and increase the flow of financing to businesses and consumers. The program is one component of the $700 billion federal bailout plan - known formally as the Troubled Asset Relief Program, or TARP - approved Oct. 3 by Congress.

Under the Capital Purchase Program, Treasury has agreed to purchase up to $250 billion of senior preferred shares in qualifying U.S. controlled banks and savings associations, as well as certain savings and loan holding companies. Publicly traded banks were required to apply for the program by Nov. 13; the deadline for privately held banks was Dec. 8.

At a Dec. 8 news conference in Washington, Interim Assistant Secretary for Financial Stability Neel Kashkari - the Treasury point man administering the bailout - said that gauging the impact of the Capital Purchase Program would be challenging.

"Each individual financial institution's circumstances are different, making comparisons challenging at best, and it is difficult to track where individual dollars flow through an organization," Kashkari said. "Nonetheless, we are working with the banking regulators to develop appropriate measurements, and we are focused on determining the extent to which the (program) is having its desired effect."

Local interest

Two Springfield-based bank holding companies - Great Southern Bancorp Inc. and Mid-Missouri Bancshares Inc. - have applied for funding through the program, and Great Southern completed its stock sale to the Treasury on Dec. 5, according to Securities and Exchange Commission filings.

Great Southern sold 58,000 shares of perpetual preferred stock to the Treasury for $58 million, representing about 3 percent of the bank's risk-weighted assets as of Sept. 30 - the maximum government buy-in allowed under the Capital Purchase Program. The bank also offered the Treasury 909,091 shares of common stock for $9.57 per share, or $8.7 million.

According to the 38-page agreement, the Treasury will receive a 5 percent dividend, or $2.9 million, on the Series A preferred stock annually for five years and a 9 percent dividend each year after that. Quarterly dividend payments - plus profits made on any common stock it may choose to purchase - means the Treasury likely will make money on its investment, said Rex Copeland, Great Southern's chief financial officer.

"The Treasury has some things built into this that they should actually make money for the taxpayer," Copeland said. "It's not like they're giving this money out the door and never getting it back."

Executives at Great Southern and Mid-Missouri said their respective banks were well-capitalized institutions, and that the infusion of government money would reinforce their financial stability amid economic uncertainty.

Mid-Missouri President and CEO Lee Keith said the bank, which has 15 branches throughout southwest Missouri, is eligible for about $15 million in Treasury funds.

Keith said Mid-Missouri would be an ideal candidate for the program. As of Sept. 30, the privately held bank reported assets of $656 million, down from $824 million a year earlier, according to the Federal Deposit Insurance Corp. Earlier this month, Mid-Missouri divested Superior Consulting LLC, a wholly owned subsidiary, and laid off 34 full- and part-time employees.

"A lot of banks - including ours - are looking at (TARP) as a cushion for what could be happening in the future," Keith said. "(Regulators are) going to want more capital in the banks. They're going to want more allocation of reserves for loan losses."

Steve Mullins, an associate professor of economics at Drury University, said the Capital Purchase Program is serving to fill a void created earlier this year when banks virtually stopped making short-term loans to one another.

"This is going to be a way of adding liquid assets to a bank's asset account to the extent they anticipate unusually heavy withdrawals or some other investments they hold going south," he said. "In times like these, it only takes a few percentage points one direction or another to make or break a financial institution."

If the Treasury buys a stake in Mid-Missouri, Keith said the bank could be in a position to acquire and absorb a smaller bank as federal regulators pressure financial institutions to consolidate.

On the flip side, however, Mid-Missouri may be one of the banks flagged for acquisition. Last month, BusinessWeek reported that some weaker banks applying for federal assistance had been advised to withdraw their applications and consider merging with a larger, more stable counterpart.

In October, officials with Arkansas-based Arvest Bank were reviewing the financial health of Mid-Missouri for a possible acquisition, but Keith said negotiations have since ceased.

"We just pulled out of the deal," he said. "It's kind of like selling swimming suits in February. It's not a good time."

Thanks, but no thanks

Arvest is among several banks operating in the Springfield area that have passed on Uncle Sam's offer - a decision that has, in some cases, served as a marketing tool.

Kansas City-based UMB Financial Corp., Kansas City-based Commerce Bancshares Inc. and Tupelo, Miss.-based BancorpSouth Inc. are among the area banks that declined to apply for Treasury funds. All three banks issued news releases in November explaining their decisions and trumpeting their track records.

"We are confident that our company is well positioned to work through the challenges of this difficult economic period," BancorpSouth Chairman and CEO Aubrey Patterson said in a company release. "In our opinion, it is clearly in the best interests of our shareholders to continue with our strong, conservative capital management plan without resorting to the inclusion of government capital."

Central Bancompany, the century-old holding company for Springfield-based Empire Bank, also elected not to pursue government assistance after reviewing details of the program. Empire President and CEO Russ Marquart said the debt-free holding company's 14 affiliate banks enjoy a "strong capital position" and higher-than-average loan loss reserves.

"We made a conscious decision that this was not a program we felt like would be advantageous to our customers or shareholders," Marquart said, noting that public perception was taken into account. "I can't say that (perception) was a major part of our decision. It's something to consider ... but we're not viewing this as a marketing opportunity."

Nevertheless, banks that have fared better than competitors during the financial crisis are in a position to play up their good fortune, Mullins said, noting that leery consumers appear to be a growing demographic.

"There clearly is some fear out there among your average retail bank customer that the financial system is at risk and some banks are a riskier place to hold your funds than others," he said.

Online Editor Dee Dee Jacobs contributed to this story.