Local bank income falls 9% in second quarter

The economic recovery hasn’t hit southwest Missouri’s banking industry yet. Net income at the 37 Federal Deposit Insurance Corp.-insured banks and savings institutions across the Ozarks tracked by the Springfield Business Journal fell 9.8 percent in the second quarter. Area banks posted $5.2 billion in total net income for the quarter ending June 30, down from $5.7 billion in second-quarter 2013.

It’s a stark contrast from FDIC institutions nationwide, which reported a 5.3 percent increase in aggregate net income to $40.2 billion in the second quarter, compared to $38.2 billion in the industry a year earlier.

The FDIC attributed the positive movement of the reporting 6,656 insured institutions largely to a 2.3 percent increase in loan and lease balances to $8.1 trillion by the end of the quarter; a 22.4 percent decline in loan-loss provisions; and a 1.4 percent decrease in noninterest expenses.

Of the 35 area banks tracked, 12 reported less income for the quarter. The dozen include national institutions such as Bank of America (NYSE: BAC) – which has three branches in the Springfield area – with a 13.6 percent decrease, dropping $513 million in the second quarter, and smaller local institutions, such as The Seymour Bank, which fell 67.8 percent to $98,000.

Downtown Springfield’s Systematic Savings Bank tumbled 155.5 percent, reporting a net loss of $25,000 compared to second-quarter 2013 profit of $45,000. The drop comes on the heels of a historical shift for the bank.

“The lack of income is a result of remodeling our bank’s balance sheets and a shift in priorities,” said President and CEO Michael Brady. “For 87 years, we did nothing but mortgage loans. Now we are a full-service bank. We are still in the expense phase of that change.”

Leading Springfield-area institutions is Metropolitan National Bank with a 1,137.5 percent increase in net income quarter to quarter, moving to $495,000 from $40,000 in 2013.

“We are focused on loan growth,” said President and CEO Mark McFatridge. “Not just any loans, quality loan growth. We’re up $37 million in loans quarter to quarter.”

Pine Bluff, Ark.-based Simmons First National Corp. (Nasdaq: SFNC) – which operates only one location in Springfield, but plans to close on the purchase of Springfield’s Liberty Bank in the fourth quarter – posted 172.7 percent growth, hitting $10.4 million in the second quarter, up from $3.8 million last year. Liberty Bank was up 17.8 percent to $4.5 million.

Also in the top five are a pair of banks that turned negatives into positives, each posting a triple digit percent increase. With one branch in the Springfield area, First National Bank of Clinton reported $119,000 in net income during second quarter, up 450 percent from a $34,000 loss a year ago. Similarly, Bank of Billings climbed out of a $32,000 hole to post net income of $9,000, up 128.1 percent.

Losing ground, gaining momentum
At the bottom of the list, Brady says Systematic Savings Bank is in the midst of a transition period. Moving into a leadership role with the 87-year-old company in 2011, Brady is helping usher in a new existence for the bank, converting from a thrift – or a institution focusing on taking deposits and originating home mortgages – to a full-service bank.

“Operating as a thrift was fine when the government controlled the interest rates, but that went away decades ago and the bank didn’t change,” he said. “In a well-managed bank, your assets and liabilities match up, but as a thrift that is not the case.

“To correct our interest rate risk, it cost us in income. Had we not done this switch, we would be up about $350,000 for the year.”

The cost of going full service wasn’t small, as Brady said the bank was basically starting from scratch. Just to start a debit card, the bank first had to establish a relationship with Visa before even thinking about investing in physical cards.

Brady said as a mutual thrift with 20 percent capital, the bank doesn’t have to turn a profit right now, noting he has no investors expecting a return, giving the bank an opportunity to revamp its offerings.

“For 87 years, they did nothing but home loans. There was no checking, no ATMs, no auto loans. All of that has to be put in place and all of that takes money to develop,” he said. “It’s like remodeling your house. It’s a lot easier and cheaper to build a new one. Well, our house was very old.”

Turning the tide
Metropolitan’s McFatridge said quality loans are driving its 1,137.5 percent quarter-to-quarter net income growth.

“Because we are making quality loans, we were able to take some of those loan losses back into earnings,” he said, noting a $248,000 loan/lease loss provision recouped in the second quarter.

The bank posted a $37 million loan increase over second-quarter 2013, something McFatridge attributes to the bank’s new attitude following significant net losses in 2009 and 2011.

“Remember where we have come from. In 2011, we lost $7 million,” said McFatridge, who joined the bank in February 2012. “We started an uphill climb then. We’ve had some peaks and valleys, but the team has stabilized now and we are putting our strategic plan into action. That’s what you see happing in second quarter.”

McFatridge said Metropolitan’s strategy going forward includes gathering deposits in smaller community markets and utilizing those funds in larger urban markets. To that end, the bank currently is constructing new branch offices in Marshfield and Golden City.

“Deposit market share doesn’t mean anything to us,” he said of the bank’s 2.8 percent share of the Springfield metropolitan statistical area. “We are No. 1 in Marshfield and Kimberling City. About 65 percent of our deposits come from smaller communities, but about 65 percent of our loan growth comes from Springfield.”

McFatridge said as Metropolitan continues to grow, it’s watching the market for opportunity. “I feel like it’s a consolidation market right now,” he said, “and we want to be a consolidator.”

Slow and steady
Second-quarter income wasn’t as diverse for some banks. Eight-year-old OakStar Bank was flat, with $588,000 second-quarter net income in 2014 and 2013.

“We’ve grown 28 percent in total loans during the last year, and that’s helped our income. But as interest rates go up, mortgages have decreased and that’s a big portion of that net income,” said OakStar Chief Financial Officer Matt McFail, of the balancing act. “How are we going to offset that? We have to grow more interest income from loan size.”

McFail said during the first three months of the year, mortgages decreased more than expected for the bank, but it’s now back ahead of projections. OakStar completed about $30 million in mortgage loans last month, $10 million ahead of estimates.

“We are gaining a reputation as a loan leader,” he said, citing a deeds of trust report from Fidelity Title. “As of the end of August, we were No. 1 year-to-date and in the market in total volume and units for deeds of trusts in Greene County.”

Other area notables who ran middle of the road in the quarter include Peoples Bank of the Ozarks – which was acquired Aug. 5 by Poplar Bluff-based Southern Missouri Bancorp (Nasdaq: SMBC) – which posted a 19.5 percent gain, reporting $466,000 in net income. Mid-Missouri Bank just missed the top five, with a 49.3 percent increase to $1.4 million from $978,000 in 2013, and Springfield First Community Bank topped the million-dollar mark at $1.06 million, up 44 percent.

Publicly traded, FDIC-insured banks based in Springfield, Guaranty Federal Bancshares Inc. (Nasdaq: GFED) and Great Southern Bancorp Inc. (Nasdaq: GSBC), reported differing results in the second quarter. Guaranty Bank posted net income of $1.2 million, a 10.3 percent decrease from second-quarter 2013, while Great Southern Bank boosted profits 34.4 percent to $11.1 million, according to Springfield Business Journal archives.[[In-content Ad]]