Southwest Missouri bank asset figures are up significantly year-to-date, but the reasons for those increases vary from institution to institution.
What the numbers clearly show, however, is that nearly all banks based in or around Springfield have seen asset growth from first-quarter 2008 to first-quarter 2009.
Southwest Community Bank leads the pack of Springfield-based banks, with growth of 51 percent. Larger banks are faring well, too, including Great Southern Bank, which is up 35 percent to $3.41 billion, according to first-quarter call reports filed with the Federal Deposit Insurance Corp.
Growth by acquisition
One bank's failure can bring another bank's growth.
That's the case for Springfield-based Great Southern Bank, which traces some of its asset expansion to its March acquisition of Kansas-based TeamBank out of receivership from the FDIC.
Great Southern Chief Financial Officer Rex Copeland said that it's likely that more banks will likely grow their assets via that type of acquisition - which comes when a bank is on the brink of failure - in the near future.
"The FDIC has a list of about 300 problem banks, and some of those will make it, but there will be a fair amount that won't," Copeland said. "The FDIC is interested in resolving these things in the best way they can, and they want to make sure the depositors are not disrupted as much by this situation, so they'll definitely be trying to sell the banks they put into receivership."
According to FDIC data, 45 banks failed through the end of June this year, compared to only four during the first half of 2008. Seven more banks failed in the first two days of July, and Copeland noted that all were acquired by other financial institutions.
Acquisitions in general are bringing asset growth as well. Empire Bank President Russ Marquart said the July 2008 acquisition of Greene County Bank is partly responsible for the Empire's 12 percent 2008-to-2009 growth, and he expects more opportunities for mergers and acquisitions.
"Some banks may choose to merge or sell to competitors instead of continuing on, just because of the growing cost of regulations and doing business," Marquart said. "There will be more opportunities for consolidation nationally, regionally and in the greater Springfield area in the next year or two."
Dealing with market change
While larger banks have grown their assets due in part to acquisition, smaller banks also have fared well in asset growth. Southwest Community Bank is up 48 percent to $129.6 million in the last 12 months.
President and CEO Mark Uhler said the bank's growth is due to the combination of a growing customer base brought in by customer service and an effort to invest in more liquid assets because of the overall economic uncertainty.
"As we saw the markets change in the last year, we changed our asset makeup to be more liquid - we increased our liquidity reserves," Uhler said. "It gives the bank more flexibility to deal with market changes when you have stronger liquidity."
Liquid assets refer to cash and other assets that can be quickly converted to cash, such as mutual funds or bonds.
Turning assets into profits
While asset growth is a good thing, bank officials say it doesn't necessarily spell profitability.
Great Southern's Copeland points to institutions such as Bank of America, which posted a 73 percent drop in net income in 2008 compared to 2007, despite being the nation's largest bank in terms of assets, with more than $1.8 trillion.
Copeland said that while asset base does play a part in profitability - "All things being equal, if you can maintain that rate of return and grow your assets, you should grow your income," he said - profit also depends on a bank's mix of assets and how those assets perform in the market.
"Generally speaking, it will be the mix of assets - some banks have more investment securities, others have more loans," Copeland said, adding that having deposits with low interest rates also helps boost net interest income.
Southwest Community Bank's Uhler noted that the risk level of a bank's investments directly affects its ability to turn asset growth into profit.
That's an area, he said, where smaller banks owned by local investors have an advantage over large, publicly traded megabanks.
"If you're president of CitiBank, your job is based on return for stockholders," Uhler said. "My job is running a safe, sound, clean bank for a limited number of stockholders who live here. We're fortunate to have had good earnings growth over the years, but if we hadn't, our owners would have been more patient with that. When you're on the New York Stock Exchange, and you're owned by big investment groups, it's more difficult for a bank president."
Empire President Marquart agreed that risk level is a key factor in determining how assets translate to profit; he said the troubles of some of the large national banks can be attributed to a desire to grow assets too fast.
"If you focus all your energy on growing loans, you have to be able to come up with money to fund that growth, and that's what has gotten some banks into trouble - they've tried to grow their loans too fast without a steady base of local deposit dollars. At that point you have to go to 'hot money' to fund that growth, and that can be a risky strategy," Marquart said, referring to brokered deposits that carry higher interest rates and more risk.
