Small banks thrive in local market

A glut of bank mergers a few years ago gave birth to a crop of home-owned banks that are growing like gangbusters, and the experienced bankers running them say they are having a blast.

"If I can't have fun, I'm going to quit," said James Holstein, president, chief executive officer and chairman of the board of the newest locally owned bank, Old Missouri National Bank. "We're the smallest bank in town, and we are proud of that," added Holstein, a banker for 32 years.

Fast growth

Old Missouri opened its second bank at 3570 S. National on Feb. 19, just 30 months after opening its first bank at 1535 W. Sunshine.

Holstein's business philosophy is easy to understand. "We want this to be a fun place. I want to have a smile when I come in the door and ... when I leave. I think that's difficult to do when you're managed hundreds (or) thousands of miles away."

With the help of Mark Har-rington, executive vice president and chief financial officer, Old Missouri National has grown from assets of $4,765,000 in 1999 to "just shy of $45 million at the end of December 2001," Holstein said.

The original 37 investors put up a minimum of $100,000 and a maximum of $300,000, Holstein said. "We are closed to investors," Holstein added, but that's not carved in stone and some day the shareholders might want to add in-vestors.

Deposits at year's end were about $36.5 million, Harrington said, with about $36 million in outstanding loans. "That's high," Holstein said. "New banks tend to run higher on loan deposit ratio."

Holstein said he didn't expect the west-side bank to be in the black in its 11th month of operation, but it was. "The first day we opened the bank, on July 26, 1999, we were making loans to people we (already) knew.

"That's a huge advantage we have over a stranger to Springfield trying to open a bank and doesn't know anyone," Holstein said.

Old Missouri began with seven em-ployees, but now has 20 or 21 full-time equivalent employees, the bankers said.

Commercial and agriculture lending average about 75 percent of the loan portfolio at Old Missouri.

Old Missouri also does a lot of SBA loans, Holstein said. "We are tickled we can deal with people in Springfield and not in Washington or other cities that I don't think are banker-friendly."

Although a market update from Fried-man Billings Ramsey shows bank mergers were down to 50 in 2001 from a high of 388 in 1998, there were 194 in 2000, when Old Missouri began.

Holstein said it's "a huge benefit to us when the big banks start merging ... and changing names. It causes the customer base to get nervous, to get uncomfortable."

As for Old Missouri being acquired, "Our plans are to grow our own little bank here, take care of our shareholders, take care of our customer base and have a place that employees can enjoy coming to work ...That's not to say (acquisition) will never happen down the road."

Old Missouri's board intends the bank to enlarge by "slow, controlled growth" at several autonomous locations.

"We want to have good competent persons, bankers that can handle wherever we go next," Holstein said.

He predicts that in five years "we'll have a third branch. Our growth is a little above schedule. We were thinking three years to be here (in a second location) and it is 2 1/2."

The Bank

Opened 4 1/2 years ago, The Bank has three locations and has announced a fourth to be opened before the end of the year, said Todd Parnell, president and CEO.

Echoing Holstein, Parnell, formerly CEO of Truman Bank in Clayton, said, "This is more fun than I've ever had in my life."

The Bank, at 3939 S. Fremont, has two other locations at Battlefield and 65 and South Campbell at Sunset and it has announced plans for a fourth at East Kearney Street and Barnes Avenue.

Parnell said The Bank began with about 80 shareholders who brought capital investment of $6.3 million in July 1997.

At year-end 2001, The Bank tallied $225 million in assets "double what we thought we would do" including $160 million in loans with deposits of $187 million.

Local net operating income for 2001 was $127 million, up from $1.03 million in 2000.

"The key things we've done differently are that we tried to follow the Great Game of Business' ... built on open book management ... with everyone understanding the numbers and ... bonuses only if we do better than our benchmark competition." They are benchmarked against banks "that started the same years as us ... and grew quickly."

He believes The Bank is the only bank in the country strictly following "the rules" of the Great Game of Business, and that includes giving stock ownership to associates after one year's employment.

The Bank, which has about 55 full-time equivalent employees, began with only 11. Educating employees is crucial, because knowledgeable employees stay, Parnell said.

As for competition, it has been "extremely aggressive. But it's so much fun to be in an organization that is structured like we are. We are entrepreneurial and can react to market circumstances. People are empowered to make decisions," Parnell said. The Bank also has three female board members who add an extra dynamic, he said.

Parnell said the Springfield market is wonderful for small banks. "In 1997 and 1998 four new banks started in a town of 150,000... (and) in 4 1/2 years moved half a billion dollars of assets into their banks and they are all profitable and have multiple locations. In St. Louis, there weren't four new banks in four years."

The Bank concentrates in commercial lending. "We set up to be a business bank and don't market to consumer services, but we offer them."

The Bank isn't "courting acquisition. We would rather grow than have the strongest earnings in town. We plow our money back in ... and are going to remain broadly owned. We'd rather sacrifice earnings for growing and impacting our market share," Parnell said.

"There is no price I could see worth giving up a long-term dream for."

Signature Bank

David Kunze, president and CEO of Signature Bank, whose bank was chartered in June 1997, had to fast-track his bank to beat the two other banks that were setting up at the same time.

"They told us it would take nine months to get started. It was a turbulent time in banking all the mergers and acquisitions." Signature opened in six months and was profitable after the first quarter, he said.

At the first meeting of investors at attorney and investor John Carnahan III's office, "we went around the room and said, how much would you like to put in?' The total came to $5.75 million" from 13 investors.

Later, four more investors brought the total to $7.35 million.

"That's twice as large as your average start-up bank," but not much compared to Boatmen's which had $1.2 billion in assets when Kunze left it. He's been in banking nearly 30 years.

But with that capital, Signature attracted the "best commercial lenders, the best real estate lenders, a chief financial officer and operations person ... best tellers, best back office people we could find from Boatmen's."

That included Shaun Burke, who is now executive vice president and is over loan administration.

Signature, with total assets of $244 million, has averaged more than $1 million in growth a week since it opened, a pleasant surprise to investors, Kunze said.

Signature put a second bank at East Sunshine Street and Ventura and attracted officers from Commerce Bank.

Signature posted total deposits at year-end 2001 of $168 million in loans, $180 million in deposits and total assets of $219 million, Kunze said.

A closely held bank, investors now total 21. Overall, investors have maintained the bank's capital position, Kunze said.

"They hit their hip pockets to the tune of $9.3 million (overall) of their own money to make this bank a success. With their contributions and our earnings, we should have enough capital to go forward to reach at least $300 million in the next 18 to 24 months," Kunze said.

Signature started with 13 employees at one location and now has three locations with 36 full-time employees and 12 part-time, Kunze said.

Signature Bank has no intention of being an acquisition target. "The best way to stay independent is to continue to grow and continue to be profitable," Kunze said.

He said making a 1 percent return on assets is "our most immediate goal" and "we have capacity to do that now without hiring another person or building a new location."