When considering small-business financing, Missouri Treasurer Clint Zweifel has worked hard to make the state Linked Deposit Program a viable option in Greene County. The market has responded favorably, and southwest Missouri is now leading the low-interest loan program volumes.
“The Springfield area is batting way above where it should be,” Zweifel said during a recent visit to Springfield Business Journal’s office.
According to Linked Deposit annual reports, the southwest region last year overtook St. Louis for the most loans, over $78 million worth, representing 30 percent of the active portfolio. The St. Louis market recorded 27 percent of loans issued in 2015.
The warm reception throughout southwest Missouri is lacking statewide, according to SBJ’s review of Linked Deposit activity the last 10 years.
Since a program high in 2011, total active deposits have decreased each year on the way to a 13 percent drop to $262.8 million last year, according to the program’s most recent annual report.
The rub for banks is that Linked Deposit loans come at lower margins than other products. Then there’s the low-interest economy combined with soft demand for expanding credit.
“The Missouri Linked Deposit Program was created to lower interest rates. However, the low interest rate climate we are experiencing has made it challenging for some banks to use the program,” the annual report concluded.
Dan Derges, Mid-Missouri Bank’s community bank president in Springfield, has noticed the slide.
Even so, Mid-Missouri remains committed to the state-administered program and was the second-largest Linked Deposit lender statewide last year, next to Commerce Bank.
“The low interest rate environment is causing several marketplace lenders to loan at rates below Linked Deposit rates,” Derges said.
He said Linked Deposit loans typically charge 3.25-3.75 percent interest, and the program historically saves consumers 30 percent on the cost of the loan.
To his credit, Zweifel put a charge in the state loan program when he took office in 2009. Since then, over $2 billion in loans have been approved, largely to small businesses but also to farms, multifamily housing developers and municipalities. The treasurer credits moves to ease qualifications, shorten approval times and ramp up marketing toward banks.
“We tried to look at it from the eyes of a small business that could actually use it,” Zweifel said of the turnaround from a $198 million portfolio in 2009 to the peak of $382.5 million two years later.
Greene County’s interest is evident in the state lending portfolio from Zweifel’s first year in office through last year.
Linked Deposit loans in Greene County represented less than 1 percent of all program loans in 2009, the year Zweifel took office. Last year, the county was home to over 10 percent of loans approved and 12 percent of Linked Deposit volumes statewide.
And 2015 was sluggish, compared to the year before.
The program peaked locally in 2014, with nearly 80 loans issued in Greene County, and in 2013 and 2014 loan volumes in the county topped $40 million. Last year, the program completed 64 loans worth over $35 million.
Since 2009, OakStar Bank led its Greene County peers in participation with $59.2 million loaned, followed by Commerce Bank at $53.5 million, according to data from the treasurer’s office.
Through the program, the state issues low-cost deposits to banks for up to five years at below market rates, generally lower than the bank’s cost of funds.
“Most popular is the five-year (certificate of deposit), which is being placed at 0.45 percent, and the banks loan at a percentage above that, within the 30 percent interest rate guidelines to the customer,” Derges said. “The point is to pass along the interest savings to the customer and potentially make loans at lower margins than banks would otherwise lend at.”
While there is no dollar limit on loan requests, the maximum loan term is five years per business entity. That cap is a downside to consumers, Derges said.
“They wish they could use this program for five to 10 years,” he said, noting bank officials have asked the treasurer about extending the terms, which requires legislative approval. “I would love to see the participation window expand to 10 years.”
Five years ago, businesses that received Linked Deposit funds spanned a $38,000 advance to Springfield-based Anderson Engineering Inc. for equipment and software purchases to a $3 million loan to Cassville-based Hutchens Construction for a mobile asphalt plant.
According to the treasurer’s office, three of every four program loans last year went to small businesses. Only those with fewer than 100 employees are eligible.
Derges said Mid-Missouri issued over $6 million locally through the program on the way to exceeding the bank’s three-year lending goal of $20 million. Currently, over 5 percent of Mid-Missouri’s loan base is in Linked Deposit loans, he said.
Derges suspects an uber-competitive banking industry in the Springfield market has put the Linked Deposit Program on nearly equal footing with other credit vehicles.
“One of the reasons in southwest Missouri is that the fixed-rate funding below the CD rate benefits financial institutions,” he said.
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