Third-quarter earnings reported by many banks in the Springfield area were downright dismal, with some posting staggering declines after writing down millions of dollars in Fannie Mae and Freddie Mac stock losses.
Others blamed massive slides in profitability on nonperforming loans and a growing inventory of foreclosed properties.
Then there's Kansas City-based UMB Financial Corp. (Nasdaq: UMBF), the financial services holding company for UMB Bank.
UMB, which has three branches in Springfield, reported a 4 percent increase in earnings per share in the third quarter. Diluted earnings per share were 53 cents, up 2 cents from the same quarter last year.
And net income for the three months ended Sept. 30 was $21.8 million, amounting to a 1.1 percent increase compared to the same period last year.
While many of its competitors limped through the third quarter with significant loan losses, UMB's $4.2 billion loan portfolio was in good shape, said Ann Marie Baker, the bank's Springfield president.
UMB's nonperforming loans accounted for just 0.16 percent, or about $6.9 million, of the bank's loans. A year ago, the bank's nonperforming loans totaled $5.7 million, or about 0.14 percent of all loans. While UMB's nonperforming loans were up slightly from a year ago, they were down from 0.2 percent in the second quarter.
Net charge-offs also were down in the third quarter, dropping to 0.21 percent from roughly double that in the second quarter.
"Springfield is really no exception to those numbers," Baker said. "Both our deposits and our loans are growing significantly this year."
UMB officials have said that a steady, conservative approach to banking is paying off amid market volatility caused by subprime lending, auction-rate securities and speculative commercial real estate development - three areas the bank has purposefully bypassed.
"I think that focus on asset and earnings quality coupled with our liquidity gives us a competitive advantage, especially in these economic times," Baker said. "It does appear that some (banks) had departed the traditional rules and expectations of banking, and it's clear that UMB has not. That is a point of distinction."
A quarter for the birds
Pulling off a profitable third quarter was no easy feat for UMB Bank - a point Chairman and CEO Mariner Kemper drove home in an Oct. 22 earnings conference call.
"As everyone knows, we are in uncharted waters economically," he said.
"We are seeing volatile markets in both the U.S. and abroad. Governments across the globe are intervening in financial systems at unprecedented levels. Despite these difficult times, we demonstrated again this quarter that we built this bank with strong, stable operating principles that can take us through all types of conditions in the economy."
Other regional banks with a Springfield presence didn't fare as well.
Commerce Bancshares Inc. (Nasdaq: CSBH), a Kansas City-based competitor of UMB with seven Springfield branches, saw its per-share earnings fall 53 percent in the third quarter, due largely to the bank's decision to purchase $530 million in illiquid auction-rate securities from its customers. Commerce also increased its allowance for loan losses by $10.8 million to $67.6 million for the quarter.
Alabama-based Regions Bank (NYSE: RF), another regional bank with a local presence, also had a rough third quarter. The bank reported an 80 percent decline in net income from a year ago and upped its provision for loan losses to $417 million. Regions set aside just $90 million for loan losses in third-quarter 2007.
And Springfield-based Great Southern Bank (Nasdaq: GSBC) reported last month that third-quarter per-share earnings fell 89 percent from the same period last year. Great Southern's write down of perpetual preferred stock in Fannie Mae and Freddie Mac was $3.5 million for the most recent quarter, according to the bank.
UMB's ratio of charge-offs is low compared to many other banks, said Jeff Jones, an assistant finance professor at Drury University. Jones said banks that avoided substantial write-downs in recent quarters likely sidestepped "aggressive lending practices."
Those that didn't are "taking a big bath," he said, adding that the earnings fallout could very well continue in the fourth quarter.
"Nobody really knows exactly what this stuff (on the balance sheets) is worth," he said.
"As banks come to the realization that people aren't going to pay, they'll naturally purge some of the bad loans, and eventually we'll work our way out of that. ... But they've been taking a long bath."
In addition to a profitable quarter, UMB also recently received accolades from SmartMoney Magazine.
In the October issue, James B. Stewart's column "Spotting the Financial Survivors" named UMB among the four "strongest, best-capitalized banks" in the country. Stewart picked his winners by examining each bank's nonperforming assets and dividing them by the sum of shareholder equity and reserves against losses based on second-quarter earnings.
UMB was the highest-scoring traditional bank among those mentioned in the column. "The company's double-digit earnings growth through the worst of the credit crisis should make it the envy of the banking industry," Stewart concluded.
Baker said UMB's philosophy is paying dividends in terms of attracting customers who are thinking twice about the security of their savings and investment portfolios.
She said steady deposit growth locally provides liquidity for loans, primarily to commercial customers. "In this region, UMB is more active as a commercial bank dealing with companies, institutions and nonprofits," Baker said.
UMB also has increased its local focus on wealth management, Baker said, adding that private banking services rolled out in summer 2007 have been well received.
Under the supervision of 10 client managers, UMB's private banking now has almost $90 million in loans and more than $201 million in deposits, compared to $43 million in loans and $106 million in deposits during the same period last year.
Shares of UMB Financial stock closed Oct. 29 at $43.10, compared to a 52-week range of $34.95 to $69.60.[[In-content Ad]]
