Despite national crisis, area banks say they're ready to lend

When the finance industry worldwide went into a tailspin in the third quarter of the year, the community banks serving Southeast Missouri showed an enviable resilience.

Profits are generally healthy. More generous federal guarantees boosted depositor confidence. And the privately held banks that dominate the regional market gained some advantage, placing them in a stronger position to compete against the larger national banks, said bank presidents interviewed over the past week.

Community banks rely on deposits to fund their loans; national banks have more options, both for sources of capital and for exposure to the problems that created the mess in the first place.

While the banks all show generally strong balance sheets, at least three community banks -- Bank of Missouri, First State Bank & Trust Co., based in Caruthersville and First Missouri State Bank of Cape County -- applied for money from the $700 billion federal bailout program.

Presidents of all three banks said the money is not vital to their business and that they may ultimately decide not to accept the money.

As the banking crisis spread in September, early federal actions included raising the insurance limit on bank accounts to $250,000 per account. Now through the end of 2009 there is no limit on the guarantee for accounts paying an interest rate below 0.5 percent.

When the insurance limits were lower, big depositors were more likely to put money "in the banks too big to fail," said David Crader, president of the Bank of Missouri and president of the Missouri Independent Bankers Association.

Crader said community banks made a concerted but unsuccessful effort to raise the insurance level by $40,000 a few years ago. "Then Congress over a weekend raises it to $250,000," Crader said. "That aggravates us, but we were glad to see the increase. We have gained deposits this year because of all the disarray."

Although the national recession is also putting a damper on the regional economy, bankers interviewed over the past week said they are ready to lend.

"Certainly the ultimate trickle-down effect nationally starts to influence the local market," said Jim Limbaugh, chief operating officer of Sikeston-based Montgomery Bank. Noranda, for example, laid off workers for the first time in 20 years, he said.

Sluggish car and home sales are also a drag both on the local economy and in particular bank profits, Limbaugh said. "But we don't see it to be catastrophic by any stretch of the imagination."

Monday was the deadline for 11 of the 17 privately held banks operating in Cape Girardeau, Bollinger, Perry and Scott counties to ask for money from the the Troubled Asset Relief Program, or TARP. The Southeast Missourian interviewed top executives of six of the 11 banks. The other five banks did not return calls requesting interviews.

Bank of Missouri applied for $10 million, Crader said. First State Bank and Trust Co. is asking for $7 million, president Gordon Waller said. And First Missouri State Bank of Cape County applied, president Steve Taylor said Friday, although he could not name the amount sought. According to federal rules, First Missouri is eligible for up to $2.3 million.

Both Crader and Waller said their banks may use some of the money to finance mergers. Crader said he sees opportunity in the regional market, but would not give specifics. Waller said any acquisition by First State would likely occur outside its core area.

Funding too expensive

At similarly named First State Community Bank, based in Farmington, Mo., the board of directors decided that TARP funding was too expensive, president Greg Allen said.

"We don't have any need for that type of capital at this point," he said. "If we need money due to an acquisition, we can raise that capital ourselves. We really don't want the government as a partner."

The remaining six of the 17 community banks use a corporate structure with tax benefits for shareholders but which puts them last in line for bailout money. The group includes Montgomery Bank and Wood & Huston Bank as well as the newest entry in the Southeast Missouri market, Banterra. The Treasury Department is working on the rules.

Executives at banks waiting to learn when, and if, they can access federal help said they face the same economic challenges as competitors. They said their banks remain ready to lend and feel confident in the region's overall economic health.

The profit picture for Southeast Missouri's community banks stands in marked contrast to the national scene. For the first nine months of 2008, bank profits nationally fell 94 percent, to $1.7 billion. The 17 community banks operating in Cape Girardeau, Perry, Scott and Bollinger counties, however, saw only a slight decrease, with profits falling from $48.17 million to $48.03 million.

Put another way, the profits of those banks represent 2.8 percent of the profits at all 8,384 institutions insured by the FDIC, compared to 0.2 percent in the same period of 2007.

Nationally, banks more than tripled the funds set aside to cover losses on bad loans. The amount set aside by the 17 community banks fell 16 percent.

Montgomery Bank and Bank of Missouri are the two biggest players, with more than one-third of the $2.6 billion in total bank deposits in the four counties.

The 17 community banks compete with four major banks. Three of the major banks have a national presence -- Bank of America, US Bank and Regions -- and one is a large Missouri-based bank, Commerce.

All about relationships

Cultivating customers is what keeps a small bank like the People's Bank of Altenburg, with two branches, in business, bank president Matt Puchbauer said. With $39.5 million in deposits, the bank increased its profit by 21.9 percent.

"It is highly relationship-oriented," Puchbauer said. "People here want to know who their banker is. It is important for me and my officers and staff to be highly visible in the community. Banking is still a trust-oriented business, and they have to have confidence in us."

Those issues of confidence made both Cord Polen, president of Alliance Bank, and Larry Uelsmann, president of Security Bank & Trust Co., willing to talk extensively about why their institutions were the only banks among the 17 to report a loss.

For Alliance Bank, it is the second consecutive year of losses. But unlike last year's losses, caused by an ill-fated decision to invest in used car loans, this year's losses represent an aggressive push to clean up the bank's books and include large sums for legal fees and losses on sales of foreclosed property, Polen said.

To cover losses, the bank set aside $1.4 million in anticipation of soured loans. The bank still has a strong capital stance, at more than two times the level required by law, Polen said.

"We don't have a lot of problems. We are just trying to aggressively address them," Polen said.

Security Bank & Trust reported a net loss -- $10,000 -- that is directly related to economic conditions, Uelsmann said. The bank has put only six properties through foreclosure this year, he said, but "one of them was a killer."

The bank may recover some of the loss, Uelsmann said. "This was a new customer, and it was commercial real estate. The numbers looked good going in, but once they got into trouble they couldn't sell it for anywhere near what they had in it. It has not been a fun year."

Uelsmann predicted the bank would return to profitability by the end of the year.

rkeller@semissourian.com

388-3642

Does this affect you?

Have a comment?

Log on to semissourian.com