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Systematic Savings Bank CEO Derek Fraley is applying to convert the bank's state charter.
SBJ photo by Jessica Rosa
Systematic Savings Bank CEO Derek Fraley is applying to convert the bank's state charter.

Systematic Savings Bank applies for IPO

Move would convert bank's charter and sell pink-sheet shares

Posted online

Systematic Savings Bank is moving to convert its state charter in an initiative designed to raise capital and expand the company’s capabilities.

The Springfield-based bank is seeking approval from the Missouri Division of Finance and Federal Deposit Insurance Corp. to switch to a stock savings bank from a mutual savings bank, said President and CEO Derek Fraley. Conversion application paperwork was filed March 18 for an initial public offering, he said, which would allow the bank to trade pink-sheet shares over the counter. Bank officials expect to hear a response this spring.

If approved, an investor relations website would be created, and quarterly and yearly earnings data would be released, Fraley said. The idea of pursuing a charter conversion has been on his mind for some time.

“I wanted to do it the day I got here,” said Fraley, who started in August 2017 at the downtown bank’s lone branch at 318 South Ave. “It’s the obvious projection for a bank.”

If the change is approved, Systematic Savings Bank plans to offer current and some former depositors and borrowers shares in the company.

Officials say any remaining shares would be made available to the general public in a direct community offering. An independent appraisal is slated to determine the size of the offering.

Raising capital
Fraley said Systematic Savings Bank is owned by depositors and currently can only acquire capital through retained earnings.

It had $37.7 million in assets and roughly $5 million in total equity capital, as of Dec. 31. The equity amount is down by nearly $3 million since 2012, but Fraley noted it’s stabilized around $5 million since 2017.

“I just can’t go out and pass the hat and raise capital if I need to,” he said, noting the charter conversion gives the bank more flexibility.

Deposit loan services, interest rates, balance requirements or maturities of either deposit or loan terms would not be affected through a conversion, Fraley said. The bank name would stay the same, too.

“We’ll remain a savings bank, but we’ll be publicly listed and can go out and raise capital should we need to,” he said. “Also, at a future date if we decide we need to raise more capital, there’s a mechanism already in place to do so.”

He said the process would be the same pursued decades ago in Springfield by Great Southern Savings & Loan, now Great Southern Bancshares Inc. (Nasdaq: GSBC) and Guaranty Savings & Loan, now Guaranty Federal Bancshares Inc. (Nasdaq: GFED). Both banks are publicly traded.

Making the turn
The charter conversion plan follows two consecutive positive financial quarters for the bank – the first time for Systematic Savings Bank since 2012, he said.

Still, for the year, the bank recorded a 2019 net operating loss of $81,000, according to its most recent call sheet filed with the FDIC. Fraley said the company profited more than $60,000 in the second half of the year, but the balance sheet was weighed down by a first-half net loss of $150,000.

When Fraley came on board over two years ago, he was tasked with leading a financial turnaround. In the years leading up, the bank’s net operating losses were $667,000 in 2016, $445,000 in 2015 and $265,000 in 2014, according to past Springfield Business Journal reporting.

Trevor Crist, CEO at Nixon & Lindstrom Insurance, was selected by Fraley in November 2017 to join the bank’s board of directors. Crist said via email Fraley was “specifically identified for the position because of his focus on balance sheet management and proven ability to provide strong reporting strategy.”

Fraley came over from BancorpSouth Inc. (NYSE: BXS), where he served as vice president and commercial lender for three years. When he arrived well into 2017, Fraley said Systematic Savings Bank’s net losses that year were deep, at $1.2 million. But he noted over $300,000 of that total was attributable to a lot of deferred maintenance of the branch office. In his first full year, net losses improved by more than $1 million in 2018, but the bank was still in the red by $247,000.

“To be honest with you, it’s just soul crushing,” he said. “Anytime you put out a red number, you feel like an absolute failure.”

Increasing loans and decreasing expenses have been a focus to help lead the turnaround, he said. In 2016, loans were at $22 million. Last year, they approached $29 million – an increase of more than 30%. Additionally, several service provider contracts were renegotiated, saving about $100,000.

“That’s what we’ve been working on. We were way overstaffed,” he said, which led to reducing workforce in 2017 to nine from 17. That staff size remains at that level today.

With the smaller employee count, Fraley said it was important to improve systems and policies, essentially changing the culture.

“It’s tedious and hellish on the front end because you’ve got to figure out the right process to do it, but every time you do it again, you do it a little bit faster and a little bit better,” he said.

With momentum from the last two quarters of 2019, Fraley recognizes the coronavirus pandemic now has the U.S. economy on unstable ground. However, he said the bank wouldn’t be ringing a bell on Wall Street. Instead, it will offer the opportunity for deposit holders to purchase shares.

“Given local support in Springfield, I’m sure that whatever the economic conditions, people will appreciate the opportunity to be a part of it,” he said.

Web Editor Geoff Pickle contributed.

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