Want to own a bank? It’s a buyer’s market

LITTLE ROCK — In 1998, Regions Financial Corp. acquired First Commercial Corp. for $2.7 billion - more than four times First Commercial’s book value.

It was the highest price-tobook value ever paid for an Arkansas bank and at the time one of the highest values paid for a bank nationally. Book value is the net worth - or total assets minus liabilities - of a bank.

Now, nearly three years after the beginning of the worst economic crisis since the Great Depression, the value of banks has collapsed.

In 2007, there were 323 bank and savings and loans sold nationally, with an average price-to-book value ratio of 2.1 to one, according to the research firm SNL Financial of Charlottesville, Va. Through the first five months of this year, there have been 72 deals at an average salesprice that’s only about equal to book value, SNL said.

In Florida, one of the hardest hit states for banks, there have been six bank sales this year - not counting government-assisted sales of failed banks - at an average price of 0.73 times book value, according to a recent American Banker article. Research forthe article was done by SNL.

“The heyday of high bank prices is passed,” said Randy Dennis, president of DD&F Consulting Group, a Little Rock bank consulting firm. “I’d be very surprised if we see any three-times-book deals anytime soon. It’s a buyer’s market.”

John Allison, chairman and chief executive officer of Home BancShares Inc. of Conway, the $3 billion-asset holding company for Centennial Bank, remembers the First Commercial sale well. He was on the First Commercial board.

“It was the highest price I’d ever heard a bank selling for nationally,” said Allison, adding that some banks have sold for five times book value since then.

Now is a good time to buy, Allison said.

“This is where the money is made, when you acquire in low times,” Allison said. “Soif you buy and build a franchise now and choose to sell later, that’s where the money’s made. You make your money buying, not selling.”

Ross Whipple, chairman and chief executive of Summit Bank in Arkadelphia, also remembers the days of high prices for banks. In 1998, he sold Horizon Bancorp to Mercantile Bancorporation of St. Louis, a predecessor to what is now U.S. Bank. The pricewas $150 million or 3.2 times book value, Whipple said.

Whipple retained a portion of Horizon and has now developed that, as Summit Bank, into an institution with more than $1.1 billion in assets.

Today’s low prices are because of the principle of supply and demand, Whipple said. There are many banks for sale now, with the government unloading failed banks.

“All of the banks that are having problems that are for sale, that brings down the price of good institutions,” Whipple said. “You don’t want to sell a good institution for book value.”

Whipple made a bid on the only Arkansas bank to be sold through the Federal Deposit Insurance Corp., ANB Financial, which was closed in 2008. Iberiabank of Lafayette, La., won the bid for ANB’s business in NorthwestArkansas.

Home BancShares, Arvest Bank of Fayetteville, Bank of the Ozarks of Little Rock and Simmons First National of Pine Bluff all have benefited from buying failed banks in other states from the FDIC atlow prices.

“The FDIC will pay you to take a [failed] bank,” Dennis said. “It’s hard to beat that deal.”

There are three categories of banks that are likely to sell in the short term, he said, starting with failed banksthat will sell in the next year or two.

Then, banks in financial difficulty will sell branches and divisions of their banks in an attempt to return to stability, he said.

Finally, some bankers will get frustrated with the economic and regulatory environment and sell, Dennis said.

“They’ll just throw up their hands and say, ‘I’ve had all the fun I can take. I’m sick of this,’” he said. “And they’ll look to get out. I think there will be a ton of opportunities out there for well-capitalizedbanks with vision and good leadership.”

Because failed banks have lowered prices for all banks, it is not a good time for wellcapitalized banks to sell, said Dennis, whose firm was tied with the New York firm of Keefe Bruyette & Woods asthe most productive consultant in the country on bank deals in the first quarter. DD&F and Keefe Bruyette each were advisers on 10 deals in the first quarter.

“There are not many good banks on the market now,” Dennis said.

Arkansas banks by the numbersState and federally chartered Arkansas-based banks, as of March 31. DOLLAR FIGURES IN MILLIONS.

Total assets INSTITUTION ASSETS HIGHEST Arvest Bank, Fayetteville $11,304.19 First Security Bank, Searcy 3,156.43 Centennial Bank, Conway 3,066.62 Bank of the Ozarks, LR 3,006.86 Liberty Bank of Arkansas, Jonesboro 2,547.28 LOWEST Community State Bank, Bradley $20.55 Planters & Merchants Bank, Gillett 27.73 Bank of Rison 28.98 Bank of Bearden 32.44 Eudora Bank 32.82

Asset growth ANNUAL

INSTITUTION CHANGE

HIGHEST

Ozark Heritage Bank,

Mountain View 532.16%

Southern Bancorp Bank,

Arkadelphia 248.48

Centennial Bank, Conway 86.99

First Southern Bank, Batesville 29.47

Delta Trust & Bank, Parkdale 27.79

LOWEST

Bank of Arkansas, Fayetteville -19.22%

Bank of Gravett, Gravette -18.60

Pinnacle Bank, Rogers -15.71

Capital Bank, Little Rock -14.51

Metropolitan National Bank,

Little Rock -13.43

First-quarter net income

INSTITUTION NET INCOME

HIGHEST

Bank of the Ozarks,

Little Rock $16.36

Centennial Bank, Conway 15.24

First Security Bank, Searcy 14.02

Arvest Bank, Fayetteville 7.69

Liberty Bank of Arkansas,

Jonesboro 4.23

LOWEST

Signature Bank, Fayetteville -$3.47

Metropolitan National Bank,

Little Rock -2.62

First State Bank, Crossett -0.35

Legacy National Bank,

Springdale -0.33

Hot Springs Bank & Trust -0.14

Return on assets RETURN ON

INSTITUTION ASSETS

HIGHEST

Southern Bancorp Bank

of Trumann 2.46 %

Piggott State Bank 2.37

Bank of the Ozarks,

Little Rock 2.25

Centennial Bank, Conway 2.23

First National Bank of

Izard County, Calico Rock 1.87

LOWEST

First State Bank, Crossett -3.54%

Signature Bank, Fayetteville -2.00

Metropolitan National

Bank, Little Rock -0.72

Planters and Merchants

Bank, Gillett -0.72

Hot Springs Bank & Trust -0.56

Loans-to-deposits ratio

INSTITUTION RATIO

HIGHEST

Priority Bank, Ozark 144.02%

Benefit Bank, Fort Smith 121.25

First Financial Bank,

El Dorado 116.05

United Bank, Springdale 114.63

One Bank & Trust, Little Rock 109.42 LOWEST Merchants and Planters Bank, Clarendon 29.31% Citizens State Bank, Bald Knob 32.01 Southern Bancorp Bank of Blytheville 34.33 First National Bank of East Arkansas, Forrest City 35.95 Farmers Bank, Hamburg 39.95 Arkansas Democrat-GazetteSOURCE: BauerFinancial, Coral Gables, Fla.