Bank sales in Arkansas are giving other banks in the state the opportunity to open branch offices in metropolitan areas.
At least 10 Arkansas banks have been sold since the beginning of last year and most of them had branch locations in one of the state’s seven metropolitan areas. When bank buyers begin cost-saving measures, one of the first considerations is closing branches. Banks outside central or Northwest Arkansas likely will use the closings as an opportunity to branch into Little Rock or Northwest Arkansas, said Randy Dennis, president of DD&F Consulting Group, a Little Rock-based bank consulting firm.
“Central Arkansas and Northwest Arkansas are both viewed [by some out-of-market bankers] as promised lands,” Dennis said. “Although perhaps they are a little more cautious about Northwest Arkansas.” A declining housing market hit the Northwest Arkansas economy hard in recent years.
The attraction is strong, particularly for the state’s rural banks, many of which have millions of dollars in deposits but nowhere to loan the money. There are more than 20 rural banks in Arkansas that have a ratio of less than 50 percent of their deposits loaned out, according to federal bank filings. Almost 50 banks in the state have loans-to-deposits ratios of less than 67 percent.
“What we are seeing are banks moving into metropolitan areas,” said Garland Binns, a Little Rock banking attorney. “They can either purchase a location, lease a location or open a [new] branch.”
Simmons First National Bank of Pine Bluff last year acquired Little Rock-based Metropolitan National Bank, which had 33 locations in central Arkansas and 12 in Northwest Arkansas, and this month announced the purchase of Delta Trust & Bank of Little Rock, which has three locations in central Arkansas and two in Northwest Arkansas.
There was a net increase of 18 branches in Arkansas in 2013, five in 2012, 10 in 2011 and 19 in 2010.
Binns said he is working with banks that are considering opening an office in central Arkansas and in other metropolitan areas in the state.
Moving into metropolitan markets isn’t a simple process, Binns said.
“It depends on the business model a bank uses and the personnel the bank has in the branch,” Binns said. “Just opening a branch and thinking people will come in is not going to happen. They have to have a model on how they will attract business.”
Binns recently conducted an informal survey of people in the banking sector. He asked them if they were seeing a trend of banks branching into larger metropolitan areas.
“Banks of all size are seeking loan growth,” a banker in the survey said. “Loans are the key to profitability in this interest rate environment. The metro areas simply offer many more lending opportunities and are the target of most allbanks these days.
“Conversely, banks in rural areas with very low loan-to-deposit ratios have become hard to sell. Even if they are reasonably profitable and clean, there is often no interested buyer. This is a change from earlier cycles when low-cost deposit banks could always find a buyer.”
Ashton Adcock is chairman and chief financial officer of Merchants & Farmers Bank, a $100 million asset bank in Dumas. He is the third generation of his family to run the bank.
In September 2011, Adcock moved his family to Benton and opened a lending office for the bank in Bryant.
“We made a decision to have a presence in another market that’s growing to provide us with lending opportunities,” said Adcock, who has been chairman for 20 years. “A lot of rural banks are flush with cash. We’re blessed to have customers who trust us with their money. We’re not short on deposits but we’re short on lending opportunities a lot of times.”
The new office has exceeded the bank’s expectations, Adcock said.
Since Adcock moved in September 2011, Merchants & Farmers’ loans have increased by $3.4 million to $57.7 million and deposits have grown from $90 million to $100 million, according to the bank’s federal filings. The bank’s net income has grown by almost 50 percent, from about $500,000through nine months in September 2011 to about $730,000 for the first nine months of 2013.
Adcock is focusing on commercial lending and covers a wide area, from Hot Springs to Maumelle, Little Rock and North Little Rock.
“We use the office as more of a central Arkansas hub,” Adcock said.
Business, Pages 73 on 03/30/2014