There were more than 35 startup banks in Arkansas from 1995 to 2008, but no one has the desire to start a new bank now, the commissioner of the Arkansas Bank Department said Thursday.
"I don't know that there has been that much interest from investors" about starting a new bank, said Candace Franks, commissioner of the department.
There has been an increase in regulatory requirements for more bank capital that would deter investors from putting up money for a bank, Franks said at a meeting of the central Arkansas chapter of the Risk Management Association.
"Most investor groups raise all their money on the front end," Franks said. "In Arkansas, you really have to. [Regulators] do require more capital than we used to."
In years past, the Bank Department would require new banks to have maybe $5 million to $12 million before starting a bank, Franks said. But now, investors need to raise about $18 million to $20 million, she said.
"There is the cost of regulation and the cost of the startup, and you don't anticipate you'll make any money for three years," Franks said.
The lack of bank creation isn't just limited to Arkansas, said Arkansas' U.S. Rep. French Hill, who also spoke at the Risk Management Association meeting.
Arkansas is a state with modest population growth, so it doesn't attract a dynamic environment like metropolitan Dallas, Hill said.
"But you don't see [new banks started] in these big NFL cities either," Hill, a Republican, said. "That's what I find concerning."
Management teams thinking about starting a bank would need to raise at least enough money at the beginning to cover needs in the first three or four years, so they can insulate their business plan, Hill said.
"I think the problem is that we're damaging privately and family-owned banks," Hill said. "There is no exit value that people can determine. How can you raise money from someone if you can't give them some reasonable expectation [of what their eventual return will be]?"
The decision to start a bank has been profitable for some of those who did it in Arkansas in recent years, and Hill has firsthand knowledge.
In 1999, he and other investors bought controlling interest in a bank in Parkdale and started Delta Trust and Bank after raising more than $11 million through a private stock offering. In 2015, Delta Trust was sold to Simmons First National Corp. for $66 million.
The most high-profile startup bank was what is now Home BancShares in Conway. John Allison and Robert Adcock started it in 1998 as First State Bank in Conway after buying a small bank in Holly Grove.
Allison's ownership in the bank is now worth about $195 million. Adcock's Home BancShares' stock is worth about $38 million. All of the bank's stock is worth about $3 billion.
Burdensome rules and regulations have taken the incentive out of starting a new bank, said Allison, the bank's chairman.
A bank with $50 million in assets used to do well, but now it has a difficult time competing, Allison said in a telephone interview.
"A $50 million bank is basically required to have the same thing that [Home BancShares has] at $9.6 billion [in assets]," Allison said. "They can't hire all the [compliance] people they need, or if they do, they can't be profitable."
The country's economic condition since 2007 has made it difficult for banks, said Adcock, a Home BancShares director. Adcock also served as state bank commissioner from 2003-2007.
Federal regulations also contribute to the disinterest in starting a bank, Adcock said.
Even as the recession was beginning in 2007 and 2008, Adcock noticed that federal regulators already were trying to force regulations on small bankers.
"[Bankers] would look at the regulators and say, 'I can't do those things' [because of the costs]," Adcock said in a telephone interview. "And the regulator would say, 'Well, hire three more people.' But if you have only 20 to 25 people, adding three more is a tremendous burden on you. These small banks can't afford to have someone designated just to deal with the regulators. A bank our size, we can."
Allison and Adcock said they would not likely start a bank in the current environment.
"I don't think I'd do it," Allison said. "Banks are not as profitable as they used to be. There's more competition. The rules and regulations are much more stringent than they have been."
Adcock said, "If you were going to try to [start a new bank now], you better be able to grow fast."
Randy Dennis, president of DD&F Consulting Group, a bank consulting firm in Little Rock, helped several investor groups start banks in Arkansas.
Federal regulators said this year that they are open to approving bank startups, Dennis said.
He has not seen any interest for new banks, but his firm would be open to assisting others start a bank, Dennis said.
No one has approached the Bank Department with any interest in a startup, Franks said.
"And that is really concerning," she said. "Throughout my career, [there has] always been a healthy interest in [startup] banks after every downturn. But we just don't have that now."
Business on 08/12/2016