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Tally of state banks approaches record low

The number of banks in Arkansas will fall below 100 this year, the lowest level ever in the state, including the Great Depression in the 1930s.

In 1932, there were 223 banks in Arkansas supervised by the Arkansas State Bank Department, said Richard Plotkin, a certified examinations manager at the Bank Department. That was in an era when 9,000 banks failed nationally and before passage of the Banking Act of 1933, which in part formed the Federal Deposit Insurance Corp.

More than 130 banks have been acquired, consolidated or closed in Arkansas since 1997, when there were 239 banks in the state.

There were 101 banks in Arkansas at the end of 2016. At least three are in the process of being acquired or have already been approved by regulators but the deals have not closed. That includes Farmers Bank of Hamburg, Pinnacle Bank of Rogers and Twin Lakes Community Bank of Flippin.

Banks in the state are performing well, said Candace Franks, commissioner of the Bank Department.

The asset total for the 101 banks is higher than it has ever been at $88 billion, almost triple the assets for the 239 banks in 1997.

“Loans are up,” Franks said. “But conditions in agriculture areas will affect the smaller banks in the ag areas. Commodity prices are lower and continue to be challenging.”

There also has been strong growth in commercial real estate lending, Franks said.

“Smaller banks particularly are seeing some growth in real estate lending,” she said.

Regulatory costs have increased tremendously over the past eight years, Franks said.

“The compliance burden is very costly to all our institutions, including our smaller institutions,” Franks said. “If they have to hire another person or two [to handle the extra regulations], that hits hard on smaller institutions.”

Smaller banks pay more on a relative basis to cover those costs than large banks.

Banks with less than $100 million in assets averaged almost $164,000 a year in compliance expenses in 2014, or 8.7 percent of their noninterest expenses, according to a report last year by the Federal Reserve Bank of St. Louis.

Banks with assets of $1 billion to $10 billion had total compliance costs averaging $1.8 million a year or 2.9 percent of their noninterest expenses, according to the report.

Another contributing factor to the reduction in banks is the difficulty in handing off ownership of the bank, said Garland Binns, a Little Rock banking attorney.

Regulators have pressed the issue in recent years, Binns said. Regulators require each bank to have a policy in place dealing with succession planning, Binns said.

“In many rural areas, if you don’t have somebody in the family to take over the bank, it requires hiring somebody,” Binns said. “That can be difficult if you are in a rural area. For instance, I can think of at least one or more banks in a town where there isn’t even a restaurant.”

Forrest City Bank was in the position of not having anyone in the family of owners who wanted to take over the bank, said Dwight Rutland, who was president of Forrest City Bank and now is president of Armor Bank after an acquisition.

“Our shareholders wanted to cash out and this was an opportunity for the bank to remain an independent bank and have local ownership,” Rutland said.

Armor Bank is owned by Mark and Nathan Waldrip of Moro, about 25 miles southwest of Forrest City.

Southern Bancorp of Arkadelphia is looking to buy rural banks in Arkansas, said Darrin Williams, chief executive officer of Southern Bancorp, which acquired Farmers Bank. Southern is a community development bank that has a mission to revitalize rural communities.

“We’ve surveyed banks around our major branches and we’ve identified several banks that fit our profile,” Williams said. “Being a billion-dollar [asset] bank, we have people in place that we’re training to take over some of these branches.”

Southern Bancorp owns a branch in Eudora and in Greenville, Miss., that will fit perfectly with its acquisition of Farmers Bank in Hamburg, Williams said.

Another reason there is consolidation of banks is that the prices paid for banks are increasing, Binns said.

There were 23 banks that sold nationally in January, Binns said. The average price paid was 1.6 times book value or about 20 percent more than was paid in January 2016, Binns said.

“The pricing of banks has come back very favorably from the financial crisis of 2007 to 2009,” Binns said.

Before the recession, it was common that new banks were formed to replace some of the banks that were selling.

“We’re hopeful that if we get some regulatory relief, we will see some activity in [the forming of new banks],” Franks said. “Part of the reason we haven’t seen that [since the recession] is because they would have been economically challenged. Another reason would be the regulatory burden [a new bank] would face.”

There were 101 banks in Arkansas at the end of 2016. At least three are in the process of being acquired or have already been

approved by regulators but the deals have not closed. That

includes Farmers Bank of Hamburg, Pinnacle Bank of Rogers

and Twin Lakes Community Bank of Flippin.

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