Arkansas bankers keep rolling with the changes wrought by last year’s financial shake-up. Across the state, bank executives and directors are examining their place in the market: buy, sell or hold as well as deciding to cut or add branches.

The market flux has forced a refresher course on minding the basics, to maintain adequate capital and liquidity and scrutinize risk analysis. A wild card thrown into the mix is an evolving government program designed to aid troubled banks and provide extra capital to healthy lenders in hopes of stimulating the economy.

The state’s lenders largely have chosen not to participate in the government’s Troubled Assets Relief Program. To date, only nine Arkansas-based lenders have received TARP funds, totaling more than $265 million.

The amounts range from $75 million for Little Rock’s Bank of the Ozarks Inc. to $638,000 for Corning Savings & Loan Association.

Five out-of-state banks with operations in Arkansas have also accepted TARP money.

Despite its name, the program also is envisioned as stimulating the financial sector with the offer of a capital infusion for healthy lenders. The lure of new money to pursue business opportunities prompted Bank of the Ozarks to accept the government funds in exchange for preferred stock.

“There are a number of additional requirements on TARP recipients, none of which are terribly onerous in and of themselves,” said George Gleason, chairman and CEO of Bank of the Ozarks. “But in the aggregate, [the TARP requirements] do cause additional work and interference to effectively running your business.

“For us, the decision boils down to this: It provided us with additional opportunities to make investments, grow loans and possibly participating in acquiring a failed FDIC institution.

“As we continue to look at this, will those opportunities materialize? If they do, then it’s worth tolerating the minor irritation.”

And if not, Bank of the Ozarks will cash out the preferred stock held by Uncle Sam and return to business as usual.

“We’re looking at our options,” Gleason said. “When we took the TARP money, we didn’t need it. We were already well capitalized and have had record earnings. We have the option of paying it back, and our board is considering that.”

Although some lenders have viewed the program as an opportunity to boost capital and expand business, others are wary of taking on the federal government as a shareholder.

Iberiabank Corp. of Lafayette, La., which owns Little Rock’s Pulaski Bank & Trust (soon to be renamed IberiaBank FSB), received $90 million in exchange for issuing stock to the U.S. Treasury Department in December.

But Iberiabank officials reconsidered and returned the money three months later after growing concerned that Congress was altering the terms of the arrangement.

And some bankers want to avoid any negative connotations associated with a program that in some instances aids banks with capital problems. First State Bank of Lonoke on its home Web page spells out its reasons for saying no to TARP.

“Our institution has elected not to participate in the federal government’s Troubled Assets Relief Program (TARP). The management and board of directors for First State Bank feel that the bank is well positioned to weather the current economic conditions. The bank currently exceeds the federal regulatory standards for being considered a ‘well-capitalized’ institution and has a 74-year history as a sound financial institution.”

Simmons First National Corp. of Pine Bluff has received shareholder approval to participate in the TARP program but hasn’t drawn on the government’s $60 million offer.

“We don’t call it TARP,” said Tommy May, chairman and CEO of Simmons. “We call it the Capital Purchase Plan [a component of TARP]. We don’t have any toxic assets.”

This CPP aspect of TARP is intended to encourage financial institutions to build capital, to stimulate commercial and consumer lending and to support the U.S. economy.

In return for supplying capital, the government receives senior preferred shares paying an annual dividend rate of 5 percent for the first five years, which increases to 9 percent annually after that.

Though poised to participate since late March, Simmons officials paused until program details were cleared up to its liking.

“We had concerns about the ambiguity relative to us being able to exit the program at any time of our choosing,” said May, who expects a final decision on participation before Memorial Day.

“We may have to make a decision between now and then,” he said. “We’re continuing to look at two things on whether we go forward or not.

“If we think the economy is rebounding, we can opt out. If there is too much uncertainty, we can participate.”

Acquisition Mode
Arkadelphia’s Southern Bancorp Inc. put its $11 million in TARP capital to work expanding through two acquisitions.

The first up was the $5 million-plus deal for troubled Timberland Bank of El Dorado, a $135 million-asset venture launched in 2000.

That was followed by the pending purchase of Blytheville’s First Delta Bankshares Inc., the $309 million-asset holding company for First National Bank of Blytheville and the Bank of Trumann.

First National reported a $2.1 million profit in 2008 while the Bank of Trumann recorded net income of $1.6 million for the year.

Details of the proposed First Delta transaction haven’t been announced.

Bank Branch Closings
While some lenders are growing their bank network, others are pruning.

Earlier this year, Parkway Bank of Rogers announced the closing of two Benton County branches. The action leaves it with one northwest Arkansas location and follows a 2008 sanction by federal regulators for unsafe and unsound bank practices.

Little Rock’s Metropolitan National Bank, also reprimanded in 2008 by regulators, made the move this year to close three Kroger store branches in west Little Rock, Cabot and Conway.

Bank of America also took steps in 2009 to close five branches in Fayetteville, North Little Rock, Mountain Home, Pine Bluff and Batesville.

The trend indicates last year’s statewide census of 1,513 branches will be a receding high-water mark. During the past few years, the branch count rose from 1,370 in 2005 to 1,445 in 2006 and 1,490 in 2007.

New banks are out of favor these days as a round of consolidation sweeps in with the changing financial landscape.

“There are no new charters across the nation,” said Randy Dennis, president of Little Rock’s DD&F Consulting Group. “Officially, there is no moratorium on de novo banks. Unofficially, there is a moratorium on de novo banks across the country.

“As far as stripped charters go,” Dennis said, referring to the once-popular sale of dormant bank charters to streamline the process of opening a new bank, “I don’t think you’re going to see any of those. To the regulators, it’s just like a de novo.”

An exception seems to be in the case of Intrust Bank of Wichita, Kan., which has a loan production office in Rogers and is converting that to a full-fledged bank branch with the help of the charter left over from Home BancShares Inc.’s upcoming collapse of Twin City Bank of North Little Rock into Centennial Bank of Conway.

While Dennis doesn’t see much action with organizers buying dormant charters or applying for a new charter, a third option remains open. And that’s what a group of investors did recently with the purchase of a small bank – the state’s smallest, First National Bank of Altheimer with nearly $13 million in total assets – to launch an expanded banking venture: Ozark Heritage Bank of Mountain View.

Led by CEO Dave Ault, the organizers planned to bolster the bank’s capital with up to $12 million in new capital.

Dennis believes regulators are more receptive to investors buying an existing bank and injecting it with capital, provided the proposal includes good banking leadership. Such a move won’t add to the lending herd but does bolster the balance sheet of an existing institution.

Those are two developments that likely wouldn’t draw looks from regulators. It also addresses one of the two monetary issues in the forefront of regulatory concerns: adequate capital and financial liquidity.

The travails on the financial scene have prompted a back-to-the-basics movement accompanied by a dispersion of fly-by-night lenders, or what Dennis calls shadow lenders.

“On the good side, it has refocused banks back on their customer base,” he said. “Arkansas bankers will regain customers lost to 1-800 bankers and out-of-state lenders. It’s a good opportunity for banks to reconnect with their customers.”