When Does Pro-Consumer Competition Become Bad for Banking?

Larry Wilson, chairman, president and CEO of First Arkansas Bank & Trust of Jacksonville, believes regulators need to quit rubber-stamping branch expansions and develop new evaluation criteria.

Wilson penned a letter in August to the Officer of the Comptroller of the Currency and others opposing an application by First National Bank of Paragould to open a Heber Springs branch.

He said such a move would not be in the best interest of First National, the existing banks in the market and the banking industry as a whole.

“It is no secret that when banks move into overbanked markets in which they are not familiar, the vast majority of them struggle to achieve market share and profitability for many years,” Wilson wrote.

He noted the OCC approved more than 12,000 branch applications from 2000 to 2008 alone with zero denials.

Wilson said the Metropolitan National Bank branch expansion into northwest Arkansas is an excellent example of preventable folly if regulators had denied the move.

“What was a strong and seemingly well-run $1 billion-plus [asset] bank was essentially ruined by such a move,” he wrote. “As you well know, the bank has been on life support for the last several years and is currently in the process of being sold and re-capitalized so that it may survive.

“It is not insignificant that the family which owned the majority of the bank’s stock had invested in the bank for over 40 years and will end up with no value for their stock when the sale is complete.

“Their bank management made a mistake in making such a significant move, but your staff is equally guilty for allowing such a move…”

Among the Metropolitan stakeholders enduring a financial loss was the federal government, which supplied $25 million in TARP funds that flowed to the bank.

In 2005, Wilson similarly objected to Bank of the Ozarks’ plan to add a branch in Jacksonville. BOZ ultimately backed out without regulatory intervention.

Regarding the Heber Springs market, Wilson pointed out there are six banks with 10 locations serving a population of just over 7,000.

“All of those banks are struggling to find quality loans in the market,” he wrote. “Adding another institution will only make that situation worse for those banks which have already invested significantly in brick and mortar to serve the area.”

Heber Springs Lenders  
    Market Deposits*
Eagle Bank & Trust Little Rock $93,562
First Ark. Bank & Trust Jacksonville $91,665
First Security Bank Searcy $78,614
First State Bank Lonoke $38,083
U.S. Bank Cincinnati $18,410
Centennial Bank Conway $9,527

*In thousands. First Arkansas has 3 branches. Eagle and First Security have two each, and the rest have one each.

Source: Federal Deposit Insurance Corp.