Signature Move Takes Stock Public

Six months ago, White River Bancshares entered the realm of publicly traded companies with little fanfare. The corporate transition of the parent company of Fayetteville’s Signature Bank of Arkansas coincided with the lender’s most profitable year ever.

Signature earnings topped $5.1 million in 2018 after White River Bancshares began trading on the OTCQX Best Market on Dec. 27.

The tandem events underscored that the bank launched with such promising momentum in 2005 was back on track after getting derailed by the real estate meltdown that hit northwest Arkansas especially hard.

“We want to be the best-run company we can be,” said Gary Head, founding CEO of White River and Signature Bank. “There’s opportunity to grow, and we want to continue to grow. We would like to be a billion-dollar bank.”

After less than five years of operations, Signature Bank was well on its way to reaching $1 billion in total assets back in 2009 when the bank ended the year at $715 million.

But instead of positioning Signature for another quarterly move upward, the tally established a high point that remained out of reach for nearly a decade.

The bank is still climbing back, and that peak is once more in sight. Total assets topped $650 million during the second quarter.

Located in the hottest lending market in Arkansas, Signature Bank grew quickly from its May 2005 start. However, the bank never hit its earnings stride before the bursting real estate bubble splattered the balance sheets.

“Other real estate owned” became a line item of special significance monitored by banks and regulators as the volume of properties recovered by lenders escalated. Benton and Washington counties, Signature Bank’s prime markets, became awash in bank-owned real estate.

The bank began 2009 with an OREO portfolio totaling $2.6 million. In the months that followed, the tide of bank-owned property reached as high as $24.7 million during the first quarter of 2012.

“We had a lot of OREO,” Head said. “We didn’t get into trouble until 2010. Most everyone else got in trouble earlier, and they had a two-year head start on getting rid of their OREO. The whole market was flooded with OREO in every direction.”

Write-downs based on new appraisals devastated valuations. To restore fiscal order, branches in Rogers and Siloam Springs along with loans made by the offices were sold in 2010 to Camden’s Harrell Bancshares, holding company of Generations Bank. The move slashed Signature Bank’s total assets by $200 million to help bring capital ratios in line.

Adding to the 2010 financial whirlwind was a write-off of $11.8 million in goodwill that saw the bank’s loss for the year balloon to $15.7 million. The goodwill was carried from the 2007 acquisition of Bank of Brinkley.

“It made a bad deal look even worse,” Head said of the goodwill accounting. “It was a tenuous time. People were getting out of the business and filing bankruptcy. Fortunately, people liked us and didn’t quit us.”

Also in late 2010, Signature Bank was hit with a consent order by the Federal Deposit Insurance Corp.

“I got in more trouble for not pushing people over the edge,” Head said of regulatory pressure to be more heavy-handed with customers caught in the reappraisal squeeze. “I have a bank full of those people. We didn’t give up on them. We didn’t force them into doing something they couldn’t do.

“Some people told me I wasn’t very smart for doing that. There’s no vindication in the world. Success is the best revenge.”

The U.S. Treasury’s Troubled Asset Relief Program provided a godsend in the midst of a horrible market to raise capital. In February 2009, Signature’s equity capital was boosted by $16.8 million in TARP funds that flowed through its parent company, White River Bancshares.

“Our bank commissioner called me and said this money was going to be available and that I should consider taking it,” Head said. “That was the best advice I ever got. It cost us a lot of money to pay back. It was an expensive life preserver, but what would you pay for a life preserver?

“It was easy to quit in ’09 and ’10. A lot of bankers couldn’t see how they could overcome their situation, but I don’t really have ‘give up’ in my repertoire, and we have a group of horrible losers working here. They don’t like to lose.”

To help repay the TARP funds, Head sought new sources of capital from outside investors. Conversations led to a hard question directed at his ongoing leadership at Signature: Why should I invest in a bank that you drove into the ditch?

His reply: Because I’m the one who drove it out.

“I was told that was the only acceptable answer,” Head said of winning over fund investments from New York’s Maltese Capital Management and Patriot Financial Partners of Radnor, Pennsylvania.

Head to Head

Head was at Arvest Bank of Fayetteville, where he had worked 16 years and risen to become president and CEO in 1999, when a colleague came calling.

King Gladden, CEO of Harrison’s Community First Bank, approached Head about starting a new bank in Washington County in 2004.

Gladden, a former Arvest executive vice president who left the Walton-owned bank to form Community First in 1997, was still recovering from injuries suffered in a plane crash.

“He said he had a vision, and God wanted us to be partners,” Head recalls. “I told him it must be the drugs because He hadn’t told me that, by the way.”

But Head and his family chewed on the potential career move for several weeks and agreed to take the plunge.

A stock offering party for the Fayetteville startup was thrown at the UArk Bowl on Dickson Street in August 2004. The investment soiree is considered a record-setter for a new bank launch in Arkansas.

“We walked out of there with $45 million,” Head said.

The partnership proved to be short-lived when a fatal plane crash took Gladden’s life in January 2005.

Ownership of White River stock is spread across 900 shareholders these days with WRIV stock trading at $65 per share after starting at $75.50.

When the venture first formed, two bank holding companies bought 20% stakes to jump-start the capital raise: the Gladden-led Community First Bancshares and the Johnny Allison-led Home BancShares in Conway.

The White River shares held by Community First were divvied among its individual stockholders in 2016. The diffusion was tied to the sale of Community First to Equity Bancshares Inc. of Wichita, Kansas.

Home BancShares exited the picture in 2007 after selling its stake for $19.9 million to White River Bancshares.

“Johnny Allison wanted to own it all, but we bought him out,” Head said.

Signature Bank of Arkansas, Fayetteville
Total Assets: $656 million     Net Income: $3 million
Equity Capital: $75 million    Efficiency Ratio: 73.74%
Staff: 138 in four full-service offices in Fayetteville, Springdale, Bentonville and Rogers along with two in Brinkley
(As of June 30, 2019)

Source: Federal Deposit Insurance Corp. Dollars in thousands except where noted.