Banking on Opportunity: How Arkansas Institutions Saw Growth During the Great Recession

Johnny Allison, CEO of Home BancShares, at the company headquarters in Conway (Steve Lewis)

The global financial crisis that touched off the Great Recession of 2007-09 crushed hundreds of banks nationwide, but it rewarded a handful of well-capitalized Arkansas banks looking to grow.

Centennial Bank of Conway and what is now Bank OZK of Little Rock each acquired seven failed banks in transactions aided by the Federal Deposit Insurance Corp., and Simmons Bank of Pine Bluff snatched another four.

The crisis also helped make bank consulting firm DD&F of Little Rock a national leader in advising solid banks on bids at a time when the FDIC was literally paying acquiring banks to take hundreds of failing banks off its hands.

Early this month, nearing the 15th anniversary of the official end of the Great Recession, DD&F President Randy Dennis looked back fondly on those frenzied years.

Centennial CEO Johnny Allison and Bank OZK chief George Gleason recalled the era as a rare window for expansion. (See sidebar)

“We were an early adopter when we represented Mutual of Omaha when they bought two banks out in Nevada, Arizona and California,” Dennis said, referring to First National Bank of Nevada and First Heritage Bank of Newport Beach, California, which both failed in July 2008. “I was astounded at what was going on and how the FDIC was reacting. When I came back to Arkansas, I said, ‘You know, this is the next big thing.’”

Dennis called Gleason, Allison and other Arkansas bankers to offer acquisition guidance as bank failures accelerated. “Not that those guys really needed a lot of help,” he said. “They’re geniuses. Johnny is one of the sharpest guys I know. And George Gleason, there’s another guy who’s brilliant. It was some of the finest times of our lives, a lot of fun, and Johnny had a blast.”

DD&F helped banks bid on nearly 250 failed financial institutions, and about 20% of those bids won out. In every case, winning the bid meant asking the FDIC for the least amount of money to take on the deposits and assets of a failing bank. (See table.)

Susan Blair recalled working at Bank of the Ozarks during the crisis. Now she’s a principal at DD&F.

“Randy and the team here developed comprehensive training and bidding models for clients during the financial crisis of 2007-2008, and helped banks across the country bid on several hundred banks, winning and closing on 47 of them,” she told Arkansas Business via email. Crisis acquisitions contributed to “the growth and profitability of Arkansas’ largest banks,” she said.

Florida Beckons

Centennial Bank snapped up seven failed banks in Florida from March 2010 to November 2012, giving Allison a valuable franchise in a state he loves. He was at his beach home there last month, grilling a burger, when he took a phone call about the months and years after America’s housing bubble burst in 2007.

“It was a pretty devastating time in the marketplace,” Allison said. “Asset quality was not superb in those times. Nobody was putting money in deals. It was the worst financial crisis since the Great Depression,” when more than 9,000 U.S. banks failed.

The failure of mortgage-backed securities and collateralized debt — along with the government’s desperate measures to contain the damage — inspired books and movies like “The Big Short” and “Too Big to Fail.” Bear Stearns of New York, an investment bank with close to $400 billion in assets, failed on March 16, 2008, stunning the nation and foreshadowing a financial industry on the brink of collapse.

In all of 2007, only three commercial banks failed nationwide. The third bank failure of 2008 occurred May 9 and happened to be ANB Financial of Bentonville. Before the year was over, 25 FDIC-insured banks would fail, and that was just the beginning.

The FDIC took over 140 banks in 2009 and 157 in 2010, the year First Southern Bank of Batesville failed. While bank failures slowed, another 167 would be closed by the FDIC over the next three years.

FDIC-Assisted Acquisitions by Arkansas-Chartered Banks Since 2000

*Merged into Simmons Bank in 2014 **Delta Trust & Bank paid $551,000 to assume approximately $25.3 million in insured deposits of Sinclair National Bank’s $25.7 million in total deposits and to purchase $4.9 million of Sinclair National’s $30.7 million in total assets. #Merged into IberiaBank of Lafayette, LA, in 2011, then merged into First Horizon Bank of Memphis in 2020 ##Pulaski Bank & Trust purchased $212.9 million of insured, non-brokered deposits of ANB Financial’s $1.8 billion in total deposits and purchased $235.9 million of its $2.1 billion in assets (mainly cash, cash equivalents and securities) at fair market value. †Not expressed as a dollar amount in FDIC records
Source: Federal Deposit Insurance Corp. Failed Bank List and Bank Failures & Assistance Data

The Federal Reserve responded to the crisis by providing liquidity through a range of programs to rescue financial markets. The mission was to limit harm to the economy, according to John Weinberg of the Federal Reserve Bank of Richmond, Virginia.

The Great Recession officially ended in June 2009, but only after the Fed provided “unprecedented monetary accommodation in response to the severity of the contraction and the gradual pace of the ensuing recovery,” Weinberg wrote.

As Allison put it, “the Fed backed up the money truck,” pledging to lend banks the full face value of bonds they held, even though those bonds certainly would have brought far less if sold into the market.

Allison didn’t need that kind of help, having built “a fortress balance sheet” for Centennial and its holding company, Home BancShares of Conway.

But the crisis gave Centennial a chance to claim a much bigger footprint in Florida.

“I already had an operation in the Florida Keys and decided to build up a Florida franchise,” Allison said. “I thought that made sense.

“I’m now in Fort Lauderdale, Miami, Palm Beach. All of those markets I bought into with banks that failed at that time. I have more branches in Florida now than I do in Arkansas.”

OZK’s Expansion

Bank OZK, meanwhile, acquired “seven FDIC-assisted failed banks, and made eight other acquisitions from 2010 to 2015,” Blair said.

Gleason, the Bank OZK CEO, told Arkansas Business he ranked those acquisitions among the bank’s top 10 achievements in the 40 years since he bought what was then Bank of Ozark.

“We were about a $3 billion [asset] bank when the great financial crisis started,” Gleason said; the bank had just short of $35 billion in assets at the end of 2023. “That crisis provided our bank with two really extreme possibilities. One, we were able to acquire seven failed banks in 2010 and 2011 from the FDIC, and we followed that with a lot of bank acquisitions, some of which were distressed banks and some of which were really high-performing banks.”

OZK’s 15 acquisitions over five years “gave us a deposit and retail customer footprint that matched and balanced out the deposit and retail side of our business with the growth potential of our real estate specialties group, and our indirect marine and RV lending businesses,” Gleason said.

“So [we] had two big national regional businesses that we were a leader in [and] that use a lot of liquidity. And we needed a deposit branch network to provide a safe liquidity, so those let us really solve the equation on how to build the whole franchise in unison and keep that in balance.”

Five of Gleason’s failed-bank acquisitions were in Georgia, and the other two were in South Carolina and Florida. Simmons acquired three failed banks in Missouri and another in Kansas.

Centennial, OZK and Simmons — as well as Arvest of Fayetteville, which acquired a failed Kansas bank in 2009 — also bucked national trends by staying profitable.

Staying Prepared

“The other thing about that crisis was just the sheer financial impact of it,” Gleason said. “I think it was 2010 and 2011, the U.S. banking industry was essentially zero profits. One year they had slight losses, one year slight gains, but we put up record earnings every year through that crisis.”

Gleason said real estate dealmakers who knew little about his bank soon discovered it was still doing business as usual, making loans of all kinds through the crisis. “We picked up scores of customers who wouldn’t really give us the time of day before, and those include some of the biggest names in commercial real estate in the U.S.,” he said.

Dennis of DD&F said banks are reaching out to his firm to learn about the FDIC system in case last year’s spate of six bank failures proves a harbinger.

“We’re training banks right now in case there’s an uptick,” Dennis said. “There’s an interest in knowing how to bid on failed banks. They’re getting prepared for it, whether it happens or not.”