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State Bank Commissioner Candace Franks Predicts Ownership Trends in ’20

6 min read
Candace Franks became the 21st commissioner of the Arkansas State Bank Department in 2007, the first woman and the first professional bank regulator to hold the position.

She has been employed by the State Bank Department since 1980, first as general counsel, then adding the role of deputy commissioner from 1995-2007. Franks served as chair of the State Bank Supervisors in 2014-15 and continues to serve on the board as chairman emeritus.

Franks earned bachelor’s and master’s degrees in history from Arkansas State University and a law degree from the Bowen School of Law at the University of Arkansas at Little Rock. She is currently chairman of the board of trustees of the Arkansas Public Employees Retirement System and a trustee of the Arkansas Teachers Retirement System.

What changes are occurring at the State Bank Department as part of the restructuring of state government agencies?

With the event of state government restructuring, the State Bank Department is relocating our Little Rock office to a new location in the former Verizon office building in the Riverdale area. We will be located on the southeast quarter of the fourth floor in the newly named Department of Commerce building, where we will join other agencies that were transferred under the new Department of Commerce. We will share some fiscal and information systems and administrative employees with other Department of Commerce divisions.

As with any physical move of your office or your home, it seems to take much more of your time than you prefer, so we have spent a great deal of time of the last couple of months preparing for our move. Fortunately, our examination cycles generally wind up fairly soon after Thanksgiving, and our banks are doing quite well, so that has made preparing for the relocation easier.

In the past 20 years, the number of separate state bank charters has dropped by about half, but some Arkansas state banks have ballooned into multistate powerhouses. How does having multibillions in assets change the way you regulate a bank? Is special training required?

Arkansas continues to enjoy a vibrant and healthy banking industry. Arkansas’ banking landscape has, like that of many states, changed significantly in recent years. One of the most notable changes for us has been the growth in total assets under supervision, despite the significant volume of consolidation in the state and the loss of individual bank charters. When I started my career at the Bank Department in 1980, we supervised 192 state-chartered banks with aggregate total assets slightly over $5 billion. Today, we oversee 72 state-chartered banks with over $105 billion in total assets.

Our total assets under supervision have virtually doubled since 2012, and we have been able to, in my opinion, successfully manage that growth with very little change in our structure. Internally, we have made structural and procedural changes to better align our examiners with the needs of managing and regulating our state-chartered banks, especially the four large institutions. As you are aware, of the 72 state-chartered banks, four of those institutions each exceed $10 billion in total assets.

Banks with assets in excess of $10 billion present opportunities for us to work more closely with the bank’s federal regulator, and we employ protocols that require us to spend more time both on-site and off-site in order to effectively manage a large institution. However, regardless of the asset size of a bank, the fundamentals of supervision remain the same for all institutions and our statutory requirements are consistent.

Ongoing training is critical for the success of our examiners and the effectiveness of the Bank Department. We continually identify new training programs for our examination staff, including training programs that are tailored to large bank supervision.

Despite our utilization of various off-site examination procedures and the ability for us to leverage technology in order to enhance our processes and reviews, it is imperative that our examination teams maintain a strong level of on-site supervision and communication in order to fully gain an understanding and develop a thorough analysis of each of our state-chartered banks.

Are you expecting any more national bank conversions in the near future? Are there other trends you are watching and preparing for?

During 2019, there were two national banks, headquartered in Arkansas, acquired by Arkansas state-chartered banks. Over the past few years, we have also received Arkansas national banks through charter conversion. As we kick off 2020, there remain 10 national banks headquartered in Arkansas, and, as with state-chartered banks, I believe it is very likely that additional consolidation or perhaps national bank charter conversions may continue to occur in the coming years.

One trend we are seeing in the industry across the country is the re-emergence of de novo banks. Unfortunately, Arkansas has yet to receive any interest in a de novo bank opportunity, but I remain hopeful that the national trend will eventually make its way to Arkansas.

I also expect that we may see additional wholesale ownership changes in Arkansas state-chartered banks — ownership changes without the accompanying bank merger transaction. This type of change in stock ownership can parlay into many additional changes for a bank, including expansion into new markets and the provisions for new products and services for current and future customers.

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I do expect that Arkansas state-chartered banks will remain engaged and will continue to identify opportunities for out-of-state acquisitions. Arkansas state-chartered banks have long enjoyed healthy financial positions fueled by strong and conservative levels of capital. The continued high levels of earnings and capital, coupled with solid asset quality and overall above-peer performance, afford all Arkansas state-chartered banks the opportunity to continue the tradition of being the acquiring institution and looking beyond our borders for growth and expansion.

In 2020 and beyond, I anticipate our Arkansas banks will become more heavily involved in the fintech (financial technology) arena. We are very fortunate that Arkansas has always been a leader in banking technology, and the continued success and national presence of the Venture Center and the fintech accelerator will build and foster additional opportunities for Arkansas banks to be highly engaged in the utilization and partnership of these firms to complement and enhance existing banking services as well as allowing Arkansas banks to be innovators and vehicles for change in our industry.

What are the most common mistakes you see banks making?

As important as it is and as proud as I am of the strong financial performance Arkansas state-chartered banks have always been known for, I see that at times our banks rely heavily on that financial posture without a fully comparable focus on nonfinancial risk management practices. I should point out that the enhanced focus on the depth and breadth of nonfinancial risk management practices has evolved in recent years, but that continues to be the area where examiners identify the most opportunity for improvement in our institutions.

These risk management areas are often known as the areas that may be a “cost” center for the bank rather than a “revenue” center for the bank; however, they are each critical to the overall success of an institution. Risk management functions, which exist in every area of the institution, must continue to evolve as a bank enters new markets or develops new business lines.

You’ve worked for the State Bank Department for 40 years and have been its commissioner for more than 12 years. Has any bank commissioner ever served longer? What are your future plans?

The State Bank Department will be 107 years old in 2020. I am the longest serving bank commissioner in the history of the agency. No other commissioner has ever been appointed to four terms as commissioner. I have spent my entire professional life as a state banking regulator, and I feel very lucky to have had the opportunity to work with such a vibrant and vital industry that has such an impact on the citizens and economic stability of our state. Currently, our state’s banking industry is quite healthy. My plans are to make every effort to ensure that our state’s community banking industry is here to serve future generations of Arkansans.

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