Todd Smith on South Arkansas Banking

A Magnolia native, Smith serves on the Monticello Economic Development Commission.

Todd Smith looks at banks’ return on equity as just one gauge of how well an institution is doing.

Todd Smith has been president and COO of both Commercial Bank & Trust Co. of Monticello and First State Bank of Warren, which have common ownership, since April 2022. He is chairman of the State Banking Board and previously worked for Farmers Bank & Trust Co. and Peoples Bank, both of Magnolia.

Smith earned a bachelor’s in business administration from Southern Arkansas University and a graduate degree in banking from Southwestern Graduate School of Banking at Southern Methodist University of Dallas.

What kind of fallout might Arkansas banks see from the recent big bank failures?

I see the fallout as twofold: First, I see increased bank assessments to the Deposit Insurance Fund (DIF) being likely. I’m not sure if that translates into insurance thresholds being raised, but such might be a trade [that] regulators make to assuage community bankers for charges to the DIF — especially after [Treasury] Secretary [Janet] Yellen’s favored comments toward our big bank brethren. Second, I see the lumping in effect of negative publicity being cast on the industry as a whole and not simply the high-risk institutions allowed to run amok. Deep down people know the conservative nature of their local community banks, but the 24/7 news cycle provides conjecture that feeds skepticism every 15 minutes. The concern for me is that unnecessary regulations will be adopted when the emphasis should be on determining why supervisors allowed the California and New York banks to operate so imprudently.

Are interest rate increases on the threshold of undermining bank stability broadly?

This historic ramp-up in rates by 4.75 percentage points inside a 13-month period has inflicted pain on most everyone, but is not undermining stability — especially in well-capitalized banks. We will soon see the repayment impact as higher rates work through the system and stress a spectrum of debt holders. The Fed is intent to induce pain in jobs, wages and spending in order to contain inflation. The good news is Arkansas banks have healthy reserves, earnings and capital, so I don’t see issues with stability in Arkansas. Our recession should be relatively mild.

Yours is one of the few community banks left with a crosstown rival. What does it mean for Monticello?

Locally-owned and operated banks are the purest form of shopping local and are an investment each person can make in their own community. Our community benefits significantly with two locally owned banks pouring community development dollars, business purchase dollars, and investment dollars as well as volunteer man-hours into Drew County’s civic and social infrastructure. So we compete but are quick to join forces because we realize Monticello and Drew County are stronger with us working together.

What is the banking business like in south Arkansas?

South Arkansas is still home to old-fashioned personal banking that many outside the area likely think no longer exists. When you hire us, you get a banker with the deal. We are accessible and forge long-term relationships with our customers. The banker across the desk knows you and is invested in your success. We fight hard to retain business locally because the profits generated will be reinvested here and provide compounded benefits.

Out-of-state banks seem to be more attracted to Arkansas these days, setting up branches here. Has that activity increased? Why?

Out-of-state entry by large banks usually shows up as market share plays in fast-growing, affluent areas. However, the recent trend seems to be smaller, border-state banks entering Arkansas in search of growth not attainable in their existing markets. ROI is the driver in the end, and the activity seems to mirror where population gains have been significant and are forecasted to remain strong.

Bank consolidation seems to have slowed. Do you think we’re in a temporary lull or has Arkansas reached an optimal number of banks?

Bank consolidation will continue. Regulatory compliance remains the biggest obstacle community banks must overcome, and that story has not changed and will most certainly worsen with additional legislation. All appearances give the impression the banks in California and New York had some degree of a “free pass” in taking excessive risks. Therefore, proactive regulatory supervision is a must if we are to stop the cycle of using congressional hearings to find solutions. Shareholders, directors and management must be accountable and not the taxpayer or banks via the Deposit Insurance Fund.

What’s the most valuable leadership lesson you’ve learned and how do you apply it in your work life?

My parents taught me to do more than what was expected. My mentors all demonstrated humility and gratitude in serving others. In community banking, we render service to our richest and poorest customers and everyone in between daily. We provide customers with access to make the best decision(s) possible for themselves and family. When you realize your position allows you to favorably impact the lives of others, it’s humbling and makes you grateful.