Arvest, Simmons seek marketshare with Metropolitan deal

Banking consultants said Arvest and Simmons First National Bank have plenty to gain if they were to walk away with 100% ownership of Metropolitan National Bank next week when the bidding process concludes on Monday (Sept.9).

At least three potential suitors have lined up to bid on Metropolitan National Bank despite its lack of capital and lackluster financial records for the past several years. Earlier this week Simmons First National and Arvest Bank disclosed they had entered the bidding process, which was initiated by Ford Financial last month. Dallas-based Ford proposed a $74.2 million capital injection for the bank and $16 million paid in cash to the holding company creditors in the bankruptcy case of Rogers Bancshares.

Simmons First National and Arvest Bank have made no secret of their desires to expand their marketshare inside and outside of the Natural State. On the flip side Ford Financial was the stalking horse bidder and has a proven track record of buying distressed banks and turning them into profitable ventures for resale. Industry analysts also agreed the time is ripe for acquisition with cheap money and low, but rising bank stock valuations.

Simmons submitted a qualifying bid of $16.9 million, topping the $16 million offered by Ford. 


“Metropolitan has a rich history of providing exemplary customer service to the communities in which it is located,” Simmons noted in a recent filing with the Securities and Exchange Commission.

Bank officials said it will “combine its operations of Metropolitan and continue to provide the highest quality customer service throughout the combined service area, should they prevail with the highest bid.


Likewise, Arvest said it made the decision to participate in the process due to Metropolitan National Bank’s history as an Arkansas based financial institution, established customer base and branch footprint. 


“We have the utmost respect for Metropolitan National Bank and its associates and feel this could be a very positive addition to Arvest Bank, if we are the successful bidder,” said Jason Kincy, spokesman for Arvest Bank.


Both banks said they intend to merge Metropolitan’s operations with their own as each of them do business in Northwest and Central Arkansas.
 Ford, on the other hand, would be an outsider making their way into both markets, which are already highly competitive.

BIDDING PROCESS

All three suitors will convene on Monday (Sept 9) and the bidding process will resemble that of a Barrett-Jackson car auction as seen on television, according to Garland Binns, attorney with Dover Dixon Horne in Little Rock.
 Binns said the $16 million bid by Ford and $16.9 million offer from Simmons is money that will go to satisfy the creditors listed in the holding company bankruptcy.


“These bidders will each have the opportunity to raise their offers, one at a time, until one of them eventually outbids the other two,” Binns said. 


The highest bidder will talk away with 100% ownership of Metropolitan National Bank and need to recapitalize that institution to satisfy banking regulators, he said.


Ford Financial officials plan to inject $74.2 million into the bank if they are allowed to buy it.

Arvest and Simmons would also need to ante-up capital equity if they are the winning bid. But, rough estimates indicate it would be far less than the $74.2 million mentioned by Ford.


Metropolitan is ordered to maintain a tier-one leverage ratio of 8%, and as of June 30, the bank posted a ratio of 6.46%. Rough calculations indicate a shortfall of just under $15 million is needed for Metropolitan to hit the 8% requirement.


If Simmons walks away with Metropolitan National Bank, the combined institutions would have roughly $3.062 billion in assets, with combined equity capital of $253.853 million. The tier-one ratio of these combined banks would be roughly 8.29% and meets with federal guidelines.


If Arvest wins the bid, the combined banks would have assets of $14.87 billion, against capital equity of $1.56 billion, resulting in a combined ratio of 10.4%.


Binns said this is an inexpensive way for Arvest and Simmons to expand their marketshare in central Arkansas.


MARKETSHARE DATA

Metropolitan National has roughly 5.8% of the deposit marketshare in central Arkansas,  behind 6.13% garnered by Arvest and Bank of the Ozarks. All of these trail the 10% share attributed to Centennial Bank and 14.2% to Regions Bank and 16.88% to Bank of America.


If Arvest were to gain control of Metropolitan it would boost deposit marketshare to nearly 12%, elevating Arvest above Centennial and Bank of Ozarks which are local brands to the Little Rock metropolitan area. If Simmons wins the bid, it would grow its marketshare from 1.53% to 7.35%, overtaking Arvest and Bank of Ozarks.


The gain in Northwest Arkansas is far less appealing, though it would take one competitor out of the marketplace, said Phillip Knight an independent banking consultant in Rogers.


Another interesting dynamic in Northwest Arkansas is the concentration of marketshare if Arvest merges with Metropolitan.


Tim Yeager, Arkansas Bankers Chair at the University of Arkansas, said federal regulators use the Herfindal Index as a guide against excessive market concentration by any one bank.


Arvest already controls 51% of the deposit marketshare in Northwest Arkansas, while Simmons has 2.27%, according to most recent numbers provided by the Federal Deposit of Insurance Corp.


The Herfindal Index for weighted deposits between a proposed merger of Arvest and Metropolitan in Northwest had a reading of 2926, a change of 89 from the pre-merger scenario.
 While the reading is high enough to draw a red flag, a report from the Federal Reserve of Kansas City notes that market concentration readings above 1800, with a change less than 200, are unlikely to face anti-trust challenges from the Department of Justice.


Yeager said regulators have been fairly lenient in past years in permitting and facilitating more mergers and acquisitions.


M&A CLIMATE

Binns agreed the climate is ripe for mergers and acquisition and expects to see more in the future on heels of several already announced.


Liberty Bank is merging with Home Bancshares, a marriage viewed as a win-win for both banks seeking brand recognition and larger footprints across the state.


First Federal Bank of Harrison last month acquired First National Security Co., the holding company for First National Bank of Hot Springs and Heritage Bank in Jonesboro. That deal was valued at roughly $124 million, $74 million of that was cash.

John Dominick, banking professor at the UA and a banking consultant, said banks are more eager to expand their footprints at this time, partly because money is cheap and bank values are still somewhat depressed.

“I am glad to see Arvest and Simmons bidding for Metropolitan National. They each have something to gain should they win the bid. Neither bank is inclined to overpay for the assets and they each have experience in both central and Northwest Arkansas,” Dominick said.

U.S. Bankruptcy Judge James Mixon will conclude the bidding on Monday (Sept. 9) and award the bank in a hearing on Sept. 12, following an auction process.