Arvest Buy Means Superior Will Finally Become a Bank

The mostly academic question of when Superior Bank would actually become a bank was answered with the May 16 announcement that the Fort Smith thrift would be acquired by Arvest Bank of Fayetteville.

Ever since Alabamian C. Stanley Bailey moved to Little Rock in 1998 to form Superior Financial Corp. for the purpose of purchasing Superior Federal Bank, he had envisioned the day when the bank’s portfolio of commercial loans would force its conversion to a commercial bank charter.

Although the signage was never changed at some branches, Superior officially dropped the word “federal” from its name at the end of 2001, removing the last public hint of its status as a savings and loan — something a great many of its retail customers didn’t realize anyway.

In April 2001, after announcing the impending name change, Bailey predicted that the bank would be forced to convert to a state-chartered bank in 18-24 months.

That obviously didn’t happen. Still, Bailey said last week that his conversion of what one bank analyst called a “very sleepy thrift” into a pseudo-bank was exactly where the managers expected it to be.

Third Largest

Ranked by assets, Superior ($1.75 billion) is the third-largest financial institution chartered in the state — behind Arvest ($4.9 billion) and the seven bank charters held by Simmons First National Corp. of Pine Bluff ($2.04 billion). When it is absorbed into Arvest Bank later this year, the largest of the seven remaining thrifts in the state will be publicly traded First Federal Bank of Arkansas at Harrison, which had just under $680 million in assets as of Dec. 31.

Bailey and Arvest Bank President Kevin Sabin said the merger of the two operations will result in an Arkansas-based chain of community banks that looks very much like First Commercial Corp. before its 1998 sale to Regions Bank of Birmingham, Ala.

But Bailey said the $211 million cash purchase of Superior by Arvest should not result in the kind of customer runoff that followed the sale of First Commercial.

“I don’t see why there should be,” Bailey said.

Arvest and Superior, he said, operate “mirror image” banks with similar cultures, identical computer systems and little geographic overlap, and their merger will have “minimal impact” on employees while giving retail customers more locations from which to choose and increasing lending limits for commercial customers.

Combining Assets

Combined, Arvest Bank and Superior Bank represent assets of $6.65 billion, $5.55 billion in deposits and 190 branch banks stretching from Little Rock to Northwest Arkansas, Tulsa and Oklahoma City. (By comparison, First Commercial had about $7.7 billion in assets when it was acquired by Regions.)

Of those 190 branches, only about six overlap so closely that one will need to be closed, Bailey and Sabin said, specifically naming offices in the Chenal area of west Little Rock, Springdale and Siloam Springs.

With four to six months until the deal closes and an industry average employee turnover rate of 30 percent, Bailey and Sabin predicted that very few bankers would lose their jobs because of the merger.

“The biggest impact will be in our back office in Fort Smith,” Bailey said, which employs 75-100 workers. That number, however, includes employees of Superior’s call center, which will remain intact because Arvest is not staffed to handle the extra 500,000 calls a month that Superior’s call center handles.

Bailey said his “long and respectful relationship” with Arvest CEO Jim Walton had led to the merger discussions that began several weeks ago. Superior’s board of directors accepted an offer by Arvest Holdings Inc., a subsidiary of privately held Arvest Bank Group, for $23.75 a share. Shareholders were expected to approve the sale at their annual meeting on Friday.

The offer represented 1.48 times book value and a 24.5 percent premium over Superior’s preannouncement closing price of $19.07. Superior’s stock price immediately jumped by $4.50 and reached an all-time high of $23.67 during exceptionally heavy trading in the hours following the announcement.

By May 22, it had settled in the $23.50 range.

A “Pretty Certain Deal”

“The market is making the judgment that this is a pretty certain deal,” said James Schutz, senior bank analyst in the Chicago office of Stephens Inc. of Little Rock. Stephens Inc. acted as Superior’s financial adviser in the negotiations.

Shareholders also will benefit from one or two regular dividends of 12.5 cents per share, depending on how long it takes for federal and state regulators to approve the deal.

For shareholders who bought into Superior when it made its initial public offering in February 1999, the return on investment will be more than 135 percent, plus dividends.

“We took the company public at $10 a share. Essentially four years later, [those shareholders] will cash out at $23.75 plus one or two dividends. As a major shareholder, I think it’s been a very favorable ride for shareholders,” Bailey said.

Bailey is the second-largest shareholder, when his exercisable stock options are including in the calculation. He owned or controlled 104,166 shares and 513,582 exercisable options as of March 31, according to the proxy statement Superior issued on April 17.

Superior’s chief financial officer, Rick Gardner, predicted that Bailey and other option holders would simply cash out at closing rather than exercising the options while the stock is still being traded.

The net value of Bailey’s exercisable options will be approximately $7 million at the Arvest buy-out price, while the value of his stock holdings is almost $2.5 million.