After financial crisis, mobile banking and technology innovations lead to fewer branches

As Arkansas banks enter 2018 with a record $90 billion in assets, the way consumers access their banking accounts and other financial resources is rapidly changing as mobile banking and other technology innovations change the landscape of the global financial marketplace.

To many consumers in Arkansas and across the U.S., that means the number of traditional local branches is declining as the nation’s financial institutions exit a period of bank failures highlighted by post-recession consolidations and hundreds of FDIC-assisted acquisitions.

According to a recent series of reports by Julie Stackhouse, executive vice president and officer-in-charge of supervision at the St. Louis Federal Reserve, there has been a surprising drop in net branch locations in Arkansas and the U.S. following the 2008 financial crisis.

“The initial wave of closings can be attributed to a wave of mergers and failed bank acquisitions following the financial crisis,” Stackhouse wrote. “There was an immediate opportunity to reduce cost through the shuttering of inefficient office locations. Branch closings were also influenced by earnings pressure from low interest rates and rising regulatory costs.”

In a recent trip to Little Rock to attend the Arkansas Bankers Association and Arkansas State Bank Department’s Day with the Commissioner, where St. Louis Fed President James Bullard was the keynote speaker, Stackhouse further explained her report and why the number of commercial bank branches in Arkansas and the U.S. has declined about 10% since 2008.

In recent years, Stackhouse said changing consumer preferences and improvements in financial technology have further spurred the reduction in branches. She said customers increasingly use ATMs, online banking and mobile apps to conduct routine banking business, meaning banks can close less profitable branches without sacrificing market share.

In an interview with Talk Business & Politics, Stackhouse said the ultimate driver of whether banks keep locations is really two things: consumer demand and preference and affordability.

“There are communities in Arkansas where people want to go into a bank. It is a social function, and those [institutions] are still important to those communities,” she added.
In more urban communities, where customers are not interested in going to a local bank or having face-to-face interactions, community, regional and nationally chartered financial institutions in Arkansas and the rest of the country are starting to ramp up online services and other ways to meet consumers’ banking needs, Stackhouse said.

“Your phone. That’s what they want. They want online services,” said Stackhouse, who also serves as the managing officer of supervision, credit, community development and learning innovation for the St. Louis Fed.

BRANCH OFFICE DECLINE
Information provided by the St. Louis Fed — which has a regional office in the Stephens Inc. headquarters in downtown Little Rock — shows the number of branch locations in Arkansas peaked amid the 2008 financial crisis when there were a total of 1,524 banking locations, which consisted of 1,381 branches and 143 headquarter offices.

At the end of 2017, that number had fallen to 1,362 banking locations, including 1,265 branches and 97 headquarter offices. That’s the lowest tally since the Fed started tracking the data in 1983. Since 2008, Arkansas locations have declined 10.6%, which is in line with the national decline of 10.7%.

Nationally, Bank of America, Wells Fargo, Chase and other banking conglomerates have led the closure of more than 10,000 locations across the U.S. At the end of 2008, there were 100,004 banking locations, which included 91,735 branches and 8,629 headquarter offices. At the beginning of 2018, according to the Fed data, that number had declined to 89,286 total locations consisting of 83,639 branches and 5,647 headquarters.

Still, according to that same Fed statistical analysis, banking locations in Arkansas have increased by 12.6% since 2000, more than double the national average. At the recent ABA summit, state bank department commissioner Candace Franks noted that while the number of Arkansas bank charters has been cut in half since 2000, the total asset value of Arkansas banks has quadrupled.

She specifically highlighted the four Arkansas banks — Bank of the Ozarks, Arvest Bank, Simmons Bank and Centennial Bank — that each now have assets exceeding $10 billion.

“This ranks Arkansas as one of the top states in the U.S. with state bank charters with assets of more than $10 billion each,” Franks said proudly.

What remains to be seen is how Arkansas’ four largest and fastest-growing banks will assimilate hundreds of new branches in Arkansas and across the Southeast and Southwest U.S., which have been acquired over the past decade, mostly through the federal government’s failed bank auction. Altogether, Arkansas’ top four banks account for $67.4 billion, or one-third, of the state’s banking assets.

ACQUISITION GROWTH
At its 2018 annual shareholder meetings in early March, Bank of the Ozarks announced its intentions to change its name to Bank OZK as part of a strategic rebranding. Since going public in 1997, the bank’s total assets have grown from $307 million to $21.3 billion as of Dec. 31, 2017, and it has expanded to 254 branch offices in 10 states. As the nation’s 58th-largest bank by assets, the Little Rock-based financial corporation’s Arkansas branch offices still originate 30.7%, or $5.4 billion, of the bank’s $17.2 billion in deposits following acquisitions of 14 out-of-state community banks across the Southeast U.S. since 2010. Out of the company’s 243 branch locations and 10 loan production offices, 84 of those facilities are still located in Arkansas, according to the company’s most recent 10K filing with the U.S. Securities and Exchange Commission.

Fayetteville-based Arvest Bank, the state’s second-largest bank with assets of $17.3 billion, may have more branch locations than its regional banking rival after closing on the acquisition of Bear State Financial Inc. of Little Rock. Arvest will decide if it wants to keep all the branch locations in 18 of the 34 markets in Arkansas, Missouri and Oklahoma where both banks have operations. Company officials have said Bear State will add 42 locations to Arvest’s growing portfolio of more than 260 bank branches in Arkansas, Oklahoma, Missouri and Kansas that operate in 16 markets.

Simmons Bank of Pine Bluff and Centennial Bank of Conway also are coming off a string of strategic acquisitions that have added hundreds of new branch locations to their respective portfolios.

Following the acquisitions of Oklahoma-chartered Southwest Bancorp Inc. in October and similarly-named Southwest Bank of Fort Worth, Texas, in late February, Simmons entered new markets in Oklahoma, Texas and Colorado. In 2017, Simmons also completed two smaller community bank acquisitions in Tennessee and Missouri that brought Pine Bluff’s biggest corporate denizen to some $15 billion in assets across a seven-state footprint, with about 200 branch locations.

Like its larger banking rivals, Centennial Bank, owned by parent company Home BancShares Inc., is also coming off a period of post-recession acquisition period where it was able to more than double its asset base to $14.4 billion at the end of 2017. In September, the company closed out a historic year with the acquisition of Stonegate Bank of Florida.

At the end of the first quarter, Home BancShares closed two branch locations in Daphne, Ala., and Naples, Fla., and now has 76 branches in Arkansas, 89 branches in Florida, five branches in Alabama and one branch in New York City.

According to Stackhouse, all four of Arkansas’ regional banks and other state chartered financial institutions have largely emerged in stronger positions nearly 10 years after one of the worst economic downturns in the nation’s history. Since 2008, only three Arkansas financial institutions — Allied Bank of Mulberry, First Southern of Batesville and ANB Financial of Bentonville — have appeared on FDIC’s list of failed banks.

“We are basically back to the norm,” Stackhouse said.