First Security Keeps it ‘Teal’

Reynie Rutledge and Jim Taylor are the teal deal.

Equipped with modest aw shucks personalities and razor-sharp financial minds, Rutledge, chairman and CEO of First Security Bancorp Inc., and Jim Taylor, Northwest president of First Security Bank, said the company’s recent success has been due in large part to an experienced staff of bankers, geographic diversification and prudent lending practices.

And some luck, Rutledge said.

The blue-green branded First Security has just about doubled both deposits and assets since 2006, its return on assets is the highest of any sizeable institution in Northwest Arkansas (1.48 percent), and the Searcy-based bank closed 2009 with a record $40.63 million in net income.

The pair point out First Security has its fair share of problem assets ($18.6 million in non-current status and $24.1 million in other real estate owned), but the bank has been able to keep its past dues and nonperforming ratio in check (1.24 percent).

“We have a large percentage of single-family homes that we own that are leased,” said Taylor. “And they are returning a positive return on investment for us. We’re a firm believer that this market is going to turn around.

“In the residential market, we’re already seeing stabilization and so we think the turnaround in the residential side is just around the corner.

“We’re selling properties, but we’re trying to sell them at what makes sense,” Taylor said, and not “dump” them on the market.

“If you’re in this economy,” Rutledge said, “you’re going to have some losses. The goal is to minimize those losses.”

FSB maintained a somewhat conservative approach through the boom time, Taylor said, so the downward swing hasn’t been quite as sharp for the bank.

“We’ve got some experienced bankers that have seen some up and downs over the last 20 to 25 years and have realized that when euphoria comes, there’s going to be a price to pay,” Rutledge said.

The company made the decision a couple of years ago to stop building branches and concentrate on building assets in its current locations.

“That synergy along with different things that happened in the economy gave us some opportunities to do a better job,” Rutledge said. “When the economy got tough we really had to focus a lot harder on what we were doing, what we were investing in and how we were managing our operations in order to make sure we could weather the storm, so to speak.”

The holding company, which includes investment services through Crews & Associates of Little Rock, had a record year too, he said.

 

Double Down

FSB’s deposit and asset growth from 2006-2009 is somewhat misleading. Over that time the bank has collapsed two charters (First Security Bank of Mountain Home in November 2007 with $304.9 million in assets and First Security Bank of Conway in October 2008 with $392 million in assets) both of which were already part of the First Security Bancorp holding company. And it completed an acquisition of Union Bank of Benton in March 2009, which added about $179 million in deposits.

Organic deposit growth from June 30, 2008 to June 30, 2009 has been calculated at about 6 percent.

Net loans and leases were up about 5 percent from year-end 2008 to 2009, or about $70.6 million.

“I think it’s a sign that people are looking for a stable source of capital and stability in their financial institution,” Taylor said.

Statewide, the bank has had good organic growth over the last 18 months, Rutledge said.

“You do have money that probably came out of the stock market,” Rutledge said. “I do think that probably jump-started things, but in the last 18 months the stock market’s gone from 7,000 to 11,000 – we have not seen any slowdown in that deposit increase.”

The bank is very focused on Arkansas and is located in good markets statewide, the two said.

FSB’s statewide loan portfolio is $1.5 billion, of which about 27 percent is commercial real estate and about 25 percent is for 1-4 family residential real estate. Taylor said the mix is about the same for the northwest division.

The statewide figure includes about $31.8 million in loan loss allowance.

The bank is actively seeking lending business and has the ability to offer diverse products.

“We work with some companies that are suppliers to the world’s largest retailer … we work with them on international letters of credit,” Taylor said.

“We’re a small community bank. But because we’re a group of small community banks it gives us the synergy and the size to be able to do a lot of things big banks do, but still with that same small-town feel,” he said.

One-on-one relationships developed out of that approach are a huge key to the bank’s success, he said.

 

Foreseeable First

Taylor opened an FSB loan production office in Fayettevile in April 1998. The first full-service office was opened about a year later.

Now there are 16 offices in Benton and Washington counties, with a total of $472.91 million in deposits, or about 6.75 percent of the market share, which makes it No. 2 in Northwest Arkansas in terms of deposits.

Some of that growth was organic and some through acquisition, which is the bank’s modus operandi.

Rutledge purchased First Security in 1977 and has acquired seven banks since 1986.

Assets of the bank have grown from $46 million to $3.05 billion as of Dec. 31.

In Northwest Arkansas, FSB closed on a purchase of First National Bank of Springdale at the end of 2003.

That transaction – estimated to cost about $45 million – netted FSB $330 million in assets, four branches and nine ATMs.

So is FSB looking to acquire now?

“We’re always looking for opportunities and have been lucky enough over the last several years to make some very good acquisitions that have been very positive for our company,” Rutledge said.

“One of the beauties of being a privately held company is that you don’t have to plan for every quarter, but you can plan for the future,” Taylor said. “With Mr. Rutledge he’s … put us in the position where we can go forward and we do have the wherewithal to look at those opportunities when they arise.”

The bank’s equity capital is up, from $198.2 million at the end of 2008 to $281.8 million at the end of 2009, a sign that it might be prepping for the right buy.

Rutledge is only lukewarm on the mention of acquiring an out-of-state bank like Arvest Bank, Home Bancshares Inc. and Bank of the Ozarks have already done in the last six months.

“It’s not that we won’t go outside of Arkansas,” he said, “[but] right now there’s just a lot of opportunities in Arkansas. We like it where we are.”

“Obviously, never say never.”