THE ARKANSAS BANKERS' BANK never saw a lending opportunity it didn't hand off.

As a result, the nation's youngest bankers' bank doesn't have a single loan on its books.

But the usury laws in Arkansas make it hard to find bankable assets, so Bankers refers its overline opportunities to the banks it was chartered to serve.

An overline -- the part of a note that exceeds a lending limit -- is one of the very few loans a bankers' bank is allowed to carry. "I could still broker the overlines and make a quarter point," says Bankers CEO and president Bill May, "buy why should I? Small banks are being slaughtered, and I want to help them."

Thus, Bankers relies on fees for services -- fed funds management, safekeeping, investment and check processing -- to earn money. And, not surprisingly, Mr. May tries to keep those fees at a bare minimum.

"When we buy fed funds, we pay everybody the same rate, 10 basis points, whether they sell us $25 million or $5 million -- and that's unheard of."

He says the small-bank "slaughter" in Arkansas resulted from legislation allowing intrastate branching.

Arkansas has 257 small banks, and about 20% of them now have outside ownership. "The name on the office might be the same, but people don't know it's owned by somebody in Memphis or Little Rock until they can't get their banking business done."

In view of the slaughter, Mr. May, who had been vice president of investments at One Bank, Little Rock, before losing his job as a result of a takeover, persuaded a few small banks that the time was ripe for a bankers' bank.

Armed with $10,000 in traveling expenses lent by four bankers, Mr. May hit the road to raise capital for the bank. He got 56 small banks to invest the $2 million required, and has increased their equity to $2.4 million since opening on May 23, 1990.

The operation set up by Mr. May is extremely lean, though the trait is belied by the bank's palatial headquarters. But the bank is renting its two floors at the nationally registered Ward Hayes House for just $1,500 a month, there are only 13 employees to pay, and "we don't pay the directors any board or committee fees," Mr. May points out.

Bankers' after-tax earnings totaled $115,000 in 1992, and were up to $95,000 as of June 30. That translates into an 8.26% return on equity, and a 0.59% return on its $35 million in assets.

Data supplied by the Bankers Bank' of Wisconsin shows that the nation's 16 bankers' bank posted an average 12.42% ROE and 0.89% ROA. Mr. May says the numbers for his bank would line up with the national averages if he had not passed along $5 million in overline lending last year.

Keeping a few of the loans might have enabled Bankers to earn up to 8%, instead of the 4% his investment portfolio earns from government securities.

The limit is set by the Arkansas usury law, which caps the maximum lending rate at prime plus 5%. It is a limit that is hurting all Arkansas banks, because they turn away borrowers seeking money for pursuits riskier than home buying.

Data supplied by Ferguson & Co., show that the state's 262 banks have a loan-to-deposit ratio of 55.05%, far below the 76.06% average for all banks insured by the FDIC.

Despite the usury laws and the small-bank slaughter, Mr. May says starting and running the bank "is more fun than I've had doing anything else in my life."

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