A Louisiana holding company that owns three bankers' banks is buying a fourth, in Arkansas, in what would be the first merger of bankers' banks.
It could be the start of a trend. With consolidation shrinking customer bases and competition for correspondent services intensifying, executives at bankers' banks say they expect to see more of the specialized banks team up to offer larger loans and more sophisticated services.
First National Bankers Bankshares Inc. in Baton Rouge is the parent of separately chartered bankers' banks in Louisiana, Alabama, and Mississippi. Its all-stock deal for the $160 million-asset Arkansas Bankers' Bancorp. Inc. in Little Rock would give the buyer roughly $715 million of assets and "an expanded market to develop loan and customer relationships," said Joseph F. Quinlan Jr., First National's chairman, president, and chief executive.
The deal was struck Aug. 29, just as Hurricane Gustav hit Baton Rouge, knocking out electricity and causing the companies to delay notification to the media until this week.
The price of the deal was not disclosed.
The Arkansas bank's legal lending limit, now $4 million (it typically caps loans at $1 million), would increase to $20 million if it shared deals among the four banks, said James N. Thomason, the president and CEO of Arkansas Bankers' Bancorp.
"As our customers grow larger, they need additional services and a bigger company to provide lending power for them," Mr. Thomason said. "We feel like we need to be larger too."
The 18-year-old Arkansas bank would also gain access to services that First National's banks offer, such as loan-review compliance and Internet technology review, as well as its check-clearing platform.
"Our organization has invested great sums in making sure we have state-of-the-art technology services that community banks can rely on," Mr. Quinlan said. "Arkansas will have quick access to all the services we provide."
Bankers' banks are largely owned by the banks they serve and typically do not deal with the general public or encroach on one another's turf.
However, in recent years some bankers' banks have been entering new markets and competing with other bankers' banks — particularly for loan participation deals.
Silverton Bank in Atlanta has been the most aggressive of them, more than doubling its assets over the last five years, to $2.9 billion, in part by opening loan offices throughout the country. Until January, Silverton was known as The Bankers Bank.
Jon Evans, the president and CEO of the $493 million-asset Atlantic Central Bankers Bank in Camp Hill, Pa., said mergers and acquisitions are "probably something other bankers' banks will have to look at in order to remain competitive and offer their community banks the sweetest services. Some bankers' banks are fee-driven, but the majority are on the spread model. The spread-model" bankers' banks "would be looking for others to help round out their balance sheets."
Increased competition from bankers' banks, as well as the growing number of correspondent banks, prompted First National to begin chartering bankers' banks outside of Louisiana, Mr. Quinlan said. It opened the Mississippi bank in 2000 and the Alabama bank in 2004.
"Until six or seven years ago, bankers' banks didn't compete with each other," he said. "We started seeing other bankers' banks in our marketplace, so as part of a defensive strategy we began expanding. The timeliness of that was also coincidental to a major consolidation of community banks around the nation."
Mr. Quinlan said First National would continue to operate the banks separately, despite added costs associated with maintaining individual charters, because the banks they serve prefer it that way.
The Arkansas bank would retain its board of directors and all of its employees. The deal is expected to close next quarter.
