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Mark McFatridge: Metropolitan National began looking at opportunities over a year ago.
Mark McFatridge: Metropolitan National began looking at opportunities over a year ago.

Metropolitan National secures Ark. suitor

Posted online
Following a script delivered last year when Simmons First National Corp. moved to buy Liberty Bank, one of the largest Springfield-area banks has sold to a central Arkansas-based firm looking to grow.  

Through the deal announced June 22, Little Rock, Ark.-based Bear State Financial Inc. (Nasdaq: BSF) would acquire Metropolitan National Bank’s $442 million in assets, $340 million in loans and $375 million in deposits. Bear State Financial is the parent company of Bear State Bank, which has 43 locations in Arkansas and southeast Oklahoma. According to Springfield Business Journal list research, Metropolitan National ranked No. 9 in local deposits in the Springfield area as of November.

Under the agreement, which is expected to close in the fourth quarter, shareholders of Metropolitan National parent company Marshfield Investment Co. are slated to receive roughly $70 million, $42 million of which is in Bear State common stock and $28 million in cash, according to officials.

The combined company would have $2 billion in assets, 55 branches, which includes Metropolitan National’s 12 in southwest Missouri, and four loan production offices.

Metropolitan National CEO Mark McFatridge is expected to join Bear State’s executive management team and board of directors. According to officials, another member of the Metropolitan National board would be selected to the join the Bear State board.

McFatridge said Metropolitan National began exploring merger opportunities last year.

“About a year ago April, our board of directors created a mergers-and-acquisitions committee that consisted of Bryan and Randy Magers, our chair and vice chair, myself, John Paul Van Diggelen, the CEO of our holding company, and John Ghirardelli, one of our board members,” McFatridge said.

He said the commmittee determined four possible paths forward.

“The first was to do an outright sale. Just sell the bank and auction it to the highest bidder. Both of the Magers’ brothers said, ‘Absolutely not.’ The second option was to continue to grow organically,” McFatridge said.

According to information Metropolitan National submitted to SBJ in November, the bank had seen assets drop slightly to $448.5 million from just under $455 million in 2013, but both local loan volume and operating income had showed gains during that period. Local net loans grew 24 percent to $331.6 million from $267.8 million and the bank nearly tripled local net operating income to just under $1.5 million from $516,000 the year before.

“But when you look at the rising costs of the regulatory requirements, the rising costs of compliance, information technology, security, product development – that’s really challenging to grow at even a moderate pace from $450 million in assets,” he said. “So, it boiled down to, ‘Do we make an acquisition or do we find a strategic partner?’”

Metropolitan National hired an investment banker to help find a partner and the bank determined a target geography in Missouri and Arkansas before meeting with merger candidates, McFatridge said.    

“We probably ran investment books on 25 different organizations,” he said, adding he had familiarity with Bear State through relationships with a couple of former coworkers. “Its makeup, its geography, its operating model, its culture, just made a lot of sense.”

The deal represents Bear State’s entrance into Missouri and an opportunity for the growing company said Bear State Financial Chairman Richard Massey.

“We met when they hadn’t decided yet what they wanted to do,” he said. “Every bank, really of any size, has to make a decision about what they want to do because you almost can’t sit still. With regulations and very thin interest margins, consolidation is really inevitable.”

According to BearStateFinancial.com, the company’s roots can be traced back to 1996 when First Federal Bank went public and First Federal Bancshares of Arkansas Inc. (Nasdaq: FFBH) was formed as its holding company. In May 2011, led by Massey, Bear State Financial Holdings made a $46.3 million investment to recapitalize the company. In June of last year, the First Federal holding company adopted the Bear State Financial name and changed its stock ticker symbol to BSF.

“The core bank that we acquired in 2011 is in Harrison, Ark., just down Highway 65 from Springfield and Branson, and we’ve always loved those markets,” Massey said. “Springfield, Joplin, Marshfield – all those cities that Metropolitan National operates in – are cities we’d circled as one of the preferred areas for acquisitions.

“So, when this came along, we were very excited to pursue it.”

The announcement comes about a year after its last acquisition of Hot Springs, Ark.-based First National Security Co., the holding company of First National Bank of Hot Springs and Heritage Bank of Jonesboro. That deal boosted Bear State’s total assets by over 160 percent to $1.5 billion.

Massey said the environment is right for mergers as smaller banks fight against tight margins and look to grow.

In 2014, Metropolitan National reported net income of $2 million and an annual return on assets of 0.45 percent. First quarter was $106,000, representing a return of 0.1 percent.

“It’s a perfect storm for community banks,” Massey said. “It’s not just Metropolitan. We were a $500 million community bank until the middle of last year and started on our path to grow. It’s a confluence of incredible new regulations, some of which haven’t even been completed yet, that are making compliance costs that are crushing these small banks.”

He said interest rates are an ever-present factor, too.

“The fact is that net interest margins are thinner than they’ve been in a generation and they’re continuing to decline,” Massey said.  

McFatridge said key goals achieved through the merger are meaningful ownership in the merged bank, leadership at the executive level and board level and a deal Metropolitan National leaders could see as rewarding its value while providing opportunity for growth.

“Bear State checked every one of those boxes,” he said.

Massey said the stock involved in the deal represents 11 percent of Bear State’s common stock.

Assuming regulators approve the deal, Massey said name and system changes to incorporate Metropolitan National likely would take place through the first quarter of next year.

Pine Bluff, Ark.-based Simmons First National Corp. (Nasdaq: SFNC) closed in the first quarter on its purchase of Liberty Bancshares Inc., the parent company of Liberty Bank, in a deal valued at $206.9 million. Liberty Bank was listed with SBJ in November as the fifth-largest bank in the area with local deposits of over $480 million.[[In-content Ad]]

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