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On the rebound: a $1.5 million stock offering could propel First Exchange Bank of Little Rock toward public company status.

Little Rock hasn't seen a new public company emerge from the financial community since the high-flying days of the savings and loan associations a decade ago.

That could change before the turn of the century.

Executives and investors at First Exchange Bank of Little Rock are preparing their unlikely candidate for a 1998 voyage to the over-the-counter market.

The National Association of Securities Dealers Automated Quotations system is owned and operated by the NASD. It is a computerized system that provides brokers and dealers with price quotations for securities traded over the counter.

First Exchange's first step toward entering the NASDAQ market is to expand its ownership base and recapitalize the bank with a $1.5 million stock offering.

"The expectation is that within the next 10 to 15 days, we'll be receiving subscriptions with checks attached," says Guy Humphries, president and chief executive officer of First Exchange. "There will be new faces coming in, and that's one of the assets we intend to draw on."

First Exchange plans to add between seven and 11 directors to its board, depending on the response to the offering circulars that were mailed out.

The current roster of directors includes Humphries, Rush Harding Jr., Edward Cargile and Hillman Johnson.

The proposed 75,000-share issue is designed to free the bank from a regulatory consent order. The regulatory black eye resulted from the actions of the previous management team, which was led by Randy Johnson.

The 3-year-old institution lost $2.2 million in 1991, which made it the least profitable Arkansas bank.

"The original management adopted grow-the-bank policies that resulted in assets of inferior quality," Humphries says.

He says the bank suffered from "insufficient underwriting efforts and a lack of familiarity with the Arkansas market."

In other words, Johnson and the other bankers who moved in from Missouri could never get a handle on start-up problems at the $26 million asset bank.

The cash infusion will allow the bank to grow to more than $40 million in assets.

Humphries intends to augment the First Exchange headquarters on Shackleford Road in west Little Rock with two drive-in branches and one full-service branch.

He also envisions beginning dividend payments after three years, organizing a mortgage department in four years and creating a trust department in the fifth year.

Year six would culminate in qualifying the bank stock for trading on the over-the-counter market.

"In year seven, I expect to retire at age 65 from a solid bank with $100 million in assets," Humphries says.

A Track Record

This isn't the first time Humphries has helped resurrect an Arkansas bank. The Judsonia native has turned around four other financial institutions during the past 24 years. They are:

* First Arkansas Bank of Wynne. Humphries led the bank from November 1990 until May 1991. Improperly underwritten loans were the primary cause of the financial woes at Wynne. Humphries sold the Cherry Valley branch to First National Bank of Wynne to raise needed capital.

* Farmers Bank of Hamburg. Humphries served as president and CEO from December 1983 until May 1991. The situation at Hamburg, which also involved a $1.5 million stock offering, resembled the situation at First Exchange.

"The local directors had to recapitalize the bank, and we cleaned up the loan portfolio," Humphries says.

* First State Bank of Warren. Humphries served as president and CEO and as a trust officer from October 1969 until May 1977. The bank's management team was using outdated techniques that hampered its ability to make an acceptable profit.

"That was a much different situation," Humphries says. "The assets were clean, but the bank just wasn't profitable."

* Bank of Ozark. Humphries served as president and CEO from December 1968 until October 1969. New owners had purchased the bank in 1967. The owners used imprudent practices, according to Humphries.

"The syndrome was to grow the bank quickly and worry about loan quality later," he says.

Humphries came to Ozark from the Bank of Lake Village, where he was the No. 2 member of the management team.

Humphries also served as vice president of commercial loans at First Commercial Bank of Little Rock from December 1978 through December 1983.

"That experience has been a tremendous help here," Humphries says of the years he spent in Little Rock. "A metropolitan market is different from a small-town market."

When he came to First Exchange in May 1991, Humphries began finding bad loans, cleaning up the portfolio and reporting to the board.

Federal regulators examined the bank to see how he was doing.

"Our board did not hear one new name," Humphries says of the examiners' report. "I already had identified the problem loans and developed a strategy.

"I've always welcomed bank examiners because they bring a different perspective."

Most of the problem loans originated locally and couldn't be traced to First Exchange Corp., the Cape Girardeau, Mo.-based holding company that helped establish the Little Rock bank.

"There was only one |$90,000~ loan that we considered to be an insider loan," Humphries says.

Regulators took over and liquidated First Exchange Corp.'s five Missouri banks in May.

The First Exchange Corp. family of banks bought into loan participations totaling $2.86 million that were originated by First Exchange Bank of Little Rock.

Meanwhile, First Exchange Bank took part in $1.95 million in loan participations out of Missouri.

Humphries must now move the bank out of the red.

His rule of thumb for lending will be the old banking adage known as "The Three Cs:" character, capacity to repay and collateral.

The Missouri bankers never took that adage to heart.
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Author:Waldon, George
Publication:Arkansas Business
Date:Jun 22, 1992
Words:933
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