story by Kim Souza
ksouza@thecitywire.com
Northwest Arkansas is the second largest metro area in the state and growing at a faster clip than much of the nation which is why bankers from outside the area are once again branching into the market.
Undeterred by the 178 branches already operated by 31 banks doing business in the two-counties, at least six other banks are in the process of locating new branches in Benton and Washington counties on the heels several consolidations.
About half of the branch expansions are from banks new to the region from smaller metro markets such as Batesville, Paragould and Fort Smith. The others are local banks expanding their footprints across the growing two-county area.
NWAMARKET
As banking markets go, Northwest Arkansas is the most competitive market in the state, according to banking consultant John Dominick, professor of finance at the University of Arkansas.
The Federal Deposit Insurance Corp. indicates there are 21 banks with 90 branches holding $4.092 billion in deposits in Washington County as of the June 30 report. In Benton County there are 28 banks with 89 banks holding $4.007 billion in deposits. Together this market has 15% of the state’s deposits, second only to Pulaski County’s 20% market share.
The Pulaski County banking sector has 24 banks with 185 branches holding $10.8 billion in deposits. Northwest Arkansas had 179 bank branches as of June 30, with $8 billion in deposits.
“Northwest Arkansas is overbanked and that’s not likely to change because so much of the growth and opportunity in the state is centered here. Competition keeps pricing down which can be good for consumers, but a drag on profits,” Dominick said.
In the past two years Great Southern Bank of Springfield, Mo., added two branches in the market, Integrity Bank of Mountain Home opened a branch in Benton County and Intrust Bank of Wichita, Kan., opened a branch in Rogers. Grand Savings Bank of Grove Okla., opened branches in Benton and Washington County since divesting Decatur State Bank.
SEEKING LOAN GROWTH
Banking consultant and lawyer Garland Binns, of Dover, Dixon and Horne, said the emerging trend in bank branching has been to metropolitan areas, as they seek loan growth opportunities.
“Loans are one of the keys to profitability. Metropolitan areas offer more lending opportunities. Rural areas generally struggle for loan demand. However, banks in rural areas generally have a high deposit to loan ratio and by expanding into a metropolitan area, banks can better utilize the excess of deposits. This trend will continue for the foreseeable future,” Binns said.
Donald Gwinn, president of First National Bank of Paragould, said the bank plans to open its first local branch in the Pinnacle Hills Parkway branch later this month. Signs went up at the former Metropolitan National Bank location last week and Gwinn said they are adding some staff.
First Paragould Bankshares recently purchased five bank branches from Pine Bluff-based Simmons Bank for a reported $12 million, which included furnishings. Gwinn said the bank is moving slowly with its branch expansion. While the bank owns five locations, it plans to ease into the market, opening Rogers this month and Bentonville (300 S.E. Walton Blvd.) in December and then holding off on the others until 2015 or later.
“We are a conservative bank and are still formulating our plans for this market. It will be methodical from here on out, ” Gwinn said.
Doug Lynch, president of Citizens Bank of Northwest Arkansas, is no stranger to this market, though he’s served as chief lending officer for the Batesville-based Citizens Bank since 2011. Lynch told The City Wire that he recently relocated to Fayetteville to help launch Citizen Bank’s first loan production office and ultimately a full-service branch at 1676 East Joyce Blvd., in the former Delta Trust Bank building.
Ironically, Lynch originally opened that office a few years ago when he headed up Delta Trust & Bank’s move into Fayetteville. Lynch also worked as a market president for Liberty Bank which was acquired by Centennial Bank. He said bank consolidations of the former employers lead him to Batesville where has worked since early 2012.
Lynch said Citizen’s move into Northwest Arkansas is rooted in the bank’s strong capital holdings and need to grow.
“Batesville is a great place and Citizens commands a large market share there, but that region has had a stagnant population for the past decade. Competition is coming there too and Citizens is looking to grow its business outside of its home base,” Lynch said.
He plans to open the loan production office at the Joyce Boulevard location on Feb. 1, with a small staff he is in the process of hiring. From there Lynch expects to expand into a full-service branch once it can sustain itself. Lynch said his 7-year plan calls for offices in both counties, but it will be a slow move because the bank is not willing to build branches for the sake of hanging a shingle.
“Year one calls for me to get the Fayetteville loan office and ultimate branch open and self-sufficient, before I venture into Springdale in year two or three,” Lynch said. “Benton County will follow that. I am optimistic about what I have seen in recent meetings with clients and prospective clients.”
Citizens Bank has roughly $500 million in assets and a strong capital base with a low percentage of delinquent or past due loans. He said the bank is also looking for acquisition opportunities in this market and elsewhere in the state.
In August, Benefit Bank-based in Fort Smith, received authority to open a full-service branch in the Har-Ber area of west Springdale. The bank has had a loan production office in Springdale for several years. Bank officials did not return The City Wire’s request for comment on the new branch.
INSIDE EXPANSION
Rob Husong, regional president of First National Bank NWA, said the bank is set on opening its first branch in Bentonville next year.
“Bentonville is a logical move for us with our branches in Rogers and Centerton. Bentonville rounds out the donut shape and we have a fair number of customers who live in Bentonville,” Husong said.
The bank purchased property at 402 S.W. A St., in the heart of Bentonville’s up-and-coming Arts District. Husong said the bank didn’t need to be on Walton Boulevard but they did they seek a central location for convenience. Husong said the bank hopes to break ground on the new branch in the first quarter of 2015 and open before the end of the year. He said they are looking at non-traditional construction, something that blends well into the Arts District and also provides lease space for artists and other small businesses.
The bank has also leased space with plans for a new branch in east Fayetteville on Joyce Boulevard, near Crossover Boulevard. He said that operation is needed to serve their client base in Washington County as more people commute north and south from Fayetteville.
This Fayetteville branch is slated to open in early 2015. Husong said the bank is hiring staff for that location and eventually the bank plans to seek out it’s own parcel and build a brick and mortar location that fits the surrounding community.
COMPLIANCE COSTS
Husong said he’s not surprised to see banks branching, particularly those looking to grow the business in the face of higher operating costs. Lynch agreed, adding that Citizens Bank is wanting to spread some of the higher back-office costs associated with federal Dodd Frank compliance across a larger base.
Today’s Bank President Larry Olsen said higher operating costs related to Dodd Frank requirements is weighing the heaviest on small banks.
“We are feeling it, especially in the mortgage areas,” Olsen said.
Today’s Bank, with $102 million in assets, has branches in Fayetteville and Huntsville, and recently gained approval for a new branch at 5178 West Sunset near the Interstate 49 interchange in the heart of Springdale. Olsen said the city approved the brick and mortar branch and they are moving ahead with plans to break ground in the next few months.
“Springdale is a thriving market and we want to move further up the I-49 corridor in an effort to grow our bank’s presence,” Olsen said. “It’s been a decent year in banking and all the banks are looking for more growth. The business feels a lot better than it did a few years ago, despite the tighter regulations.”
Today’s Bank posted net income of $1.745 million through nine months of this year and has one of the highest return on asset levels of all the banks the region at 2.28%.