When Woodforest National Bank in Houston started putting branches in Wal-Mart stores in 2001, it decided to embrace its own version of the "Wal-Mart way."
Some in-store branches are open 24/7, and Woodforest has extended its customer-friendly strategy to its stand-alone branches, too, processing deposits as late as 8 p.m. every night.
"We wanted to build a franchise revolving around the value proposition of Wal-Mart, offering customers a lot of conveniences, services, and competitively priced products," said Robert Marling, the chairman and chief executive of Woodforest Financial Group, the bank's $1.5 billion-asset privately held parent.
The strategy is working. Woodforest's deposits have risen more than 50% since 2001, to $1.2 billion. Business has been so good that the company has caught the attention of big banks looking to buy in Texas.
Woodforest is "one of the few in Houston that I would call a jewel for a number of acquirers," said Brett Rabatin, an analyst at First Horizon National Corp.'s FTN Midwest Research Securities Corp. in Nashville. "It's decent-sized, and it's a different franchise given the Wal-Mart strategy." It has "always been a very successful bank, with an ROE historically above 20%."
As of June 30, Woodforest's returns on assets and equity were 2.19% and 26.41%, respectively; the average ratios for banks of similar size were 1.47% and 13.83%, according to the Federal Deposit Insurance Corp.
Mr. Marling would not say if Woodforest has any suitors. However, he did point out that merger and acquisition activity in Texas has ramped up, with companies such as Citigroup Inc. and Wells Fargo & Co. recently announcing deals for community banks.
The increased activity "creates opportunities for private banks like us, as we're able to attract seasoned bankers from those institutions that are acquired and, in a lot of cases, customers," he said. "So we welcome the attention from two vantage points - the other being that people might consider us a jewel in terms of our growth."
Speculation about Woodforest National's future increased this summer when its parent told the Securities and Exchange Commission that it might launch an initial public offering, converting from a subchapter S corporation to a C corporation.
But the fact that nothing has happened since that June filing "could mean that someone's talking to them," Mr. Rabatin said. "I would say that's 100% logical."
Mr. Marling would say only that capital raised from an IPO could be used to finance acquisitions or to expand his bank's branch network.
"We're implementing a 'spokes and hub' strategy in our new markets," he said. "Our in-stores are the spokes, which make money very quickly after they are opened. Then once we get name recognition in these markets, we'll follow up with opening traditional branches there, which complements the in-store branches in terms of asset generation."
The SEC filing also said that Woodforest Financial plans to spin off to shareholders its Delta Card subsidiary, a merchant credit card processor.
The conversion to C-corporation status and the spinoff would be contingent on an IPO, for which no date has been set. Mr. Marling said that if it does not go forward, the bank would still open branches but would add traditional ones more slowly.
Chartered in Houston in 1980, Woodforest National got its start in the fast-growing northern Houston suburb of The Woodlands, an upscale community that is also the headquarters for a number of companies, including Anadarko Petroleum Corp. and Chicago Bridge and Iron Co.
The bank began to grow in 1994, when it had just $123 million of assets and three branches. It started opening about a dozen branches a year, including in-store ones in the Kroger grocery chain and several other stores. The jump into Wal-Mart came in 2001, when Woodforest opened 45 in-store branches and embraced the new retail approach.
The deal with the retail giant moved Woodforest into the metropolitan markets of Dallas, Austin, and San Antonio, as well as some smaller markets in west Texas and the northeastern part of the state near the Arkansas border. Today it has 95 branches in Wal-Mart outlets, 21 in other stores, and 28 stand-alone ones.
Though it has a strong retail emphasis in deposit-gathering, it continues to be predominantly a business bank on the lending side.
The bulk of the bank's loan portfolio is in commercial real estate, construction, and development loans, particularly to churches and professionals like doctors and lawyers who take out loans to build new facilities, Mr. Marling said.
Woodforest has been touting home equity loans lately, but it generally does not actively market consumer loans. It offers a third-party credit card upon request but does not advertise it.
"Our retail strategy has been to work more on the service component - providing notaries who work extended hours, wire services, Western Union, selling stamps," Mr. Marling said. "We want to say 'yes' to customers 99% of the time."
Tim Smith, the president of Alex Sheshunoff Management Services Inc. in Austin, said that level of service sets Woodforest apart.
"This has helped them to be very successful at gathering low-cost, noninterest-bearing deposits in the major markets in Texas, where there is a lot of competition for deposits," he said.
Woodforest's ratio of demand deposits to total deposits is 23%, compared with a typical community bank's ratios of 10% to 15%, Mr. Smith said.
