Some banking companies have chased growth in warmer states like Texas and Florida, but Arvest Bank of Fayetteville, Ark., is content to stay in markets where the competition is less fierce.
The $9.5 billion-asset unit of Arvest Bank Group Inc. said it intends to focus on getting bigger in the four heartland states where it already operates by building branches and making acquisitions that take it into new communities there.
The strategy has worked so far; the bank's assets have grown 32% over the past two years.
"People have asked if we are going to move into Texas, and that isn't on our radar screen," said Brad Krieger, its regional manager for Oklahoma. "We have lots of room in Kansas and Missouri to expand, and in-fill opportunities in Oklahoma and Arkansas."
Mr. Krieger conceded that population growth might be slower in those states than in those farther south. But he said the economy is steady and deposits are cheap.
Several industry observers said the strategy is a smart one.
"There is sustainable long-term growth in those markets. It's just not as robust as some areas like Dallas-Fort Worth," said Curtis Carpenter, the managing director with Sheshunoff & Co. Investment Banking in Austin.
Getting good deals has been one of Arvest's strengths so far, and it should continue to do well as long as it does not start overpaying for acquisitions, he said. "The higher the price you pay, the better the growth market you have to be in."
Given its management team, good deals could be expected. Its chief executive officer is Jim Walton, the youngest son of Wal-Mart Stores Inc.'s founder, Sam Walton.
Also, Arvest is owned by the deep-pocketed Walton family, so finding capital for its growth has never been a concern, Mr. Krieger said. There are no plans to go public or sell any time soon, he said.
By keeping a steady pace of small acquisitions and building 20 branches in two years, Arvest has become one of the largest privately held banks in the country.
In January it entered Kansas by buying the $41 million-asset, single-branch Caney Valley National Bank. The price was not disclosed.
Mr. Krieger said Arvest targeted Kansas because it wanted to fill in the area between its Oklahoma and Missouri branches.
It is scouting Kansas City, Kan., Wichita, and Pittsburg for more deals, he said.
Arvest also is busy in Oklahoma. Last week it announced that it would buy a branch in Grove from the $230 million-asset Grand Bank, a unit of Tulsa's Grand Capital Corp. Arvest opened a branch in Grove this year and one in Choctaw this week. It plans to open two others in Stillwater next year and is looking to buy or build branches in Enid and Ardmore.
In contrast, banking companies in Kansas and Oklahoma have been buying their way into states like Texas for growth. For example, the $687 million-asset Columbian Financial Corp. of Overland Park, Kan., bought the $86 million-asset Bank in Weatherford in March, and the $18.1 billion-asset BOK Financial Corp of Tulsa bought the $390 million-asset Worth Bancorp. Inc. in Fort Worth in June.
But Mr. Krieger said the central part of the country is a natural place for Arvest to focus, because the bank and the Walton family have their roots there.
"There is a very strong agrarian base, and they are very entrepreneurial states with strong work ethics and good business climates to work in," he said. "And they aren't dominated by large banks."
Arvest has the top deposit share in its home state, with 9.73%, or $4.6 billion. It ranks fourth in Oklahoma, with 5.13%, or $2.9 billion, putting it behind companies based in that state but ahead of Bank of America Corp. and JPMorgan Chase & Co.
Edward Krei, a managing director with Baker Group LP, an investment banking firm in Oklahoma City, said that the big banking companies favor faster-growing markets, and that their lack of attention on Arvest's targeted area benefits small banks.
One advantage is lower-cost deposits: Arvest had a net interest margin of 4.51% in the second quarter, well above the nationwide average of 3.95% for banks with $1 billion to $10 billion of assets.
Arvest has "correctly identified some of the real value in nonmetro banks," Mr. Carpenter said. "The competition is a little less stiff, deposit cost is a little less, but the growth opportunities are fewer, and that is the trade-off."
The bank's expansion and operating model — with extended hours and relatively high staffing level — has kept its efficiency ratio perpetually bloated. In the second quarter it was 69%, well above the 58% average for banks of its size.
"Efficiency ratios are not going to happen for us," Mr. Krieger said. "We want people to call in and get a person, not a recording. We want that personal touch in banking to exist."
Arvest's second-quarter earnings slipped 3% from a year earlier, to $27.3 million, because of higher costs. Still, the bank's profitability is "impressive," Mr. Krei said. "I think their earnings have really performed well, especially in light of their growth strategy."
