Local Connection Missed in Wal-Mart Buyout

Wal-Mart Stores Inc.’s move into the banking industry made national headlines recently, but something few people seem to know is that the bank Wal-Mart hopes to buy is owned by a group of Northwest Arkansas investors.

Dr. T. Warren Center, a Springdale dentist who also has other business interests, is chairman of Federal BankCentre of Broken Arrow, Okla., the thrift that Wal-Mart wants to buy.

Federal BankCentre was founded several years ago by the same people who invested in Dent-A-Med Inc., a company that makes small loans to patients who need dental work and other services. Dent-A-Med’s founders include Center and two other local dentists, Dr. Russell Riggs of Rogers and Dr. Randal Kimbrough of Springdale. Bill Breazeale, who lives in Fayetteville, is the fourth partner in the company, which has about 125 investors.

Dent-A-Med was founded in 1984. It’s headquartered in Oklahoma because of Arkansas usury laws but has more than 60 employees who work in Fayetteville. In the past 16 years, it’s loaned more than $150 million to patients and expects to post annual revenues of at least $10 million this year.

The thrift was formed about four years ago to complement Dent-A-Med’s operations, Center says.

“It was our vision that the bank would be a complement to Dent-A-Med and Dent-A-Med would be a complement to the bank,” he says. The idea was that the bank could “cherrypick” from Dent-A-Med’s millions of dollars worth of loans.

“Our dream was to let the bank have its choice of all the loans that Dent-A-Med originated around the country,” Center explains. “What they didn’t want, Dent-A-Med would take.”

But that strategy ran afoul of what’s called Regulation 23a and 23b, which prohibits banks from doing business with an affiliated party, Center says.

“The regulation says banks may not buy or sell loans from closely associated affiliates. We thought we could get around that by showing the regulators we were helping the bank and not hurting it.”

But, he continues, although regulators agreed the bank wasn’t being harmed, they still found the relationship violated the law.

“We just worked and worked and worked and realized, finally, we were not being able to provide the bank the choices they would like and that the bank was not able to give us the licensing cooperation we needed,” Center says.

“The more we worked at it, we realized that common sense does not always apply to banking regulation.”

Center says the solution was to find a different bank for Dent-A-Med to work with and that was done, although the contract hadn’t been finalized at press time, so he declined to identify that institution.

The deal with Wal-Mart came about because of a mutual relationship with Randy Dennis, a Little Rock consultant. Dennis had helped Federal BankCentre’s investors with their initial charter, and he was hired by Wal-Mart to find potential bank acquisitions.

Center says Federal BankCentre was one of three institutions in a four-state area that Dennis recommended to Wal-Mart as a potential acquisition that fit the company’s criteria. Initially, however, Federal BankCentre’s investors said their bank wasn’t for sale. But eventually, they laid our their criteria for selling the institutions.

“It really feels now like this is a win-win for both of us,” Center says. “They get an extremely clean bank. I mean, this is a squeaky clean bank, which is one of the things they needed.”

Also, he adds, “They needed [a bank] that was small that they could work with that had an extremely clean reputation and a very strong management team in place.”

And for the bank, Center says, it means that Wal-Mart can pump in millions of dollars for expansion, an investment his group would have been hard-pressed to come up with.

He notes that some bankers may object.

“Obviously, a lot of people in the banking world don’t like this new player coming into their fraternity.”