Arkansas National Not on Sale Block

Potential buyers expecting Dan Dykema to sell Arkansas National Bank can go ahead and fold their wallets. It’s not happening anytime soon.

For years, word on the Bentonville bank has been that its chairman and CEO was just trying to grow it big enough to sell. The magic number supposedly was $500 million in assets, which Arkansas National is approaching with $464 million. Dykema has had offers, but none that he said were serious enough to pursue.

He recently told the Northwest Arkansas Business Journal that it would take an offer like the “three- to four-times book value” buyouts that were paid locally in 1998 before he’d consider cashing out.

“As soon as I say that, someone will come along tomorrow with an obscene amount of money,” Dykema said. “Given the valuation environment now in Arkansas for mergers and acquisitions though, we’re not seeing multiples anywhere near that level. If this was 1997 or 1998, we’d probably consider a sale for the right deal.

“But obscene offers aside, we’re not going anywhere.”

What’s obscene is the growth ANB has accomplished in just six years. The bank started in June 1994 with $5 million and now boasts the second largest market share in the two-county area with 16 percent of all deposits. The success has prompted Dykema to begin restructuring the bank and venture into additional financial service sectors.

According to Dec. 31 reports from the Federal Deposit Insurance Corp., the latest available through the FDIC’s Web site, ANB had $343 million in deposits. The latest market share figures available were for June 30, 2000, when the bank had $328 million in deposits.

Only massive Arvest Bank Group Inc., with nearly 40 locations compared to ANB’s 10, had a larger market share last summer. (See story, Page 26).

Dykema said the bank has grown quickly by controlling expenses, paying higher rates on deposits and charging less for loans. ANB has been so aggressive at times that local competitors have grumbled about the quality of the bank’s assets. Dykema said he’s heard the same stories, but the bottom line is ANB’s net charge-offs to loans from 1999 to 2000 decreased from 0.13 percent to 0.07 percent.

According to reports on the FDIC site, that would make ANB’s loan quality as good or better than most banks in Northwest Arkansas. Anything below 0.25 percent is considered good industrywide. (See story, Page 11).

“What I care about is taking care of our customers,” Dykema said. “If that means giving them a better rate, and it causes the customer to move their business to me then I guess I’m just a dirty, no-good banker.”

ANB’s net interest margin, the No. 1 contributor to a bank’s profit, is also on par with the industry. Nationwide, banks’ net interest margin is declining due to competition and intermediation, or the amount of money now going to brokerage firms and investments other than traditional banking products like CDs.

The average net interest margin for Arkansas banks decreased from 4.10 percent in 1998, to 4.06 percent in 1999 to 3.95 percent in 2000. ANB’s net interest margin during the same time has declined from 3.5 percent to 3.07 percent, or slightly less than most local banks.

But ANB’s net income year-over-year was up 62 percent from $2.6 million to $4.2 million.

ANB’s fiercest competitor is Arvest Bank of Bentonville. But its president, David Short, said he has a lot of respect for Dykema and what ANB has accomplished.

“Dan has stepped out and taken some risks and done well,” Short said. “I have a lot of confidence in him. He’s not afraid to try to make something happen.”

ANB, organized under Arkansas National Bancshares of Bentonville, has branches in Bentonville, Bella Vista, Rogers, Springdale and Fayetteville.

Strategy Shift

Another indication that Dykema may hang onto ANB longer than previously thought is he’s now converting the bank from a “C” corporation to an “S” corporation. The move will transform ANB from a growth bank into a dividend bank. It’s a conversion that’s invisible to customers but one that offers a greener outlook for the bank’s stockholders.

Becoming an “S” corporation doesn’t mean the bank can’t grow financially, but the shareholder base will be limited to 75 people and additional tax advantages will be used by the firm.

Dykema, who earned an M.B.A. in finance from the University of Arkansas, said the conversion would give stockholders a better value now than a cash sale.

“For the last five years, we’ve tried to pick up every warm body we could and make them a customer,” Dykema said. “Now that we have 23,000 customers, we need to work on enhancing the business lines we offer them and grow our revenue streams from there.”

Adding business lines — made possible by the Gramm-Leach-Bliley Act of 1999 which knocked down walls between financial services industries — could include an insurance business and brokerage by the end of the year.

Already this year ANB became an agent for nationwide title firm, Stewart Title Co., through its Arkansas Financial Group LLC.

“My personal project right now is getting into the insurance business,” Dykema said. “We will probably be doing property, casualty, life and annuities first. We’ll also get into commercial lines and health insurance. We have plans to be a full service insurance agency.”

Dykema is considering buying a local insurance firm or starting from scratch.

At the Crossroads

Dykema was president of First Bank N.A. of Bentonville in 1993 when it was bought out by Worthen National Bank of Little Rock. Worthen eventually sold to Boatman’s Bank, which sold to NationsBank, which finally became Bank of America in Charlotte, N.C.

Dykema was fired by Worthen, almost immediately.

“It became real apparent after they announced the buyout that there wouldn’t be a place for me in their organization,” Dykema said. “Even if there was, I didn’t want to go in the direction I felt like Worthen was headed. I just decided to take about 23 of First Bank’s old employees and start our own bank.”

Dykema said he didn’t really have vengeance on his mind. But he knew the First Bank crew could “do a better job locally than Worthen,” since the out-of-town bank wouldn’t know its clientele as well. So he literally walked across the street — from the southwest corner of Walton Boulevard and 8th Street to the northwest corner — and founded ANB.

Within 30 days Dykema had raised the $3 million required to begin the bank’s application for a new charter. He rounded up another $2 million to make sure ANB could grow quickly.

“I went around to a few people who I knew and thought would have an interest,” Dykema said. “It just snowballed from there.”

Vic Evans, the former CEO of Peterson Farms Inc. in Decatur and former president of Decatur Bancshares Inc., is ANB’s largest shareholder. Bill Fleeman, the late founder of used car chain Car-Mart, was also a founding director of ANB.

ANB basically started as the second biggest bank in Bentonville when most of its old clientele defected from Worthen. He said continued turmoil in the market helped early on.

“Very similar situations happened in Rogers and Springdale, too,” Dykema said. “Early on there were a lot of 18-hour days. We took turns vacuuming the floor, and if someone had told me we’d be a half-billion dollar bank this soon, I’d have said they were crazy.”

Lately ANB, predominantly a retail bank with only about 1,100 commercial clients, is landing more business accounts. Dipen Shah, owner of Bentonville’s newly remodeled Quality Inn and Rogers’ Texaco Food Mart, is one satisfied commercial customer.

“I have gotten everything I wanted from ANB,” Shah said. “When we bought the hotel here, we looked at putting financing together through several big national banks. But ANB treated us the best. We had no closing costs or additional points and saved about $40,000.”