Charlie Cross Builds Cornerstone Bank

A town known more for its quirky tourist attractions than its dynamic business environment, Eureka Springs has fostered one of Northwest Arkansas’ most successful community banks. Cornerstone Bank, formerly known as the Bank of Eureka Springs, ranks as the No. 5 bank in the six-county market with a 1.18 percent return on assets.

While the government works to find a fix for the country’s struggling banks, the community bank model is not broken, said Charlie Cross, president and CEO of Cornerstone Bank in Eureka Springs.

“We had one of our best years this past year when a lot of banks in the industry were struggling,” Cross said.

That’s because the bank has stayed true to its conservative business model, he said.

Instead of taking risks and chasing balloon-like profits, Cornerstone put the focus on its local customer base, Cross said.

“Putting our resources into the community that is supporting this bank turned out to be a wise strategy for us,” he said.

The bank, with $127 million in assets, is now positioned to expand into other markets, starting with a new branch in Berryville.

While Cross declined to identify other specific locations, he said the intention is to expand into markets within an hour’s drive from Eureka Springs.

“We don’t want to go too far away,” he said. “I think you lose what you’re trying to do when you go too far.”

The goal is to have branches in other markets, within Northwest Arkansas and potentially Missouri, in the next three to five years.

“We want to get Berryville up and running and then see where the economy is going to go,” Cross said. “We’re in a good posture to be able to expand, we don’t have any plans to stop, but the economy may dictate how fast we expand.”

The bank’s growth in assets has been slow and steady, or in Cross’s words: “not a sprint, but a distance run.”

In 1999, Cornerstone had $73.17 million in assets and $59.94 million in deposits, according to the Federal Deposit Insurance Corp. By 2002, the bank’s assets had increased by 25 percent and deposits had increased by 16 percent. At the end of 2008, the bank had $122.3 million in assets and $93.7 million in deposits, a 67 percent increase in assets and a 56 percent increase in deposits over a 10 year span.

In 2008, the bank recorded $1.79 million in net income, issued $81 million in loans and had an 11 percent increase in assets from the previous year.

Loans are up about 25 percent over 2007, Cross said.

The bank’s staff has grown by about 15 to 20 percent over the past year.

Expansion Goals
Cross said Cornerstone has been in a growth mode for the past 10 to 12 years.

In the fall of 2008, the bank changed its name from the Bank of Eureka Springs. The name change, Cross said, was solely about growth initiatives. With the name tied directly to the city, the bank was geographically restricted somewhat in its growth plans, he said.

The name wouldn’t resonate so well in other communities.

Cornerstone was chosen because it speaks to the bank’s stability and soundness, Cross said.

“It ties us back to our 98-year history,” he said.

With the new name, the bank opened a branch in Berryville last fall. The branch is currently operating in a temporary location while an 11,500 SF facility is under construction on Arkansas Highway 62.

The building, which will include about 8,000 SF of bank-oriented space with the rest available for lease, will be ready for Cornerstone employees to occupy about June 1.

Cornerstone is investing about $2 million in construction costs alone to enter the Berryville market.

Cross said the bank studied the expansion opportunity for a long time before deciding to open a branch.

“It made sense from a proximity standpoint and we felt like we had enough familiarity with that market,” he said.

The branch also helps the institution diversify its business, Cross said.

In Eureka Springs, the majority of the bank’s business is tourism and resort based. The economy in Berryville, while only about 12 miles away, is driven by industry and farming.

“It helps us from a diversification standpoint and it made sense to become more convenient for the county’s client base,” he said.

Cornerstone controls just under 50 percent of the deposit market share in the Western district of Carroll County.

As of June 30, for all of Carroll County, Cornerstone had $84.6 million in deposits, or just under 17 percent of the county’s $501.5 million.

Cross said the goal is to get more market share out of the eastern part of the county.

Slow Growth
Cornerstone has historically taken a slow approach to growth. The bank was chartered in 1912 and survived the Great Depression and two World Wars to be the only bank remaining in town in 1946.

The historic downtown branch on Main Street was constructed in 1966. The first branch in the county opened on Highway 62 East in 1980 and the first financial institution branch opened at Holiday Island in 1985.

In December 2003, the bank opened a 20,000-SF financial center, which now serves as the bank’s headquarters.

In February 2006, a new 5,400-SF Holiday Island branch opened with full-service banking, lending and brokerage services.

Since 2003, the bank has invested about $6 million in new facilities.

No Bailout
Cross said it’s frustrating to see community banks lumped in with the national banks that have been blamed for the economic crisis.

“It’s disheartening to pick up the paper every day and see all banks in the industry painted with the same brush,” he said. “Community banks, predominately speaking, are doing very well.”

Tim Yeager, an associate professor at the University of Arkansas who specializes in the Arkansas banking industry, agreed that community banks are performing much better than larger, national banks.

“Community banks overall are doing better because they don’t take the aggressive risks that large banks take,” he said. “In particular, in this crisis, they haven’t gotten involved in sub-prime lending, that’s the major difference right there.”

While Yeager said Arkansas banks are generally performing better than the rest of the nation, Northwest Arkansas banks have been hit the worst in the state.

That’s because they lent the most heavily in commercial real estate, he said, an industry that has been hurting in the area for the past couple of years.

Eureka Springs, however, hasn’t experienced the same lull in commercial activity as other parts of the region, Cross said.

“We’ve been blessed from a commercial real estate stand point because activity has continued to be strong,” he said. “We’ve not had the issues that you’ve seen in the Washington County and Benton County area.

“There was a lot of overbuilding that went on there and we haven’t had that in our market, occupancy rates have stayed relatively stable.”

Stability is what earned the bank high marks from bank-rating firm Bauer Financial Inc.

Cornerstone was the only bank in Northwest Arkansas to earn a five-star rating, the highest ranking available, for its 2008 performance.

“We’re very proud of that,” Cross said. “We may not have experienced the peaks of the peaks but we’ve stayed consistent.

“The moral of the story is we didn’t get involved in sub-prime loans, there’s no bailout, no tarp money here.”

Marty Roenigk, owner of the Basin Park Hotel, the Crescent Hotel and the War Eagle Mill, said he’s banked with Cornerstone since moving to the area from Connecticut in 1997.

“They’re the only bank we’ve dealt with and we’ve been very happy with them,” he said.

Roenigk said the bank financed several multi-million dollar projects at the hotels.

“They’ve always been responsive, constructive and eager to help us with our projects,” he said.

Roenigk said he appreciates the personal service and “small bank feeling” that comes from working with a local institution.

Cornerstone is the only bank headquartered in Eureka Springs. The bank’s two main competitors, Arvest Bank and Community First Bank, are both headquartered more than an hour away.

“People in smaller towns still have that affection and appreciation for truly local community banks,” Cross said.