Breakout Bankers Beam Over Market?s Potential

Jerry Carmichael, 41, got his first job cleaning offices of the First National Bank of Berryville when he was 16.

Joe Mills, 49, decided he wanted to be a bank president when he saw Ray Harris, president of First National Bank of Rogers, speak at a high school assembly.

The first loan Gary Head, 43, processed was for a Honda Prelude in 1983 at McIlroy Bank and Trust Co. in Fayetteville.

Each of the now accomplished executives left prominent, secure positions this spring to start three separate banks from scratch in the already super-served Northwest Arkansas market. Taking a flock of coworkers with them, these 40-something pillars of the local banking establishment are betting it’s the right place and time for renegades.

Data from the Federal Deposit Insurance Corp. suggest they may be right.

The deposit capacity in the Fayetteville-Springdale-Rogers metropolitan statistical area grew 23.7 percent from $3.8 billion just five years ago to $4.7 billion as of June 30, 2003. The next round of FDIC market share data is due out late this month.

There are already 26 public and private commercial banks in Washington and Benton counties combined. According to the FDIC, there are 142 total bank offices in the two counties, or a bank for every 12.6 square miles.

Most of those are crammed into the 135.2 square miles of the urbanized sections of the MSA, putting slightly more than one bank every square mile in town.

And with players like the Bank of the Ozarks joining the fray (see story, p. 16), plus the constant murmuring that additional banks have targeted the market, local competition is at an all-time crest.

The cost of adding brick and mortar locations to provide customers the premium attraction of convenience is a challenge, the breakout bankers admitted. But after at least a decade each of working for “the other guy,” they’re willing to put their own money on the line for an equity stake in the future.

Chain of Events

Banking news this spring has been rife with resignations and applications. To make a big market even more confusing, some of the players come from overlapping institutions — Arvest Bank-Rogers, Arvest Bank-Fayetteville. And the entrepreneurial bankers were watching their Ps and Bs, because two of the new banks have similar sounding names and locations: Pinnacle Bank, currently of Bentonville, and Parkway Bank of Rogers. Pinnacle Bank will eventually have a Rogers charter and Parkway Bank will build its home on Pinnacle Hills Parkway in Rogers.

But the moves are unrelated, independent attempts by the principals to gobble up shares of the northwest market’s phenomenal growth.

It started in January when Jerry Carmichael left Arvest Bank-Rogers to start Parkway Bank, an arm of Portland Bank of Portland, Ark. The announcement became public on May 17.

Joe Mills left his post as president and CEO of Simmons First Bank of Northwest Arkansas in March to open Pinnacle Bank.

Also on May 17, Gary Head resigned as president and CEO of Arvest Bank-Fayetteville to join William King Gladden of Community First Bank of Harrison and form a yet-to-be-named institution.

All three camps say their goal is to start a “community bank,” a term that already has worked its way into nine name variations on the “Community” theme for Arkansas institutions.

Mills’ Pinnacle Bank

Joe Mills went public first. The announcement he would go solo on a new-to-the-market venture came April 12 when he said he would apply for a Pinnacle Bank charter with the FDIC and Arkansas State Banking Board.

Since then, Mills said, Pinnacle has picked up more than 100 individual and entity investors.

“That fund raising has gone exceptionally well,” Mills said. “In fact it’s been a little overwhelming.”

The investor prospectus calls for $15 million in capital. He expects to meet that number.

“By regulatory and compliance issues, we can grow to a $200 million to $230 million dollar bank with that and be considered a well-capitalized bank,” Mills said.

Mills is personally investing in the venture and plans to form a 12 to 15 member board when the dust settles. He is the proposed president and CEO of Pinnacle Bank.

Mills said operationally the bank is “almost there,” and he hopes to open the doors of the temporary Bentonville office at 1703 Phyllis Ave. in late July or early August.

He’s hired two administration staffers and Kevin Beasley as executive vice president. Beasley, 45, most recently was also with Simmons First as chief credit officer.

Computers are online and a security system and vault are en route, Mills said.

Mills is unfazed by the market’s stiff competition.

“It’s supply and demand,” Mills said. “I’m a believer in supply and demand, and there is a demand out there for this type of bank.”

One portfolio segment Mills plans to pay close attention to is poultry farm lending. This makes sense because the entrepreneur himself grew up on a Rogers farm and Beasely worked for Farm Credit Services Inc. for about 20 years and has even managed a ranch.

“We think that’s a good investment,” Mills said. “It’s proven to be.”

But he said Pinnacle Bank won’t have a single-focus demographic. Pinnacle “will need both sides of the ledger,” depending on both deposit and loan customers, he said. Even with indicators of rising interest rates, Mills is confident the Northwest Arkansas economy will hold up and allow Pinnacle plenty of business.

It’s unclear how long Pinnacle Bank will have to work out of its temporary location. Mills said he has a letter of intent with a developer to have a facility in Rogers’ Interstate 540/New Hope Road area, where Pinnacle’s charter will eventually reside.

Developers of Creekside Place, east of the planned St. Mary’s Hospital, said a proposed four-story building there will be called the Pinnacle Bank Building.

The bank’s name came from the Pinnacle Bank of Little Rock that was sold to BancorpSouth of Tupelo, Miss., for $21.2 million in March 2002. Mills couldn’t say how much his group paid for the name because consultants are still massaging the final points of the deal.

“I’ve worked all my career, maybe, to do this. It’s a way of giving back to the community and it’s also a way of meeting my personal goals and doing something for Northwest Arkansas and a bunch of good people,” he said.

Mills, who worked with Simmons First for 11 years, said he hasn’t lost any sleep since he stepped out on his own.

“It’s one of the most exciting things I’ve ever done in my life.”

Carmichael’s Parkway Bank

Jerry Carmichael still awaits regulatory approval from the Arkansas State Bank Department a month after his announcement, but he said he’s confident. Carmichael opened the doors to his temporary office on June 1 at 5500 Walsh Lane, Suite 100, in Rogers.

Parkway will initially operate at a 2,500-SF loan processing office. But Carmichael said land has been purchased and plans are in the works to build a three-story, 28,000- to 30,000-SF full-service office at 3350 Pinnacle Hills Parkway to open early in the second quarter of 2005. He hopes to break ground before the end of summer and had no estimate on how much the facility will cost to build.

The bank will start with $7 million in capital, coming from Portland Bank of Portland, Ark., and has a private offering to sell between $3.5 million-$4 million in local stock.

That puts the venture slightly smaller in initial size than Pinnacle, in terms of capital and growth potential.

“I’ve had a number of people who have expressed an interest in investment,” he said.

The stock-offering circular has not been presented to anyone yet, he said, but plans are to officially make private offerings within the first two weeks of June, he said.

Portland Bank, a four-office concern with assets of $64.4 million, officially changed its name on May 26 to Parkway Bank, but has received regulatory approval to continue to operate with its old moniker in southeastern Arkansas.

Jerry Sadler, president and CEO of Parkway Bancshares, said the Portland operations will continue as usual and customers there should notice little change.

Sadler said the 104-year-old charter will be moved to Rogers because principals want Parkway to be “seen and recognized as locally owned.”

Technically it will be partly owned locally, but controlling interest in the bank and holding company will remain with the Pugh and Newcome families of Portland in Ashley County.

“The responsibility to me is greater when I’ve got something at stake,” said Carmichael, who is president of the new concern.

Carmichael said he had already decided to leave his job at Arvest Bank Group Inc., where he had been for 10 years. He was looking at opportunities outside of banking, but found out about principals of Portland Bank scouting the Northwest Arkansas market. A friend set up a meeting with the bank’s executives in December.

Carmichael, who grew up in Berryville, is not concerned about market saturation either. He said his confirmation of continued growth for Northwest Arkansas has come from out-of-market developers such as John Q. Hammonds and General Growth Properties Inc. of New York. Both have partnered with The Pinnacle Group on its mixed-use Pinnacle Promenade project.

“It’s kind of a stamp of approval,” Carmichael said.

Carmichael said Parkway Bank aims to be “a business and professional type bank.” He hopes to tap into the professional market such as doctors, dentists and other small business owners as well as vendors to Wal-Mart Stores Inc. in Bentonville. Carmichael said there is growth potential in lending to those segments and picking up the financial planning business that sometimes follows.

He has assembled his starting team in Bruce Branch, Barbara Davidson and Gary Kleck, all former coworkers and Arvest Bank-Rogers executives.

The bank closed on its first loan in Northwest Arkansas on May 21. It was a home refinance, Carmichael said. He said there are a number of loans lined up to process, but officers are waiting until their facility is open.

The new digs will put Parkway Bank in close proximity to offices of First Security Bank, a soon-to-be-opened Bank of Rogers and a planned First Western bank — all just up the street from a Community Bank of North Arkansas branch.

Carmichael said the name Parkway Bank was in part chosen because Portland Bank has an existing PB logo that can be utilized.

“Personally, I’m at a defining moment,” he said. “We just need to open and make our own way with what we do, not by what we talk about.”

Head’s Question Mark

Gary Head resigned in May from the helm of Arvest Bank-Fayetteville, the epicenter where all 14 of the organizations charters were consolidated during 2003.

Head had been president and CEO of the bank since Sept. 15, 1999, and had worked with the bank for 16 years, spanning back to when it was McIlroy Bank and Trust Co.

The same day, Marilyn Hendricks, executive vice president and sales manager for Arvest Bank-Fayetteville, resigned to join Head. During the following week, another six people left Arvest Bank-Fayetteville, said Steven Hinds, the bank’s vice president of marketing and public relations.

But it is not known if they all followed Head or if some left for other reasons, he said.

A May 26 statement from Head sketches tentative plans for the new bank and identifies William King Gladden, chairman and CEO of Community First Bancshares Inc. (the holding company of Community First Bank of Harrison), as a joint developer in the venture.

Head said both he and Gladden are personally investing in the bank.

According to the statement, principals of the bank are raising capital by meeting with potential investors, who will be required to make a minimum initial investment of $20,000 each. Head told the Business Journal that principals plan to raise at least $5 million in capital, which is the minimum required for a start-up bank in the Northwest Arkansas market.

Head, a Eureka Springs native, said, “the bank will be capitalized by local community partners through a stock offering. When stock is spread across many individuals and businesses in the community, partners will be motivated to conduct significant business with the bank, as well as recruit new customers.”

Head’s growth projections appear ambitious. The statement said principals are scouting for locations in Benton and Washington counties and interviewing prospective employees. Head said he did not have an ideal number of offices to open from the start, but he plans to eventually serve Fayetteville, Springdale, Bentonville and Rogers.

Head’s timeline is to finalize the stock offering memo by the end of June. Then, he and Gladden expect to file applications with FDIC and the Arkansas State Bank Department around the end of July. The doors of their new bank could then be open by the end of October.

Head has not named himself as president of the bank, but has referred to himself as its “leader.”

“We plan to reinvest capital and provide loans to local businesses and residents,” the statement said.

His 10-person team, currently employed by Community First Bank, is operating out of a temporary office in Fayetteville.

Trail Blazer

Dan Dykema broke out on his own in 1994 and opened Arkansas National Bank with $5 million in capital. ANB now ranks third in market share for the Fayetteville-Springdale-Rogers MSA with $292 million in deposits. Year-end assets were $498 million and the bank recently ranked No. 2 in region’s return on assets published by the Northwest Arkansas Business Journal.

Dykema said the worst part of starting up ANB was waiting for approval from regulators.

It was “a trying, frustrating time,” he said, not because he was worried about the applications, but because he was eager to get going.

He said ANB opened within 30 days of gaining approval and hit the ground running.

“In the first 60 days it had gone over better than anyone had hoped,” Dykema said. “We made money, not much, but we were in the black in five months.”

Dykema said he knew the bank had really made it at about the five-year mark when they were second place in the area’s market share and had offices in Bentonville, Rogers and Fayetteville.

He’s not worried about the new-to-the-market banks biting into his share of the pie. “I think there’s enough business to go around,” he said.

Bankin’ on the Future

Joe Mills, Jerry Carmichael and Gary Head are starting banks in Arkansas’ second and third most lucrative counties in terms of market share. Benton and Washington counties combined trail Pulaski County by only 3.3 percent. ttt

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Rank — Bank — County offices — Deposits (in billions) — % Market Share*

1 — Pulaski —180 — $6.32 — 16.8%
2 — Benton — 65 — $2.38 — 6.3%
3 — Washington — 77 — $2.33 — 6.2%
4 — Sebastian — 50 — $1.90 — 5.0%
5 — Craighead — 50 — $1.60 – 4.3%
tTotals** — 422 — $14.53 — 7.7%

*Percent of total deposits statewide through June 30, 2003. **Market share is mean average here.tt

Source: Federal Deposit Insurance Corp. tttt