Depending on what criteria are used, the Northwest Arkansas metropolitan area has one of the most -- or least -- competitive banking markets in the country.
There are 40 banks with offices in Northwest Arkansas. Those banks have 205 branches.
Forty banks is a higher total than in several larger metropolitan areas, such as Buffalo, N.Y.; Tucson, Ariz.; Albuquerque, N.M.; El Paso, Texas; Toledo, Ohio; Oxnard, Calif.; Durham, N.C.; Ogden, Utah; Provo, Utah; and Lancaster, Pa., according to research done by SNL Financial of Charlottesville, Va. SNL is a provider of financial news, data and analysis.
The six-county Little Rock metropolitan area, which has a population 50 percent larger than in Northwest Arkansas, also has fewer than 40 banks.
"It is extremely competitive here on the loan side," said Tim Yeager, associate professor of finance at the University of Arkansas. "It is a whole different ball game when you're looking at the assets side [which includes loans] of the banks' balance sheets rather than their liabilities [which include deposits]."
But if using deposits as a gauge, Northwest Arkansas has the least-competitive banking market of any metropolitan area in the contiguous United States, SNL said.
SNL bases its results on the 2014 deposit market share in the Fayetteville area. Using that criteria, one bank -- Arvest Bank -- has more than 47 percent of the deposits in the market, SNL said. Arvest, which is owned by members of the Sam Walton family, is the largest bank in the state with about $16 billion in assets.
"Arvest is the dominant player in deposits," Yeager said. "So, other banks have to follow [Arvest's] lead, in a sense, in trying to compete for deposits. If Arvest has a lot of branches, if Arvest has long hours with drive-thru lanes open until 7 p.m., other banks have to have similar [options] to compete."
There are several reasons Arvest's deposits have grown.
Arvest had several acquisitions in Northwest Arkansas in the 1980s and 1990s, said Jason Kincy, a spokesman for the bank.
"But mainly we've just grown along with the area," Kincy said. "The region has just taken off, and we've done a good job of taking care of our customers."
The federal government uses a mathematical calculation -- known as the Herfindahl-Hirschman Index -- to measure how deposits are distributed in a market, Yeager said. Higher numbers mean deposits are distributed more unequally.
If one bank has 50 percent of the market share of deposits, it means the market has a Herfindahl-Hirschman Index greater than 2,500, Yeager said. With Arvest having more than 47 percent of the market share of deposits in Northwest Arkansas, the area has a rating of 2,241, according to SNL.
No other metropolitan area in the country has an index rating that high, SNL said.
"I knew [the Northwest Arkansas rating] would be high," Yeager said. "I didn't know it would be highest."
Two of the lowest deposit ratings in the country are only a few hundred miles from Northwest Arkansas, in the St. Louis and the Kansas City metropolitan areas.
"St. Louis and Kansas City were attractive for national banks to enter," Yeager said. "That is what kept the deposit competition more even. In Arkansas, that is not the case. National banks, even still, haven't strongly entered Arkansas to do banking. So it's still mostly a homegrown banking market dominated by community banks."
In the current economic environment, deposit share is not a major competitive advantage in terms of a bank's profitability, Yeager said. That's because a bank can get cheap deposits from many places, including brokered deposits through online sources.
But when the Federal Reserve begins to raise interest rates, gaining deposits will become more expensive.
"Then the [high] deposit market share really gives an advantage to those banks like Arvest," Yeager said. "They'll be more profitable."
The competition for loans in Northwest Arkansas is intense, even from out-of-state lenders, said Mark Ryan, Arvest's commercial loan manager in Benton County.
"We have a very strong economic area, and we attract lenders from outside our market," Ryan said, mentioning Quicken Loans and Wells Fargo Bank.
On a loan for permanent financing on a large commercial project, it isn't unusual for real estate investment trusts, insurance companies and out-of-state banks to compete for the loan, Ryan said.
SundayMonday Business on 08/30/2015