Fidelity Bank’s announcement this month that it was buying a branch office in the Kansas City area marked the third Wichita-based financial institution to extend its footprint to that city.
Officials from Fidelity, which at $1.5 billion in assets is the second-largest bank based in Wichita, said the decision to purchase Bank SNB’s Overland Park branch was one of opportunity, providing a new geographic area in which to grow.
“This acquisition represents a new growth frontier for us,” Clark Bastian, Fidelity’s chairman and CEO, said in a news release announcing the acquisition Jan. 17.
What Fidelity is likely to find is a highly competitive banking market with three times as many competitors than in the Wichita area.
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But Fidelity also will find a market with a different industry base – good for diversifying risk but challenging to serve without the right lending expertise.
By all accounts Intrust Bank and Equity Bank – which have four and 10 branches, respectively, in the Kansas City metro – have had some success there, recording double-digit growth in the past five years.
And officials from the Wichita area-based banks said they expect the Kansas City metropolitan market to continue to serve as a key growth area for them in the years to come.
According to data from the Federal Deposit Insurance Corp., Intrust Bank increased its Kansas City area deposits nearly 22 percent between 2008 and 2013. Deposits at the three branches that Equity’s had over that time span increased nearly 10 percent, the data show.
Intrust has been doing business in the Kansas City area the longest.
It first entered the market in the early 1990s through an acquisition of a savings and loan in Prairie Village, Kan., said Lyndon Wells, Intrust division director.
It expanded its footprint there when it acquired U.S. Bank’s Kansas branches in 1999. The bank now has four offices on the Kansas side of the metro area, with branches in Prairie Village, Olathe, Overland Park and Shawnee.
Wells said he thinks the original intent behind the expansion into the Kansas City area was geographic diversity. That is, if an industry like aviation suffers a downturn, the effects of that on Intrust’s overall business can be softened when serving a different city whose economy is served by industries other than aviation.
“It’s part of risk management to broaden your geography,” he said. “I think the primary reason any bank expands … is for the geographic diversity.”
“The Kansas City metro area is a fairly diversified economy,” Wells added. “There are opportunities to lend money there that might or might not exist in some of our other regional areas.”
Brad Elliott, Equity’s chairman and CEO, said his bank looked at Kansas City early on because a major part of its strategy was – and is – to grow through acquisitions. And the Kansas City metro had far more banks and branches than did Wichita.
“The opportunity to do acquisitions in the Wichita market didn’t appear to be as great as in the Kansas City market,” Elliott said. “Retrospectively, we’ve done more acquisitions in Kansas City than there have been acquisitions of banks in Wichita.”
Equity entered the Kansas City area in about 2005 by establishing a loan production office in Lee’s Summit and hiring a veteran banker in that market to oversee the office.
Through a move to convert the loan office into a branch as well as completion of a couple of bank acquisitions – Signature Bank KC and First Community Bank – Equity now operates 10 branches in the Kansas City area, both in Missouri and Kansas.
Elliott said the Kansas City area is different from Wichita because it has different industry sectors. He said he thinks the bank has been successful in that market because it has hired lenders who have business connections in the market and understand the industries there. Elliott also said that he thinks having multiple branches in the metro area has helped Equity grow deposits and loans there.
Ken Thomas, an independent bank consultant in Miami who runs branchlocation.com, said he thinks the successful formula for banks expanding to a new market rests with hiring the right talent, which is best achieved by acquiring a bank in that market or, at the least, a bank’s branches in that market.
That’s why he thinks banks that enter a new market tend to be more successful or see success more quickly if they have acquired branches or banks in the market, rather than starting a branch from scratch. Getting an already established facility means the buyer also acquires bankers who know people in that market, as well as the industries there.
“Absolutely,” Thomas said. “Plus, you’re taking out a competitor when you do that.”
Wells said since the U.S. Bank branch deal, Intrust has chosen to grow its business in the Kansas City area organically, rather than through acquisitions of banks or branches there.
He said that likely will be the strategy going forward, at least in the near term.
“At this point we’ve determined that’s the pattern we’ve chosen to follow,” Wells said. But, “we are always open to opportunities.”
Elliott said Equity’s strategy going forward is to “fill in” an area that encompasses western Missouri, Topeka and Wichita.
“Because there’s more financial institutions in Kansas City, there’s probably more opportunities to fill in the footprint there,” Elliott said.