The new Eastern Bank branch opening in Lawrence this week is notable for two reasons: One, it will be the first new retail bank branch to open in the city in more than 20 years. And two, it will be run by Pedro Arce, who attempted to launch Veritas Bank in Lawrence three years ago but failed to attract the necessary funding.

Until now, Lawrence was largely ignored by banks. More than 70,000 people live within the city’s six square miles. When Eastern opens its office at 486 Essex Street. Tuesday, Lawrence will have 10 bank branches. The last one – which is today a Bank of America branch at 67 Winthrop Ave. – was established in 1989, according to FDIC data.

Two credit unions have, however, established themselves in the city in the interim: Both Merrimack Valley Federal Credit Union and Metro Credit Union operate in Lawrence.

Methuen, Lawrence’s neighbor to the north, has a population of about 45,000 and 15 bank branches, five of which opened after 1988. North Andover, with a population of less than 30,000, has 13 bank outlets. Tiny Andover, home to fewer than 8,000 residents, also has 13. Sixteen of the branches in Andover and North Andover were opened after 1988.

If demography is destiny, as some economists argue, then it’s easy to see why the industry has left Lawrence behind. And it’s safe to say residents of Methuen, North Andover and Andover don’t go to Lawrence in any great numbers to do their banking.

Simply put, the numbers are against Lawrence.

Rich Competition

Ten years after the last bank branch opened in Lawrence, nearly one in four city residents lived below the poverty line, according to the U.S. Census Bureau. Nearly a third of the city’s population was under the age of 18, and 9 percent were under five years old, compared to 24 percent and 6 percent, respectively, for the commonwealth.

In 2000, Lawrence’s homeownership rate was 32 percent, half that of Massachusetts as a whole. Median household income was $27,983 in 1999, compared to a state median of $50,502.

“The rule of thumb is that a branch costs $3 million to start, so you have a harder time recouping those costs if the deposit growth will be much slower because people  in the community  have less money,” said Stan Ragalevsky, a banking attorney at K&L Gates LLP in Boston.

Eastern’s new Lawrence branch will open in the same location that would’ve housed Veritas Bank, according to Eastern Bank Spokesman Andrew Ravens. Arce, Ravens said, “had the space available and ready to go to house a banking office, so it’s not nearly what it would’ve cost to build a brand new branch.”

When Eastern executives met with Arce, they “came away very impressed,” Ravens said. “He had already done a lot of work.”

Still, the banks that currently serve Lawrence are those with deep pockets. Bank of America has two branches there. Connecticut-based People’s United has one, which it gained after acquiring the parent company of North Andover-based River Bank in a $156 million deal last July. RBS Citizens has one Lawrence Branch, Sovereign Bank has three and TD Bank has two.

And that’s it.

Changing Habits

Unlike the surrounding communities, Lawrence is not served by a community bank. But it’s not for lack of trying.

In 2009, Arce, the man hired by Eastern as vice president of business banking to run the four-man Lawrence branch, attempted to establish Veritas Bank, which would’ve been the city’s only community bank.

In its announcement of Arce’s hiring, Eastern said its new VP “arrives at Eastern Bank from Veritas Bank, where he served as president and CEO…”

In reality, Arce never got Veritas off the ground, as previously reported in Banker & Tradesman.

“It’s a tough community. It’s tough times,” one industry veteran told Banker & Tradesman. “It’s somebody’s judgment that there’s enough going on there that it should be banked” and Eastern is probably the locally-based bank best equipped to make a go of it in Lawrence, he said.

Boston-based Eastern is the largest mutual bank headquartered in Massachusetts. It is highly visible, has a good reputation and already operates a branch in neighboring Andover.

Still, it is dwarfed by its competition in Lawrence.

But in a 2008 interview for the Federal Reserve Bank of Boston’s “Communities & Banking” publication, Arce said a bank’s size isn’t important when it comes to succeeding in a city like Lawrence. What is important, he said, is a bank’s ability to relate to its customers.

At the time of the interview, Arce was preparing to launch Veritas in Lawrence, which is about 70 percent Hispanic. He was asked: “Isn’t it difficult to attract unbanked immigrants?”

His response: “Not really. Sometimes banks cite regulations as a barrier, but that’s an excuse. If you want to do it, you can. You need to bring in products that match the community.… When we see distressed areas and no big banks, we see opportunity.”

“Pedro’s been around the area a long time,” said David Floreen, senior vice president at the Massachusetts Bankers Association. “So, there’s probably potential to grow the business. It’s a modest investment in a community that statistically might be underserved. Lawrence, probably by most traditional standards, is underserved.”

“It’s a situation where a lot of banks have not been opening branches there,” Ravens said. He said it’s reasonable to call Lawrence underserved by banks, but also said any new bank in the city will face a challenge in convincing the unbanked to choose a bank over storefront check cashers, for example. “We have to get people to switch and change habits.”