Deposits in Arkansas Banks Grow by 2.7 Percent

by Gwen Moritz  on Monday, Nov. 5, 2012 12:00 am  

John Womack, CEO of Arvest in central Arkansas: “We lead with deposits. We think that’s the most important thing to get.” (Photo by Michael Pirnique)

A bank’s deposit trend line can say as much about the management’s philosophy as about its prowess, a fact on display in the summary of deposits released last month by the Federal Deposit Insurance Corp.

The summary of deposits is a snapshot taken at midyear by the government agency that insures bank deposits.

It is not a report card on the health of a bank or of the banking industry, but it is the only official report that provides Arkansas-specific trend data for multistate banks.

Bank deposits in Arkansas grew by 2.7 percent to $53.4 billion in the 12 months that ended June 30, much slower than the national pace (8.5 percent) for the second straight year. But that’s just an average, and some Arkansas banks were grabbing deposits with both hands while others were taking a pass.

In the upside-down world of bank accounting, deposits — the money a bank has — are liabilities because interest must be paid to depositors, while loans — the money a bank has given out — are assets because they generate interest income.

What’s more, all deposits are not created equal. The core deposits from regular retail customers can be very cheap, while a bank will have to pay top dollar for “brokered” deposits or other “hot money” that is merely seeking the highest rate of return while enjoying the safety of FDIC insurance.

The different attitudes toward deposits are exemplified by two of Arkansas’ largest banks: Arvest Bank of Fayetteville, which gained $867.3 million, or 15.5 percent, in deposits in the year ended June 30, and Bank of the Ozarks of Little Rock, where deposits actually declined by $28.4 million despite an excellent earnings year.

“We lead with deposits,” John Womack, CEO of Arvest in central Arkansas, said last week. “We think that’s the most important thing to get.”

A new deposit customer can then be converted into a profitable borrower in the form of mortgage loans (which Arvest routinely sells on the secondary market but then profits from servicing in-house), consumer loans and credit cards. They may also be good prospects for uninsured investment products through Arvest Asset Management, Womack said.

Arvest, owned by Wal-Mart founders the Walton family, is very much a retail-oriented bank, and the same low-margin, high-volume philosophy is obvious in both Walton companies. Arvest Bank’s return on average assets was 0.72 percent at the end of 2011. The national average for the second quarter was 0.99 percent.

“Our margins are getting squeezed because we are very liquid right now,” Womack conceded. “But there may be a time in two years when we won’t be so liquid and loan demand starts coming back. ... It’s a nine-inning ballgame and we’re not in the ninth inning.”

Arvest’s emphasis on customer service is also reminiscent of that other Walton business.



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