Growing Doesn?t Pain Arvest Bank

At one point, the announcements of Arvest employee leavings were so common, the Arkansas Democrat-Gazette called it an “exodus” and the following joke circulated through the banking community: “Arvest — we train the best to work for the rest.”

Speculation grew that Arvest had some kind of retention problem. The presidential quartet scoff at such a suggestion. They said that since the company has so many employees, the averages are that a more noticeable number will leave at any one given time.

None of the ex-Arvesters who spoke with the Northwest Arkansas Business Journal ever had anything but praise and some level of gratitude for the organization. Most of them cited opportunities they wouldn’t get without years of waiting or moving out of the market as their reason for leaving.

Good sportsmanship was reciprocated.

“We do not wish them ill,” Brothers said. “We don’t want them to succeed at our expense, but a hallmark of a good organization is that we have good, qualified people who are having the opportunity to step up.

“I believe that people didn’t choose to leave because they thought something was rotten in Denmark, I think they chose to leave because they’d have a different opportunity for themselves.”

“Their leaving has made us better,” Short said. “You don’t want to loose people no matter what, [but] we get an opportunity to go back and revisit what we’re doing … Getting new talent in from time to time can be very, very positive.”

Challenges

Sabin said the company has also experienced a few small bumps in the road due to its sudden growth spurt.

The bank’s return on assets, for instance, dropped from 1.11 percent to 0.8 percent from 2002 to 2003. Its return on equity fell from 12.84 percent to 9.15 percent during the same time.

Net income for the bank dropped 14 percent from $50.7 million in 2002 to $43.6 million in 2003. Net income for 2004 was $69.1 million, up 36 percent from the 2002 number (see charts).

At the same time, through 2004’s end, Arvest Bank’s assets were up 1,438 percent just from 2000. Behind that success was a monstrous regional housing market plus a couple of acquisitions that have taken some integrating:

Sabin won’t say if the bank has its eye on any additional acquisitions, but that Arvest will review opportunities as they arise.

The most obvious geographic targets for the company would be through southern Arkansas and further expansion in Oklahoma. But the four presidents and one banking analyst agree that Arvest may take more time to absorb Superior.

Scott Alaniz, an analyst for Sandler O’Neill & Partners, a bank and thrift investment firm in Atlanta, said it’s normal for a bank’s ROE and ROA to be pressured after a major acquisition like the Superior buyout. Arvest’s overall financial performance, he said, looks healthy.

The trick will be in turning the corner and earning the returns back in the future, he said.

“I think it’s a bank that others would like to acquire,” Alaniz said.

Selling doesn’t sound like an option.

Last summer, speculation grew that Chase Manhattan Bank of New York had put in an offer to buy Arvest. A former Arvest executive said New York may have made an offer, but that Jim Walton would sell “when cows fly,” and urged the Business Journal not to waste another nickel chasing the story.

The local Arvest presidents concur and ask, “What would the owners have to gain?” They agreed Jim Walton loves what he does and that the bank is his primary focus.

According to Arvest’s 2003 annual report, Jim Walton owns equal shares (25.88 percent) of the bank along with brothers John Walton of Jackson, Wyo., and S. Robson Walton of Incline Village, Nev. The trio’s mother, Helen Walton of Bentonville, owns 18.5 percent of the class A voting common stock.

There’s no mention of the remaining 3.86 percent.

Market Maker

Bentonville-based Arvest has a staggering 50.46 percent share of the Benton County market. It holds 35.34 percent in Washington County, both figures as of June 30, 2004, the most recent market share data available from the Federal Deposit Insurance Corp.

The bank’s combined two-county market share was just over 43 percent with about $2.2 billion in deposits.

Arvest ranked No. 2 statewide with 9 percent market share and about $3.5 million in deposits, behind Regions Bank with $4.3 billion.

There are 46 Arvest offices in the two-county area, 31 percent of the 149 total number of bank offices in the area as of June 30. The next biggest competitor, First Security Bank of Searcy, operated 13 offices in the two-county area at that time.

Arvest calculates its number of branches differently, including the “trade area” of extreme southwest Missouri and the eastern edge of Oklahoma. With those branches included, the bank has 58 offices and 95 ATMs servicing Northwest Arkansas.

Arvest operates 114 offices within the state. By comparison, there were 1,341 individual bank offices in Arkansas as of June 30, according to the FDIC, so Arvest operates about 8.5 percent of the bank offices in the state.

There are 213 total Arvest offices in Arkansas, Missouri and Oklahoma, which employ about 4,000 people. But the bank will spend about $5.5 million on new offices and renovations in Northwest Arkansas between fall 2004 and the end of 2005. Plans call for 62 total offices in the Northwest Arkansas service area by December.

The organization has already applied for four new or relocated branches with the Arkansas State Banking Department this year: two in Oklahoma and two in the Arkansas. There have only been 10 such applications with ASBD so far this year.

Big Blue

Some competitors refer to Arvest only as “that big blue bank,” and they wonder if it’s too bloated with infrastructure.

Short, Brothers, Story and Smiley answer this criticism by saying the market is continuing to grow and Arvest wants to keep pace with it.

“Some people will say we’re building branches to compete, and I think we would say that we’re building branches because our markets are changing and growing,” Short said. “That’s the bottom line, you’ve got to be where the people are going.”

Smiley said a two-mile drive in heavy traffic, such as the type seen on Sunset Avenue in Springdale, could easily mean the company needs to build another branch, just to be convenient for customers.

“We’re a very people oriented, focused organization,” Smiley said. “It comes back to the same small-town, community bank mentality of relationships — being there for your customers.”

Deposits “are not a real good scorecard,” Short said about the company’s market share in the two-county market.

For one thing, the bank doesn’t “buy” deposits, and principals agree they don’t always have the best rates on certificates of deposit or mortgages.

For another thing, Short said Arvest Bank-Bentonville alone is worth more than $700 million when the company looks at its internal balance sheet.

“But we’re well over a billion dollars off balance sheet on the trust and investment side,” he said, referring to Arvest Asset Management, the brokerage and investment arm of Arvest.

Mel Parks, CEO of AAM, wouldn’t say how much in assets the department has. An insider estimate puts the number somewhere between $3 billion and $4 billion, but that could not be confirmed.

As for public securities trading, the Securities and Exchange Commission’s Web site says AAM has 158 accounts and manages $28.8 million.

For deposits, the downtown Bentonville location alone has more value than any local Arvest office with $393.4 million, according to the FDIC’s year-end figures. The downtown Fayetteville office is the company’s second largest locally in deposits with $257 million, followed by Rogers ($232.1 million) and downtown Springdale ($204.4 million).

“I’ve been with the company for 26 years, and we were one of the little guys when I started with the company,” Brothers said.

Short said there are so many new people in Northwest Arkansas, many of them don’t care what Arvest did 25 years ago. They just want to know how the bank can serve them now, so the company tries to carry that thought forward.

It’s actually in the forefront of the bank’s new marketing strategies (see story below).

Portfolio Pop

About 75 percent of Arvest’s loan portfolio is tied to real estate — both commercial and residential. The FDIC reports the bank had $5.1 billion in net loans at the close of 2004, with $3.8 billion of that amount in real estate loans. About $1.7 billion in year-end loans were for one- to four-family residential real estate loans and $1.3 billion in commercial real estate.

The Business Journal ranked Arvest as the No. 1 mortgage lender in Benton and Washington counties for calendar 2003 because it processed 9,867 mortgages worth $1.27 billion. The No. 2 bank — what was then called Arkansas National Bank N.A. of Bentonville and is now called ANB Financial N.A. — processed 1,755 loans worth $296 million, about 18 percent of Arvest’s count and about 23 percent of Arvest’s value.

By the Business Journal’s count, Arvest processed 10,792 mortgages worth a combined $1.18 billion in calendar 2002 and it recently announced it surpassed the $1 billion mark in 2004 as well.

The quartet is proud of the fact that it services 95 percent of those loans locally, even though many of them are sold on the secondary market.

Lawton to Little Rock

Most businesses report to a centralized parent company or management structure. Arvest bankers talk, however, as though they report to their communities.

Arvest collapsed its charters in 2002 into its oldest institution’s — the 1871 charter formerly held by McIlroy Bank & Trust Co. of Fayetteville, which is the oldest bank charter in Arkansas.

Area banks still operate autonomously of one another, with localized decision-making and local community involvement at its offices from Lawton, Okla., to Little Rock. The banks are, however, now branded as one, so customers aren’t confused by multiple identities.

For instance, Brothers said he alone initiates ATM installations in Rogers, not Sabin, who is a step further removed from the local market.

Smiley said, “I don’t know that we want to look or act like Wal-Mart, but certainly based on our ownership and how we got started, there is clearly a strong focus on driving down responsibility for the local markets … That’s something that we’ve always felt like was a real competitive advantage.

Sabin said his function is more to support the 15 different banks that make up the Arvest, than to rule over the presidents.

Culture Club

Smiley, Short, Brothers and Story point to their culture demonstrated by chairman and co-owner Jim Walton. They said he personifies what makes Arvest different.

“You have to acknowledge, it starts with ownership,” Short said. “It starts with Jim. You won’t find anyone who is more of a servant/leader than he is and that sets the tone for everybody else.”

The group said Jim Walton makes the rounds to all Arvest branches, asking the frontline employees what does and doesn’t work. They say he’s in every one of the branches at least once during the year.

“We’ve had some great years — if you look at our growth and our profits — but it always seems like ‘next year we’ve go to do this better, we’ve got to get better at this,'” Smiley said.

Each of the local presidents keeps his own bank’s success in check. They’re not smug about market share or assets. Instead, they keep a tone of humility like an organization that is still getting its sea legs and wants to grow.

Story said the way that will happen is through relationships.

“You do it one customer at a time,” he said.

A Day in the Life Of Rob Brothers

Rob Brothers’ street-level office overlooks the hustle and bustle of 2nd Street and Walnut Avenue in historic downtown Rogers. From there he keeps his finger on the pulse of the Rogers economy and oversees the day-to-day operations of his corner of Arvest Bank.

The staff at the Northwest Arkansas Business Journal wondered what a typical Arvest president’s day looked like. Brothers, agreed to share some of the details of his days during the week of March 7.

Brothers wrote, “I begin almost every day in the same way: 5:30 a.m. 20 to 30 minutes of Bible study and journaling, 6 a.m. scan morning newspaper and 7 a.m. to 7:30 a.m., arrive at the bank.”

The following was Brothers’ day for Tuesday March 8:

7:05 a.m. — arrive at office.

7:15 a.m. — place call to state Sen. Dave Bisbee, R-Rogers, regarding pending legislation.

7:30 a.m. — review daily Arkansas Bankers Association electronic newsletter and daily legislative update.

8:15 a.m. — attend new product sales training.

9 a.m. — talk with bank investment advisor about a customer’s needs.

9:30 a.m. — review/develop presentation for bank board meeting.

11 a.m. — attend weekly Northwest Arkansas Arvest president’s conference call.

11:30 a.m. — finish board material review.

12:45 p.m. — lunch.

2 p.m. — respond to e-mails and meet with a customer.

3 p.m. — meet with investment division manager to review production numbers and service levels.

4 p.m. — meet with loan manager to review loan pricing on $20 million credit. 6 p.m. — pick up spouse and attend National Conference for Community Justice dinner with other Arvest presidents.

During the week, Brothers also attended a weekly loan committee meeting, signed paperwork for a branch property purchase, talked with a customer about a radio station startup, reviewed security procedures, worked out at the gym and delivered a file to an attorney’s office to discuss the Benton County Amendment 59 lawsuit and his “role as a leader of Stand Up For Our Schools Committee.”

Arvest Campaign Stars Customers

Jason Kincy, advertising manager for Arvest Bank-Bentonville, said just because Arvest has a significant share of the market in Northwest Arkansas and in the state doesn’t mean it’s going to rest on its laurels. Kincy said the bank is pursuing the new-to-the-market customer segment, because it’s the group of people who know least about the bank’s past.

Arvest unveiled a new print marketing campaign at the beginning of the year and started running a new round of television commercials and radio spots beginning March 21.

Traditionally Arvest has steered away from product-driven advertising, focusing more on feel-good image campaigns like the “Priorities” campaign of the last couple of years. But Kincy said the bank is trying to mix the two concepts in its newest campaign.

The TV spots feature the bank’s blue logo on the silver and red neon pole sign. The end of each commercial ends with an actor saying, “I’m [so and so] and I’m a happy Arvest customer,” then the actor pulls on a chain hanging from the sign and turns the lights on.

The idea is to generate brand recognition with new people moving to the area, he said. They may not know who Arvest is, but they may realized they’ve seen three or four of the signs on their way to work, Kincy said.

The sign’s marquee allows for customized promotions to run in the print ads and on the five-and-a-half-foot tall in-store cutouts.

The more subtle messages in the TV ads, he said, is that the customers are helping turn the light on and the light has to be turned on because the banks are open so late.

Ad agency Sells/Clark of Little Rock developed the creative for the campaign. It is the fourth consecutive campaign the company has done for Arvest.