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September 30, 2004

Volume 1, Issue 3

The Banker’s Advocate
Text Box: regulators. Let me quickly give credit to the FDIC and the Federal Reserve. They have been most helpful and cooperative in working with the State Bank Department. Now, let me give a great deal of the credit for this improvement to the Arkansas State Bank Department. This past year, in Text Box: year saw a great turnaround in farm prices, and there was good farm production. Several East Arkansas banks indicated they didn’t have a single farmer to carry over debt into the next year. That is a very rare occurrence. The second reason we have fewer banks under an order is the excellent work being done by the Text Box: Banks overcome problems Text Box: cooperation with the Federal Reserve and by utilizing our own Self-Examination report, we developed a program to monitor the state banks of Arkansas. That is, we have an early warning system to alert us to banks that may be having some difficulties. The State Bank Department can communicate with these banks to ascertain the Text Box: See VIEW, Page 2 Text Box: Banks that have agreements with individual employees to provide retirement benefits often fund the benefit obligation with the proceeds from bank-owned life insurance, commonly referred to as “BOLI.” The use of BOLI by all commercial banks based in Arkansas increased sharply during the three years ending June 30, 2004. The balance of cash surrender value of life insurance reported by these banks exceeded Text Box: $204 million as of this date, compared with almost $49 million three years earlier, according to call report data. The largest commercial bank based in the state, Arvest Bank, Fayetteville, with almost $7.2 billion in total assets as of June 30, reports $21.4 million in cash surrender value of life insurance. That balance is larger than the

bank-wide assets reported by each of the four smallest commercial banks with a main office in Arkansas.

On February 11, 2004, the federal banking regulatory agencies issued the Interagency Advisory on Accounting for Deferred Compensation Agreements and Bank-Owned Life Insurance.  The agencies had found that many financial institutions were incorrectly accounting for their obligations under a

The number of Arkansas state-chartered banks under regulatory order is the lowest it has been in the last four or five years.  That is good news for all of us in this industry.  Let me give you some of the reasons why there are fewer banks under an order.

First is the improving economy.  A bank’s health and well-being are often a reflection of the local economy.  As you know, the farm economy in East Arkansas was in great distress the first few years of this decade.  This past

Economy, hard work lead to improvement attributed