Deposit Data Bucks Two-County Trends

Market share data released in November by the FDIC suggest the smell of bank deposits in Northwest Arkansas is wafting from Washington County.

But that may only be because CD rates stink.

The report showed deposits at 55 bank locations in Washington County grew by 7.55 percent from about $2.03 billion in June 2001 to $2.19 billion in June 2002. During the same period of time in Benton County, deposits at 65 bank offices grew 1.34 percent from $2.19 billion to $2.22 billion.

Things looked the same in the 2000-2001 Federal Deposit Insurance Corp. analysis when Washington County deposits were up 10.4 percent compared to a 4.5 percent rise in Benton County. If the trend continued, bank deposits in Washington County would exceed those of its northern neighbor by mid-2003.

Neither the Arvest Bank Group’s decision to collapse 14 charters into a single Fayetteville-based charter nor the Walton family’s $300 million matching gift to the University of Arkansas had any bearing on the FDIC’s study. The FDIC measures deposits at the branch level, and the UA donation is not yet physically in place.

So such a wealth shift would seem to buck every local economic trend that points to population and financial growth in Benton County exceeding that of Washington County. The Northwest Arkansas Regional Planning Commission, for instance, projects that in five years the population of Benton County will hit 199,321 and blow past Washington County at 192,185.

The world’s largest company, Wal-Mart Stores Inc., calls Benton County home, and with it trails thousands of high-net-worth executives and suppliers. Add in Bella Vista’s upscale retirement community, and it seems impossible that manufacturing-laden Washington County, with bohemian Fayetteville and blue-collar Springdale, is depositing more dinero.

Local investors say it comes down to one 17-letter word that bankers generally lump in with the foulest of the four-letter variety — disintermediation.

Interest rates at 40-year lows have driven high-net-worth individuals to invest in corporate bonds, which over the last year have yielded as much as 7 percent, and tax-free bonds, which earned about 5 percent. For many retirees living off their investment interest and investors with war chests of $5 million-$20 million, a CD return of 1-2 percent just doesn’t cut it.

Since the Gramm-Leach-Bliley Act of 1999 — which knocked down regulatory walls between financial sectors — brokerage firms and even insurance agencies have lured a lot of previously banked money with competitive rates on a variety of investment vehicles.

National brokerage firms don’t disclose their local assets, but the number of non bank-owned security brokers in the two-county area is up 30 percent from 165 in 2001 to 215 this year — with most of the newbies settling in Benton County.

Gary Head, president of Arvest Bank-Fayetteville, said a rush of new players to the market and low CD pricing have kept bank deposits from rising to what they could be. His bank’s deposits still grew $32 million on the year. (See chart.)

“I have to think that all the growth by the brokerages has played a role in the trend,” Head said. “There has been a lot of growth by the A.G. Edwards and Edward Jones guys up in Benton County, and they all have CD rates hanging on their signs, too.”

Rate Wars

Jeff Dunn, president and CEO of Bank of Arkansas in Fayetteville, led his bank to Washington County’s largest single-year deposit growth — a 33.6 percent leap from $99.1 million in 2001 to $132.5 million this year. He said Bank of Arkansas focused aggressively on deposit growth to help fund loan growth.

“We have been near the market leader for rates on premium accounts, ones with more than $25,000, in the 180 to 230 [basis points] range,” Dunn said. “A six-month CD right now is about 130 to 160, but when we offer a premium money market account that’s paying 190 to 230, people are gravitating toward that.

“Rates are so low that people don’t want to lock into a CD for one to two years.”

Aggressive rates on five-year CDs, which Bank of Arkansas has offered at 5.2 percent this year, and seven-year CDs that are callable by the bank after two (4.4 percent) have also brought in business.

Dunn said another explanation for the dearth of Benton County deposits is the rampant home building going on there. But to pinpoint what’s driving the trend, he said, a study that isolates and segment’s demographic groups would be needed.

“I suspect a lot of them have flushed their cash into homes,” Dunn said. “Especially the ones who are building themselves, you always put in more cash than you anticipate.”

Jim Taylor, president of First Security Bank in Northwest Arkansas, increased his bank’s Benton County deposits 37.5 percent to $83 million this year. And First Federal Bank of Arkansas showed a 31 percent jump to $50.1 million.

Taylor, whose bank entered the market in June of 1999 and boasts six locations with two more on the way, said Benton County became a point of focus in 2000 when First Security expanded there.

“We’re pleased that our checking and savings deposits are growing faster than our CDs,” Taylor said.

Macro Picture

In the six-county area — which takes in Benton, Washington, Carroll, Madison, Crawford and Sebastian counties — the FDIC reported $7.35 billion deposited at 220 bank offices. That figure was up 3 percent from $7.14 billion in 2001.

Statewide deposits grew comparably — 3.5 percent to $35.73 billion. Pulaski County is by far the state’s largest bank market with nearly $5.53 billion in deposits. But Benton and Washington counties are second and third, respectively.

Regions Bank, which has four Benton County branches and five in Sebastian County, saw the greatest deposit dips. Its deposits dropped 18.06 percent in Benton County and 16.27 percent in the Arkansas River Valley.

But Regions remains the third-largest bank in Sebastian County with $251.77 million in deposits, or 13.48 percent of that market, and the fourth-largest in Benton County with $117.86 million (4.28 percent of the market).

“It just depends on which side of the ledger you’re looking,” Vest said. “If you’re looking at deposits, you’re going to see some shrinkage. But if you look at the loan side you’ll see strong increases. We may have been less aggressive from a CD standpoint this year because of what rates have been like.

“But if you look at my 12-month net-loan growth through Nov. 1, it’s up 18 percent.”

Chuck Cook, president of Regions Bank in Little Rock, said his bank had been unwilling to buy deposits by paying above-market interest rates on certificates of deposit.

Its deposit runoff, he said, has been in the high interest rate category where he said competitors are “sacrificing profits for growth.”