Deposits Reflect Broker/Bank Split (Jeff Hankins Publisher’s Note)

Statistics that we recently published regarding the latest market share data for bank deposits across the state are worth closer evaluation and comment.

The competition among financial institutions for our assets and loans in Arkansas remains intense in the aftermath of the consolidation binge of the ’90s.

Unfortunately, the annual report on deposits provided by the Federal Deposit Insurance Corp. is the only data available to the public regarding market share. It doesn’t give us the entire picture because brokerage firm assets are excluded.

When these numbers are released and reporters seek comment and evaluation, the spin from bankers is comparable to what we hear from political operatives after a presidential debate. Each has a strategy, methodology, calculation, interpretation or comparison to explain that puts his bank in the most favorable light. They generally do a good job making their cases.

A bank’s specific situation can greatly impact comparisons. National and regional banks like Bank of America, Regions Bank and U.S. Bank aren’t going to fare well in deposit statistics because they don’t have to “buy” assets with high interest rates. While there’s no disputing they all lost market share and customers in the aftermath of their Arkansas acquisitions, that doesn’t mean they aren’t profitable or highly competitive in the loan market.

The de novo state banks show extraordinary growth in deposits because, well, they started with nothing. To fund moneymaking loans, they have to pay a premium interest rate on deposits. They also benefit from customers who leave the banks based out of state and a level of aggressiveness that larger, established companies don’t maintain.

Brokerage Firm Impact

In recent years, brokerage firms have become substantially bigger players as homes for Arkansans’ cash assets with their money market fund offerings.

The Northwest Arkansas Business Journal noted in its story on bank deposits that the number of securities brokers not affiliated with banks jumped 30 percent last year in Benton and Washington counties. This could help explain why bank deposits in thriving Benton County grew only 1.34 percent last year compared with real growth in Pulaski County of 4.6 percent.

It’s not a totally rosy picture for the brokerage firms business, which generally has suffered from the extended bear market. Fee-only asset management services were fine when returns exceeded the fee, but now you have investors abandoning them in favor of safe, non-securities investments with small returns and no fees. Plus, banks remain much more aggressive with marketing efforts and are more likely to land deposits being withheld from the stock market.

When I look at the list of Arkansas’ 25 largest banks by deposits, it’s Summit Bank of Arkadelphia that impresses me most. Chairman and CEO Ross Whipple, after selling a bank holding company to what is now U.S. Bank for $120 million, took the single state charter he kept and has built up a $366 million deposit base in just three years.

Simmons First National Corp., Bank of the Ozarks, Superior Federal Bank and First Security Bancorp have continued to establish themselves as statewide local operations with widespread growth. Arvest Bank Group is focusing on the largest markets in northwest and central Arkansas, and its relatively small growth in market share statewide doesn’t reflect what is likely enormous growth in its asset management operations.

In Pulaski County, Twin City Bank is the up-and-comer to watch in addition to Arvest. CEO Bob Birch’s expansion in Little Rock and recruitment of key business leaders like Frank Hickingbotham, Johnny Heflin and Bob Shell as board members make TCB formidable.

The complete deposit share breakdown is available online at ArkansasBusiness.com.

A People Profession

One other element of the competition among financial institutions is the movement of key executives, loan officers and brokers. No matter how advanced the technology and services become, it’s still a people and relationship business. Top-performing bankers and brokers are being recruited from one another, and you have to wonder whether customers will keep following the movement and enduring the hassles of account changes.