New Banks Seize Share of Deposits

Despite gaining bank wide deposits and market share at the state level, Arvest Bank has lost market share in its own backyard.
The Bentonville-based bank had 51.5 percent of the deposit market share in Benton County in 2003. That number was down to 43.8 percent as of June 30, according to data released by the Federal Deposit Insurance Corp. in mid-October.
The value of Arvest’s deposits stayed on track, though. The bank increased Benton County deposits by 15.8 percent (to $1.7 billion) and Washington County deposits by nearly 9 percent (to $1.1 billion).
Arvest is still No. 1 in the six-county region that makes up Northwest Arkansas (Benton, Carroll, Crawford, Madison, Sebastian and Washington), with an overall market share of 31.1 percent, or about $3.2 billion of the region’s $10.5 billion in deposits.
The bank is No. 2 at the state level in terms of deposits, behind Regions Bank of Birmingham, Ala.
Rob Brothers, president of Arvest Bank-Rogers, said there’s no doubt that the new and new-to-the-market banks have nibbled away at Arvest’s share. After all, if more people are sitting at the table, the pie gets sliced differently.
In 2004 there were 15 different banks in Benton County with 68 offices. As of June 30, there were 21 banks and 88 offices.
In Washington County, there were 15 different banks and 81 offices in 2004. It’s now 20 and 91, respectively.
In Washington County, two of the “new” banks, Fayetteville’s Signature National Bank of Arkansas and Legacy National Bank of Springdale, had significant increases in deposits.
Signature jumped 282 percent and Legacy was up 246 percent — both with only two branches. However, both of those numbers come with a caveat: brokered deposits.
Buying Money
Another factor in the deposit market share breakdown — mostly in Benton and Washington counties — are out-of-market deposits.
Brokered deposits, or deposits purchased from out-of-market banks and not generated by core retail customers, help fund in-market and other lending.
Rogers-based ANB Financial N.A. buys deposits to fund its lending activity. The bank was the No. 2 mortgage lender in the market in 2005 (p. 16) and has loan production offices in Utah and Wyoming.
The Utah office reportedly closed $375 million in loans in 2005. And ANB purchased two LPOs in central Arkansas in July.
The bank is also No. 2 in Benton County with $769.5 million in deposits, up 70 percent from a year earlier.
But about $615.1 million of those deposits are brokered, according to the FDIC.
Of Legacy’s $133.7 million in deposits, about $40.4 million, or 30 percent, were brokered.
For Signature, the difference is greater. The bank had $157.6 million in deposits but $100.8 million, or about 63 percent, were brokered.
But Gary Head, chairman and CEO of Signature’s holding company, White River Bancshares said it’s common practice.
“Our market is a net borrower and not a net depositor,” he said. “As long as I’m buying it cheaper than I’m loaning it, why wouldn’t I do that?”
The bank has to make money on the spread between loaned and borrowed rates.
Brothers echoed that the practice is perfectly acceptable.
“Every bank employs that as a strategy,” he said. “If you need money, you get on the Internet and buy money.”
It may be common, but it’s much different than years ago, Brothers said, when a bank had to garner deposits close to home, mostly with retail customers.
Of Arvest’s $7.2 billion in deposits, $6.8 billion were retail deposits and about $29.4 million, or about 4 percent, were brokered.
Growing Counties
Deposits in the six-county market rose 15.3 percent from June 30, 2005 to June 30 this year, breaking the $10 billion mark.
The combined two-county market was up 18 percent to $7.1 billion from $6 billion in 2005.
Benton County was the fastest-growing county in the state with a 24 percent gain in total deposits, and Washington County was No. 5 in the state with a near 16 percent gain.
Total bank offices in the two-county market rose by 20, and in the six-county by 24.
Both Little Rock based banks Metropolitan National Bank and Bank of the Ozarks have opened more offices since June 30, and will have more opening before next June.
Since any deposits those institutions may “buy” will show up at the central Arkansas headquarters, it will be interesting to watch how much both banks will take out of the Northwest Arkansas market share next year.
But market share is only one indicator of a bank’s performance.
Brothers said Arvest looks closer at return on equity. Other banks measure up by return on assets and others by efficiency ratios.
Both Brothers and Head said they continue to go after new customers as they move into the market.
There are more than 1,000 people a month added to the region, according to studies put out by the Walton College of Business at the University of Arkansas.
Head said traditionally a new bank takes three to five years to turn a profit, but he hopes to start making money beginning in early 2007.
Don Gibson, president and CEO of Legacy, said his bank’s community approach has gone over well with depositors.
“We have a cadre of people who are known locally,” he said.