Brokered Deposits Skew Market Data

(For a look at brokered banks in Washington and Benton Counties, click here.)

Despite a lackluster showing in Benton and Washington counties, Fayetteville-chartered Arvest Bank managed to grow its statewide deposits by 4.64 percent and become the state’s largest bank.

According to data released on Oct. 11 by the Federal Deposit Insurance Corp., as of June 30, Arvest had $4.457 billion in Arkansas deposits, about 9.44 percent of statewide deposits of just more than $47.2 billion.

The bank is still No. 1 in market share for the two-county area, though its deposit growth was a mere 1.71 percent in each county, well behind deposit growth in both counties (an inflated 28 percent in Benton County and 6 percent in Washington County).

Arvest’s market share has slipped to 34 percent in Benton County from 50 percent in 2004. In Washington County, it now controls 32 percent of the deposits versus 35 percent in 2004.

Total deposits in Benton and Washington counties grew by 18 percent to $8.46 billion as of June 30, compared to $7.1 billion a year earlier.

The six-county region, which includes Carroll, Crawford, Madison and Sebastian counties, grew by 13.7 percent to $12 billion versus $10.55 billion a year earlier. 

Deposits for the six-county region grew by 15.3 percent for the 2005-06 period and by 11.6 percent for the 2004-05 period.

The bottom line to deposit market share is this: new and new-to-the market banks are stunting the growth of the larger, more established banks in Northwest Arkansas. In some cases, the established banks are losing ground.

And one bank, ANB Financial NA of Bentonville, skews the deposit market share for the entire region.

ANB Breakdown

ANB Financial’s Benton County deposits grew nearly 120 percent from $769 million as of June 30, 2006, to $1.69 billion this year.

But the majority of those deposits – $1.47 billion – are brokered deposits, which are large pools of cash placed by brokers seeking the highest interest rates.

The bank’s retail or core deposits garnered from within the Benton County market is about $225 million, up about 45 percent from core deposits a year earlier.

Core deposits only represent about 13 percent of ANB’s current deposit portfolio.

During the same 12-month period, ANB’s assets increased from $1.17 billion to almost $1.95 billion.

“Whatever we’ve grown in loans, we’ve always funded in brokered deposits,” said Dan Dykema, chairman and CEO of ANB.

Dykema said “buying” brokered deposits is a perfectly acceptable way for a bank to fund its growth, though the margin earned on the deposits is thinner than it would be by generating them organically.

“It depends on how your assets are structured,” he said.

“There’s nothing wrong with brokered deposits as long as there’s not an unreasonable reliance on them,” said Randy Dennis, a partner with DD&F Consulting Group in Little Rock. The firm advises banks on mergers and acquisitions, performance and risk management.

“A lot of times brokered deposits may be cheaper than the local deposits,” Dennis said. That is frequently the case in Northwest Arkansas, where competition has become fierce.

ANB’s profitability has not matched its stratospheric growth. Net income was just over $11 million for the first half of 2007, down from $12.7 million last year, and the bank charged off more than $7 million in bad loans.

“I’d say that ANB is consistently in the top two or three across the board on different deposit products,” said ANB marketing director Nat Bothwell on the bank’s deposit interest rates. “From one week to the next, you’ll generally find us at the top of one or more of those products. And that’s an effort on our part to bring in more core deposits, which are our day-to-day customers, your traditional bank customers just down the street.”

In addition to paying some of the highest interest rates in Northwest Arkansas, ANB has waived a number of fees such as stop-payment fees and wire-transfer fees in order to attract more core deposits, Bothwell said.

That has cost the bank more than $1 million, he said.

ANB closed a Fayetteville branch in 2007, citing a problem with its landlord, but Dykema shrugged off its effect on the bank’s deposits.

“I think we only had about 8 million bucks at that branch and most of it went over to another [branch],” he said.

Two-County Tale

If ANB’s brokered deposits are omitted from the totals, the Benton County market grew at a more realistic rate of 7.4 percent, not an eye-popping 28 percent, and the six-county region grew at about 6 percent.

The total number of branches in Benton County grew from 88 in 2006 to 100 as of June 30, a 13 percent increase.

Branch growth was slower in Washington County – only five full service offices were opened in that period.

In both counties, established banks – notably First Security Bank, Bank of America, Regions Bank and First Western Bank – lost deposit ground. Even ANB lost nearly 4 percent of its Washington County deposits.

The losses are mostly to new and new-to-the-market banks – notably Signature Bank of Arkansas, Legacy National Bank, Pinnacle Bank, Parkway Bank and Liberty Bank of Arkansas.

“With the entry of new banks into the market and the aggressive rates they’ve been paying, they’ve taken part of our market share,” said Jerry Vest, president and CEO of Regions’ Northwest Arkansas division.

Though Regions is a public bank based in Birmingham, Ala., Vest said it’s his team’s discretion to compete with rates, “but we try to be fair and stay with the market.”

Jim Taylor, Northwest Arkansas division president for First Security bank said the new and new-to-the-market banks have heated up the competition.

“I think we’ve got some people out there with some very aggressive rates,” he said.

Taylor said FSB owns lots for another “three or four” branches, and may build one early next year.

Donny Story, president of Arvest Bank-Fayetteville, said rates in Northwest Arkansas are more aggressive than in national markets, but overall, the bank keeps focusing on serving its customers and providing convenient locations.

Rob Brothers, president of Arvest Bank-Rogers, said that if brokered deposits are factored out, his bank grew deposits about 6 percent.

Danny Lewis, president of Signature Bank of Arkansas’ Bentonville office, attributed the bank’s 111 percent Benton County growth to employees with long-term relationships.

“It goes back to what we’re all about – word of mouth and referrals,” he said, adding, “we have a lot of investors and look to them for deposits.”

Six County Signals

About 70 percent of Northwest Arkansas’ deposits are in Benton and Washington counties. But there are about $2.8 billion to be had in Crawford and Sebastian counties, which collectively grew about 5 percent from 2006 to 2007.

In Sebastian County in particular, Arvest has made significant deposit inroads, growing about 12.5 percent, slowly chipping away at First National Bank of Fort Smith and BancorpSouth Bank, the two heavies in that county.

But Liberty Bank of Arkansas has entered the Fort Smith/Van Buren market full force and appears to be attracting depositors, though the numbers will be inflated until a year or two passes.

Sam T. Sicard, vice president of FNB of Fort Smith, said brokered deposits aren’t really part of the equation in that market.

“We’ve been fortunate to retain and grow with our long time customers,” Sicard said. “We’ve increased market share each of the last four years.”

In terms of new competitors, Sicard said the bank will stand its ground.

“We respect our competition,” he said. “We’ve got a solid reputation in the community, and we think we’ll be able to build and grow from that. Competition does make you better.”

(Editor of Arkansas Business, Gwen Mortiz, and Associate Editor Robert Bell contributed to this report.)