Deposits only part of banking story

by Paul Flemming

SBJ Staff

The Federal Deposit Insurance Corporation Dec. 10 released its summary of deposit data for 1998. The data for the Springfield area may have more footnotes than story.

Among the footnotes is the exact nature of the data. The FDIC annually releases insured deposit information for financial institutions in its system. Information for this story relates to figures as of June 30, 1998, for offices in Greene County. Comparisons are made to the same data as of June 30, 1997.

After that there is plenty to consider behind the numbers, executives at area banks said, both for individual banks, as well as the industry in general. What meaning can be derived from the amount of deposits and the market-share information based on those numbers is tempered by anomalies in reporting data and changes in the local bank market during the last 18 months.

The data show $196 million more insured deposits in Greene County, a 6.5 percent increase. That compares to a five-year national increase of 2.6 percent in insured deposits, according to David Kunze, president and chief executive officer of Signature Bank.

But in the larger market, bank deposits are an increasingly smaller piece of the pie. Steve Burch, senior banking executive with NationsBank in Springfield, said between 1987 and 1996, bank deposit accounts declined from 50 percent to 26 percent of investment dollars. At the same time, Burch said, mutual funds offered by brokerages increased from 18 percent to 37 percent of the total.

Though deposits are important, they are but one measure of a bank's performance and but one means for institutions to fund their lending activity. The figures for individual banks reveal the different strategies pursued and different measures for success.

Three new banks in Springfield, for instance, accounted for more than $119 million in 1998 deposits. The Bank and Village Bank both were not open for the period reported in the 1997 figures, and in the June 30, 1998, report had $49.1 million and $23.8 million in deposits, respectively. Signature Bank, just opened and showing $4 million in deposits in 1997, reported $50.3 million in deposits as of June 30 of this year.

"What it tells me is that the recent startup banks are acquiring deposits and probably other services at an accelerated rate," Kunze said. "As deposit share increases for one bank it decreases for another bank. Probably other products and services are growing or decreasing at a similar rate."

NationsBank had $518 million in FDIC-insured deposits in Greene County, down $79.2 million from 1997 when it was Boatmen's Bank. Burch said changes in the structure of the bank and products his company offers customers account for the change.

With the merger "we went through a transition, which admittedly may have something to do with that" decrease in deposits, Burch said.

But some deposits that originate in Springfield now show up on the balance sheets of other NationsBank branches, and products such as its money-manager accounts don't show up on FDIC data.

"We have internal reports that we watch that we feel (reflect) market share" more accurately than that represented by deposits, Burch said.

"Clearly, we lost them on free checking," said NationsBank's Steve Fox, though Burch said the bank is seeing customers who initially left because of free checking return for one of its array of products that replaced what was Boatmen's checking account. "Free isn't always free," Burch said.

Checking was one area that has accounted for significant deposit gains for Great Southern Bank.

"We did pick up a nice chunk of business, particularly in the checking account area," said Don Gibson, chief financial officer and chief operating officer for Great Southern.

Great Southern had $364.3 million in insured deposits as of June 30, up $96.1 million from 1997. Gibson said $42 million of that increase reflected an increase in brokered certificates of deposit the bank bought in the secondary market.

"We look at three sources to get money: deposits, brokered CDs and the Federal Home Loan Bank Board," Gibson said. "We look for what the cheapest place is to get money. A checking account is about the cheapest place we can get it ... especially if we can get people used to using the debit card and ATMs."

James Haseltine, president and CEO of Guaranty Federal Savings Bank, said his institution, too, made decisions based on the cheapest source of money, a strategy that affected its deposit totals. Guaranty Federal had $140.8 million in deposits in the 1998 report, down from its June 30, 1997, figure of $151.1 million.

Higher deposit rates in Springfield made other options more attractive, Haseltine said.

"You'd like to get the deposits from people in the community, but if the cost of that is so high that it affects your margins, we've decided to look elsewhere for that funding," Haseltine said. "We had other means of funding our loans, specifically from the Federal Home Loan Bank Board, at rates that were more attractive."

Gary Metzger, president of Liberty Bank, said deposit data, despite its limitations, is one way to judge performance.

"You always like to guage your success, or lack of success, against your peer group," Metzger said. He said Liberty's deposits, up $22.4 million according to the FDIC, don't reflect more than $10 million his bank had in depository accounts backed by securities rather than federal insurance.

Increased rates on deposits were one way new banks attracted business as they started up, putting upward pressure on deposit rates for all banks in the market.

"Price cutting has become almost a way of life with banks," Gibson said.

"If a new bank or any bank is willing to pay more on the CD side, they are able to win deposits from a competitor," said Frank Hilton, president and CEO of Citizens National Bank. When interest rates on deposits rise banks will "just pass and borrow that money cheaper, wholesale, from the FHLB. Why do you want to deal with 50 CD customers when you can go borrow the money with one swift action" and at a lower rate.

Rate is not the only consideration, however.

"Certainly, you don't want to alienate your depositors. There are a lot of other services that need to be cross-sold," Hilton said.

Fox said NationsBank's strategy is keyed on cross-selling. "Profits go up exponentially with accounts per household. The more products we can place with a customer, the more profitable we can be."

Though the FDIC deposit data reflect changes in the Greene County marketplace, the story behind the figures reveals the larger changes in the banking industry and the strategies followed by local institutions.

"We'll do just about any crazy thing we can do to make money," Gibson said.

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