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Banks vie for trust accounts.

Arkansas Market Reaches $12 Billion and Counting
Gross Income From Arkansas Trust Operations

 1995 1994 1993

First Commercial $11.52 million $10.34 million $8.83
million
Boatmen's 11.08 million 11.37 million 9.95
million
Arvest 3.10 million 2.98 million 2.77
million
Simmons 1.79 million 1.75 million 1.79
million
Mercantile 0.80 million 0.82 million 0.69
million

Source: First Commercial Trust Co.'s marketing survey.


Historically, trust departments often have been money-losing propositions that banks endured as a service for wealthy clients. But last year, administrative fees generated more than $28 million for the five largest bank trust operations in Arkansas, according to a bank marketing survey.

That change came thanks to the loosening of regulatory restrictions and increased popularity of trusts. The trust departments that once functioned as stand-alone operations now are integrated profit centers in a bank's overall operations.

Profitability also has prompted increased competition for smaller, less profitable accounts and caused some banks to start up trust operations.

"Trusts have traditionally been a pretty sleepy business," says Mike Dowling, president of Boatmen's Trust Co. in Arkansas. "But in the last five years there's been a real growth in trusts as part of estate planning."

The Boatmen's trust operation is the second largest in the state but ranks as the most efficient in terms of profitability, as measured by an income-per-employee figure of $120,000.

Boatmen's administers 6,000 Arkansas trusts totaling $2.1 billion in assets. During 1995, the mix of personal, pension and other trusts generated income of $11 million.

That income stream nearly equaled the $11.5 million total in 1995 for First Commercial Trust, which managed twice the assets of Boatmen's. The figures for all central Arkansas banks were calculated for a marketing survey by First Commercial Trust.

However, the mix of accounts First Commercial manages was much heavier in corporate trusts, $4.5 billion compared with $960 million for Boatmen's.

"We are starting to gear up in the corporate trust business because there's not a lot of other people who will do this," says Mike O'Brien, president and chief executive officer of First Commercial Trust Co.

NationsBank Corp. of Charlotte, N.C., which is on track to merge with Boatmen's early next month, sold its corporate trust portfolio to Bank of New York about five years ago. However, Nations could re-enter the market, given Boatmen's significant involvement in corporate trusts. Arvest also abandoned the corporate trust business after selling its portfolio to First Commercial.

Corporate trusts are a low-margin portion of the overall trust market. Administering bond issues and the like requires a large dollar volume to make the effort worthwhile.

Overall, First Commercial Trust is home to 5,000 accounts with an asset market value of $7.1 billion. About 60 percent of those funds are personal trusts, set up for people who can't or don't want to manage assets for themselves.

The reasons for setting up personal trust accounts range from estate planning to guardianships. Trusts are viewed as a traditional move to help minimize the bite from estate taxes while taking advantage of a bank's investment expertise to build wealth.

Hot Competition

Research by First Commercial Trust indicates the average size of a personal trust account in Arkansas is about $200,000. This market is drawing special competitive fire as trust departments vie for the entry-level trust customers.

Little Rock's Pulaski Bank & Trust instituted a satisfaction-guaranteed program on any of its trust-related accounts in early 1996. The bank offers a money-back pledge of sorts anytime during the first six months an account is open.

If a customer is dissatisfied with any aspect of service, Pulaski Bank will refund any fees and return the assets. The guarantee doesn't cover any losses associated with a trust investment, which would be an even bolder marketing statement.

"We think there's a good opportunity for Pulaski Bank in the market," says Bob Plummer, the bank's senior vice president overseeing trust operations. "We have picked up some new accounts, primarily from Boatmen's but some from First Commercial."

Pulaski Bank & Trust administers about 300 trust accounts containing assets of $100 million. It is making an aggressive push to land trust accounts of all sizes with a promise to beat any competitor's prices.
Income Per Trust Company Employee
(Figures in thousands)

 '95 '94 '93

Boatmen's $120 $91 $76
First Commercial 97 93 87
Mercantile 80 69 53
Arvest 76 81 75
Simmons 54 53 60


"We believe we're at the lowest point on the fee totem pole, but if we're not, we're willing to go lower," says Plummer, a former SVP with Arrest Trust Co. in Fayetteville. "We will be the low-cost provider in the Little Rock market. The reason we can do that is we're smaller and our overhead is less."

The bank's minimum annual fee of $960 for small trusts is aggressive. The focus of its trust business is threefold: personal, money management and employee-benefit services.

Head-to-Head Battle

Metropolitan National Bank, which started its trust department in March 1995, is competing head-to-head with Pulaski in openly courting small accounts with an aggressive pricing structure.

"Typically, the larger trust companies want to deal with the larger accounts," says Mike McBryde, the bank's senior vice president overseeing trust operations. "Our fees are very competitive and take into account the type of trust we're dealing with."

The fee structure on personal trusts at Metropolitan is based on a sliding scale of 0.8 percent on the first $500,000, 0.7 percent on next $250,000, 0.6 percent on next $250,000 and 0.3 percent on anything above $1 million.

"I'm of the school that asset size isn't the prime factor for handling a customer's trust business," says McBryde, a 25-year veteran of the trust business. "It's relationship driven."

McBryde left Worthen Banking Corp.'s trust operations during the Boatmen's acquisition and joined Metropolitan to build its trust operations from scratch. In 21 months, Metropolitan has attracted about 100 accounts and $22 million in trust assets.

Taking All Trusts

Boatmen's has no prohibition against trusts of any size, but its fee schedule is slightly higher for smaller trusts.
Annual Management Fees for Personal Trusts

Metropolitan 0.8 percent on $500,000 or less
Pulaski Bank 0.9 percent on $300,000 or less
First Commercial 0.95 on $500,000 or less
Boatmen's 1 percent on $200,000 or less
Mercantile 1 percent on $500,000 or less


"We have minimum fees, and that does restrict the size of a trust," Dowling says, adding that the fee schedule under Boatmen's is the same as it was under Worthen.

Boatmen's sliding scale starts with a $2,000 minimum annual fee for fully managed trusts with assets of $200,000 or less. This self-limiting structure discourages the formation of trusts below $200,000.

Yet, even this low end of the fee schedule isn't written in stone. The figures are subject to discounting depending on the extent of a customer's relationship with the bank.

Fees are subject to negotiation and only become an issue at the lower end of the market, which is defined as anything under $100,000.

"It's not that we don't want the business, but if the client wants to open an account below $200,000, we ask ourselves is this really the right product or is this a fee we need to negotiate?" Dowling says.

In 1995, Boatmen's consolidated four trust offices. The Russellville, Conway and Batesville trust operations were relocated to Little Rock, and the Camden trust operations were moved to Pine Bluff.

"We obviously lost some business because some customers want to deal with a local office," Dowling says. "But most customers don't care where the office is as long as they're getting the level of service they want."

While most contact with a trust customer is by phone, Boatmen's maintains personal contact with clients as well. Each trust account has an administrative officer who oversees the day-to-day bookkeeping chores while an investment portfolio manager supervises asset management.

Nationally, Boatmen's ranks as the 14th-largest trust organization. Combined with Nations, which has an even larger trust operation, the resulting trust merger will have about $220 billion in assets - easily within the top five in the nation.

What changes will be wrought by the pending merger?

"I wish I knew, too," Dowling says. "I'd be happy to talk with you after Jan. 6 [when the Boatmen's-Nations merger is scheduled to be completed]. I do know it will be good for our customers. Nations is known for their customer service. They have technology that nobody else here in Arkansas has."

Nations employs a service center concept for trust customers, who can call a 1-800 number and get answers to practically any question concerning their accounts.

Through the wonders of technology, trust documents are scanned into a computer and can be called up at the service center to answer even the most technical questions.

The system is powered by very expensive software that even competitors concede gives customers an immediate response to mundane and complex inquiries alike.

Fighting the Label

Like Boatmen's, North Little Rock's Mercantile Bank of Arkansas is battling the big, bad, out-of-state label that in-state competitors are trying to pin on it.

"Even though we're based in St. Louis, the decisions are made in Arkansas," says Jim Crawford, senior vice president of trust operations at North Little Rock's Mercantile Bank of Arkansas. "We don't have to go out of state."

Mercantile is employing a mix of personal service and a 1-800 service to save money for customers. Crawford is quick to add that the toll-free call comes to North Little Rock and is merely a service for long-distance inquiries.

"Face-to-face contact is important to a lot of trust customers," Crawford says. "A lot of older people aren't enamored by technology that younger people often embrace. We work with customers of all sizes."

The trust operation of Mercantile Bancorporation is among the 100 largest in the nation. Its Arkansas trust portfolio is made up of about 500 accounts and $200 million in assets. The management fees for personal trusts at Mercantile start at 1 percent for the first $500,000.
COPYRIGHT 1996 Journal Publishing, Inc.
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Copyright 1996 Gale, Cengage Learning. All rights reserved.

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Author:Waldon, George
Publication:Arkansas Business
Date:Dec 16, 1996
Words:1704
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