Strong CD rates might be sign of weak bank

In July, Alpharetta-based Integrity Bank began offering investors what looked to be a good deal: a 4.5 percent interest rate on a 1-year CD.

At the time, the rate was more than a percentage point higher than the average for metro Atlanta banks and was the highest offered locally among 45 banks tracked by Bankrate.com. Just a month earlier, a 1-year certificate of deposit at Integrity fetched a 3.25 percent interest rate.

But the rate spike came amid mounting problems at the bank. Behind the scenes, Integrity was scrambling to find capital to shore up its increasingly shaky finances — a battle it ultimately lost.

Last week, federal and state regulators shut down the bank. Birmingham-based Regions Financial acquired Integrity’s nearly $1 billion in assets.

Regions’ officials said they will honor Integrity’s rates, even though Regions has been offering much lower rates. This week, a 1-year CD at Regions is drawing a 2.5 percent interest rate, according to Bankrate.com.

Integrity’s failure, one of the biggest in Georgia history, has sparked worries that more banks could follow suit as the industry struggles with a slumping economy and a rising tide of bad construction loans.

But it’s difficult to know which banks are in danger. The Federal Deposit Insurance Corp. doesn’t identify institutions on its problem bank list.

High CD rates, like those offered by Integrity, sometimes are an indication a bank is in trouble, said Bert Ely, a longtime bank industry consultant who has his own firm in Alexandria, Va.

“It’s like the old saying, if it’s too good to be true, it’s probably not true,” he said.

Ely cautioned against making any definitive judgments based on a bank’s CD rates, though he said they’re worth paying close attention to.

“It’s not a firm determination. It’s an indicator that maybe — I emphasize maybe — something is not right,” he said.

“It’s a red flag, so to speak.”

Greg McBride, a banking analyst with Bankrate.com, said the credit markets are so tight right now that many banks are raising their interest rates in an effort to raise capital. That doesn’t mean they are in trouble, he stressed.

“Banks of all shapes and sizes have a renewed thirst for consumer deposits,” McBride said.

Banks are “lending less than they were during the go-go days of the housing boom, but they have to shore up their capital. One way they are doing that is competing a little bit more on deposits.”