The fragile balance between a bank's ability to gather deposits. and its ability to sell investments is coming into sharp focus at a community bank in Nebraska.

Adams Bank and Trust, a $151 million-asset bank in Ogallulu, is waging an aggressive campaign for deposits - and succeeding nicely.

But as the bank's deposits boom, sales of mutual funds and annuities are clearly getting pinched. Sales of these products are running at only half the level of a year ago, bank officials say.

Reverse Migration

Many community banks have begun offering mutual funds in just the past few years, when interest rates were declining and depositors were eager to find alternatives to certificates of deposit.

Now that interest rates are climbing again, banks such as Adams are finding that some mutual fund customers are migrating back to deposits.

The bank is wooing depositors because demand for loans has surged, outstripping lending resources, according to James T. Prange, a senior vice president.

Adams Bank, located amid farming country in a town of 5,100 residents, is flooding western Nebraska with print and radio ads promoting its high-yielding CDs.

Focus on 7-Month CD

Rates on its seven-month CD, the centerpiece of the campaign, have been running as high as 5.56%.

Customers would have to travel to a bank in nearby Boulder, Colo., and lock money in for two years to get a comparable yield, Mr. Prange said.

He declined to say how much money the bank had drawn in with its high-rate CDs, but said than 60% of the deposits were coming from outside the bank's traditional customer base.

Another chunk of the deposit business is coming from customers who have grown disenchanted with mutual funds, Mr. Prange said. As customers become uneasy with the ups and downs of the stock and bond markets, they are gravitating toward insured investments, he explained.

Eye on Fee Income

The bank, which has sold mutual funds and annuities since 1987 through a relationship with Seattle-based GNA Corp., likes the fee income provided by investment sales and is eyeing ways to keep it flowing.

With the CD promotion in full bloom, the bank is now turning its eyes toward marketing annuities as a way to push up fee income for the bank, Mr. Prange said.

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