Some banks are poised to generate substantial deposit growth after capitalizing on the recent failures by snatching up talent.
The failures of three regional banks between March and May has both employees and customers from those institutions looking for new homes. Some banks have already pounced on that opportunity by hiring teams that managed millions, and sometimes billions, in deposits from those failed institutions in hopes that the hires will bring in a portion of those deposits.
The opportunity comes at a unique time when interest rates have surged at the fastest rate in 40 years, funding pressures have intensified and deposit competition has escalated. Those headwinds have banks scrambling to hold on to their deposits and bring in new deposits in order to reduce pressure on their net interest margins. Doubling down on hiring efforts is one way to mitigate those headwinds, and the recent failures have amplified that strategy.
"Everyone is trying to get a leg up in the origination of low-cost deposits," said Brian Love, the head of banking and fintech at Travillian, a community bank executive recruitment company.
'Feeding frenzy'
Immediately after the failures, the industry began a "feeding frenzy" on employees of failed banks, Love said. At least six banks spoke to Travillian about deposit groups in the two weeks after Silicon Valley Bank's failure, Love said.
Hauppauge, NY-based Dime Community Bancshares Inc. hired seven deposit-focused teams totaling 18 people from multiple failed banks that managed a total of $2.5 billion in deposits at their peak, according to President and COO Stu Lubow.
So far, the new hires are bringing back deposits that left their portfolios after March at a rate of about 50%, Lubow said in an interview. The new teams are "very confident" that they can move most of their book to Dime and grow back much of what left after March, the COO said.
"If they are even remotely successful, it's going to be very positive for both them and for the bank," Lubow said. "We're very encouraged in terms of what we've seen so far."
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Dime's presence in the New York market positioned it well to "be aggressive and enhance their franchise" by taking advantage of the Signature Bank and First Republic Bank failures, Raymond James analyst Steve Moss said in an interview. Capturing just half of the potential $2.5 billion would be "really powerful" for Dime, given the company's size at $13.84 billion, the analyst said.
About 60% of the deposits the new employees managed were in demand deposit accounts (DDAs), compared to 34% in DDAs at Dime now, Lubow said.
That presents an opportunity for Dime to capture low-cost deposits, experts said.
"Signature Bank had a ton of relationships rooted in their private banking model," Love said. "These are really chunky, multimillion-dollar DDA accounts, checking accounts, some of them very low cost of funds."
A bank on the opposite coast has taken advantage of the disruption in California, where Silicon Valley Bank and First Republic Bank were headquartered. With the talent that Five Star Bancorp has scooped up, the company has the chance to bring in between $250 million to $300 million in deposits, President and CEO James Beckwith said in an interview.
"We want to be first in and really, how should I say, exploit the situation, in the positive sense of the word," Beckwith said.
Rancho Cordova, Calif.-based Five Star was already focused on deposit gathering prior to the failures, and the new hires bolster that by bringing more of a commercial and industrial focus to the company's deposit-gathering strategy, D.A. Davidson analyst Gary Tenner said in an interview.
"They're likely to be able to have deposits that can almost be a net funding source, if you will, for the overall institution," Tenner said.
Long runway ahead
Because the three failed institutions were so large, banks may be able to hire displaced talent for as long as two years, Raymond James' Moss said.
"There's a lot of runway, frankly," Moss added.
Tenner agreed, saying team lift-outs will continue, particularly in San Francisco and New York, since failed bank employees are now effectively free agents.
For Dime and Five Star, their recent hires are the first salvo in a larger hiring spree aimed at deposit specialists from failed banks, the executives from both institutions told S&P Global Market Intelligence.
Particularly for Five Star, its new hires represent a relatively small piece of San Francisco's deposit market, leaving a lot of opportunity for further deposit-gathering efforts with additional hires, Tenner said.
Separately, Dime spoke with additional failed bank teams that transitioned over to JPMorgan Chase & Co. or New York Community Bancorp Inc. after their respective acquisitions of failed bank assets, Lubow said. Those teams are waiting to see how things work out with their new employers, the executive said.
"I would not be surprised if there are others that do come on board," Lubow said.
Once a bank is able to bring on one team from another bank, winning more talent becomes easier, according to Love.
"Attracting lightning rods is paramount to a recruiting strategy," Love said. "Teams want to follow their leaders, so they come along with it. If a lift-out can be executed, it's a great coup."
Broader hiring trends
Hiring teams from failed banks is one part of a larger trend of banks looking to dodge deposit hurdles through hiring. Bringing in new deposit talent can either coax additional deposits out of existing customers or attract new clients from the bank the new hires came from.
According to an analysis by Market Intelligence, 18 US banks posted at least a 50% increase in full-time employees quarter over quarter.
One of those banks, Pawhuska, Okla.-based, Blue Sky Bank reported a 59.4% quarter-over-quarter increase in full-time employees and a 118.6% increase year over year, according to Market Intelligence data. Blue Sky's first-quarter increase in full-time employees was the 12th-largest change in full-time employees among US banks.
Much of that year-over-year growth came via multiple bank acquisitions the bank's parent company closed in 2022. Now Blue Sky is working on expanding its treasury management team to grow its deposit base through existing clients, Chairman and CEO Brian Schneider said in an interview.
"We began strongly investing in a commercial product that really helps our clients maximize their cash flows in the form of treasury management," Schneider said. "We now have extremely experienced leadership, and we've expanded that team."
