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22 May, 2024
By Lauren Seay
Community banks must think creatively if they want to win deposits in the current higher-for-longer environment, panelists said at S&P Global Market Intelligence's Community Bankers Conference.
"Do not lean on rates. If that's all a bank has, they've got a lot of work to do because you're going to get your lunch eaten by credit unions and everyone else," said
Rate-forward strategies are largely fruitless for banks as marketing high-interest-rate accounts often only brings in a small number of new customers, said Greg Muenzen, director and head of treasury and balance sheet management at Curinos. Most of the customers that move into those higher-rate accounts are already with the bank, which only cannibalizes the existing deposit base and drives the institution's cost of funds up, Muenzen said.
Moreover, a bank is unlikely to develop into the primary relationship with those new customers, since they are usually rate-chasing, he added.
"We certainly need to be thinking long term about how to win, in particular, that primary relationship because it's difficult to start with rate and then grow that to primary," he said.
Stellar Bancorp Inc. ranked third in Market Intelligence's ranking of the top public banks in 2023 partly because it prefers wholesale funding over "chasing the hot money" with rate-chasing customers,
To win deposits in the current environment, community banks need to employ unique strategies and think outside the rate box, panelists said.
Customers often value several factors, such as convenience or security of their deposits, over rates, Muenzen said. Brown said she has seen customers sacrifice up to 100 basis points on deposit rates in favor of putting their cash in institutions that better meet their needs or values.
Incentivizing employees
Panelists said incentives for employees are imperative to deposit-gathering.
"Every one of you needs to prioritize your deposit gatherers as you do your lenders," Brown said.
Incentivizing employees through monetary benefits, such as offering a bonus of 5 basis points on the non-interest-bearing deposits they bring in, can be a lucrative strategy, Brown said. Banks should also look at other incentives outside of money, as different individuals are motivated by different benefits such as work-life flexibility or more time off, Brown added.
Banks can also play to their employees' interests. For example, if a deposit gatherer is passionate about animals, the bank should encourage the employee to go after local animal shelters and anything else that touches that sector, such as food or collar manufacturers, Brown said.
"Anything that touches that will get them excited about finding deposits," she said. "How are we stoking the fire to make sure deposits are seen as important as loans?"
Market factors
The intensity of deposit competition and banks' ability to win customers often simply comes down to market. Midwest banks are seeing less pressure than banks on both the east and west coasts, Brown said.
West Virginia-based City Holding Co., which ranked second in Market Intelligence's ranking of top-performing community banks with between $3 billion and $10 billion in assets, attributed its deposit success and low cost of funds, at just 1.42% at March 31, to its rural markets.
The bank is in markets where large competitors like JPMorgan Chase & Co. are not interested but is large enough to have better offerings and technology than the smaller banks in its market, President and CEO Skip Hageboeck said during a panel May 20.
"Deposits are the golden goose," Hageboeck said. "We live and die by deposit-taking."
Banks operating in markets disrupted by M&A are also better-positioned to win deposits. Lubbock, Texas-based South Plains Financial Inc. has found opportunities to score both talent and customers from mergers in its footprint.
"Most problematic mergers or acquisitions have given us some opportunities because not all the employees were happy and customers weren't happy either," Chairman and CEO Curtis Griffith said. The company capitalizes on merger fallout to scoop up entire relationships, not just partial relationships, he added.
In another market-dependent strategy, Brown suggested banks should play to the unique aspects of their markets to find niche deposit-gathering opportunities. She pointed to an example of a Texas community bank that was seeking advice for deposit gathering, where she asked the
"Why aren't you the bank for rodeos? Why don't you make an entire program of gathering deposits around every industry that touches rodeos in Fort Worth, Texas?" she said. "They've now implemented some of these strategies and are bringing in non-interest-bearing deposits in a way that they've never done before."