Insights Janney - Flipbook - Page 2
DEPOSIT GROWTH
INSIGHTS
K EY ME TR ICS
49%
49% of bank leaders said they
paid incentives to bankers for
growing deposit relationships.
Source: Bank Director’s 2024
Compensat ion & Talent Survey
79%
Banks face a challenging environment for deposit growth, despite a recent cut to
the federal funds rate and expectations that rates will lower further by year-end.
To maintain their profitability, banks are getting selective about deposit rates and
putting relationship growth at the forefront of their strategies.
79% of bank leaders reported
increased concern about interest
rate risk in 2024.
Source: Bank Director’s 2024
Risk Survey
Since it was founded in 2005, Birmingham, Alabama-based ServisFirst
KEY TAKEAWAYS
Bancshares has rewarded its commercial bankers for growing deposit relationships, not just loans. The $16 billion bank’s leadership team made a deci-
• The banking industry is facing a tough
environment for deposit growth; U.S.
banks have seen net deposit outflows
in all but two quarters since the Federal
Reserve began raising interest rates in
March 2022.
• Core deposits tend to be cheaper than
brokered deposits or wholesale funding,
making them key to bank profitability.
• Due to higher rates, consumers have
shopped around for better returns on their
deposits, easily moving their money to
competing institutions.
• Some banks reward staff who grow
deposit relationships as part of their
overall incentive package.
• Other strategies include selectively raising
deposit rates for particularly valuable
clients or specializing in niches that tend
to be large depositors.
sion on day one that they would fund the bank mainly through core deposits,
rather than relying heavily on wholesale funds or brokered deposits.
“We deem core deposits as one of the most critical — if not the most critical
— factors in the franchise,” says Chief Operating Officer Rodney Rushing.
Higher interest rates have created a tough deposit environment, with the effective federal funds rate topping 5% beginning in July 2023. Since the Federal
Reserve’s rate increases began in March 2022, the banking industry has experienced quarterly declines in deposits, with the exception of the fourth quarter of
2023 and the first quarter of 2024, according to the Federal Deposit Insurance
Corp. Altogether, that adds up to a total loss of roughly $1 trillion in deposits.
Not so at ServisFirst, which grew deposits by 8% year-over-year in the
second quarter while holding deposit costs steady. That growth has come
through emphasizing relationships as well as key in-market niches, something
ServisFirst has in common with other banks seeking to grow deposits while
managing costs.
Deposit costs are admittedly higher at the bank compared with the industry
average of 2.37% as of the first quarter, according to the FDIC. ServisFirst, a
commercial bank with a significant correspondent banking business, tends to
pay higher rates on deposits, averaging above 4% on interest-bearing deposits
in 2024 through June 30.
ServisFirst’s strategy includes specializing in client niches that tend to be “net
depositors,” such as churches, foundations and charities, says Rushing. “You
have to offer a package of products to be able to compete in that space.”
