Insights Janney - Flipbook - Page 3
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Losing Deposits but Paying More
Quarterly change in domestic deposits versus cost of deposits
Source: Federal Deposit Insurance Corp.
Quarterly change in domestic deposits, in billions
Quarterly cost of deposits
$700
3.5%
$600
3.0%
$500
2.5%
$400
2.0%
$300
1.5%
$200
1.0%
$100
0.5%
0%
$0
-$100
bankers a profitability matrix for each
client, providing a clearer picture of their
relationship.
“If you had an institutional customer,
like a college or university, you might
-$200
offer them a slightly higher rate to keep
-$300
their deposits on the balance sheet,” he
explains.
-$400
With more expected cuts from the Fed,
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-$500
Kingsley anticipates NBT will lower the
interest rate paid on higher-yielding deposits by a bit more than 50 basis points.
Though he expects some pushback from
clients, he also believes long-time custom-
Changing Consumer Behavior
Core deposits are key to bank profitabil-
public or private, whether they want to be
ers will generally understand that those
traded or they want to be sold. The value
rates would not be sustainable in the long
of deposits is critically important.”
term. “The discussion we’ve been having
ity. They’re usually cheaper than brokered
with our customers leading into this is
deposits or wholesale funding. While
the Fed cut the federal funds rate by 50
that when rates come down, we’ll have to
Making Smart Decisions
follow suit and bring our rates down on
basis points in September and signaled its
Like ServisFirst, more banks are
intention to lower rates further this year,
rewarding commercial bankers who
it remains easier than ever for consumers
grow deposit relationships. Almost half
also translate into a competitive benefit.
to move their deposits if they don’t like
of respondents to Bank Director’s 2024
Roughly 10% of NBT’s depositors are
the rate they’re earning.
Compensation & Talent Survey offered
municipalities, which tend to hold larger
incentives to commercial bankers for
balances in operating accounts and are
forever changed as far as expectations on
bringing in new deposit relationships,
often large employers.
rate and shopping for rate,” says Dan Fla-
compared to 42% a year earlier.
“The consumer depositor has probably
herty, managing director in the financial
In some cases, bankers find it necessary
our deposits,” he says.
Specializing in certain niches may
As deposit growth comes to the forefront of banks’ overall strategies, Flaherty
institutions group at Janney Montgomery
to raise a client’s deposit rate in order to
reports seeing more banks add titles like
Scott.
keep that relationship and the deposits
chief deposit officer or chief treasury
that come with it. But some banks have
services officer. Banks have also made
should relieve upward pressure on
become more selective about those deci-
a concerted effort to ask customers for
deposit pricing, it could still be a while
sions — even if that means losing a deposi-
deposits when underwriting new lending
before banks see significant relief on
tor who’s only there for the rate.
business — for example, by offering a
And while the Fed’s recent rate cut
funding costs.
“Unlike assets, deposit franchises take
NBT Bancorp in Norwich, New York,
built an internal tool to help its employ-
more favorable interest rate on loans to
clients who also bring over deposits.
a long time to build,” Flaherty says. “The
ees make better informed decisions on
deposit base will continue to drive value
deposit pricing, says Scott Kingsley, CEO
decade,” Flaherty observes, “and that’s
for banks going forward, whether they’re
of the $13.5 billion bank. The tool shows
really come back.”
“Banks got away from that in the last
