© 2019 lender performance group llc | confidential 1 · 2019. 8. 16. · •tepid growth in...


Topics

1. Drivers behind heightened deposit focus

2. How much are banks paying to attract commercial deposits?

3. Market trends and value of liquidity vs. yield

4. Degree of cross-sell across the market

5. Successful tactics to drive deposit growth


Methodology

• The data presented in this webinar covers commercial deposits as of July 2019

• Primary data source: PrecisionLender’s proprietary database, reflecting actual commercial relationships (loans, deposits and other fee-based business) from over 200 banks; supplemented with commercial bank call report data from the FDIC

• The banks in this data set are geographically diverse and range in size from community banks to top 10 U.S. institutions

• Deposit rates shown in this webinar reflect the weighted average interest rate paid on the respective deposit accounts and may include promotional rates

• For purposes of this analysis, checking with interest accounts (CWI) have been grouped with money market accounts (MMA)


Customer Priorities

Live Poll

As related to commercial deposits, which of the following is most important to your customers?

q Rate

q Liquidity

q Rate and liquidity are equally important

q Other


Certain tactics help some bankers achieve far more deposit business – and higher resulting

NIM – than others

Key Takeaways

With credit spreads tightening, deposit-

gathering has become an increasingly important

strategy for lowering funding costs and

increasing NIM

Bankers are offering higher rates to attract

new deposits relative to existing customers

and paying premiums on larger accounts

Despite the value of deposits in driving

relationship profitability, a striking proportion

of relationships remain credit-only

#1

#3

While rising deposit rates has created an

incentive for customers to invest in longer-

term deposits, clients place more value on

liquidity than rate

#2

#4

#5


Liquidity > Rate

*Source: PrecisionLender. Aggregate Market chart reflects total deposits excluding CDs as of early July 2019, irrespective of the account open date. New Accounts chart shows only those accounts which were opened since January 2019. Figures are weighted by average deposit balances.

• As expected, rising deposit rates are creating an incentive to shift accounts• Market has seen a slight rise in CWI/MMA and corresponding decline in DDA

REPRICED

Modest shift in balances away from non-interest bearing DDA

36%

5%

InterestBearing

64%InterestBearing

69%

Non-InterestBearing

31%Non-Interest

Bearing

Aggregate MarketJuly 2019

New AccountsSince January 2019

+13Basis Points

Rates are rising on newinterest bearing accounts.

They average 1.19% compared to the aggregate

market average of 1.06%.

Non-Term Deposits


Liquidity > Rate

*Source: PrecisionLender. Data reflects aggregate deposits as of the indicated data, irrespective of the account open date. Figures weighted by average deposit balances.

• Appeal of higher-yielding CDs evidenced in latest data• Still, more than 80% of commercial deposits remain in fairly liquid accounts

REPRICED

More than 80% of commercial deposits held in liquid accounts

December 2018 July 2019

CDs17%

CWI &MMA:Interest Bearing

53%

CWI &MMA:Interest Bearing

52%

DDA:Non-Interest

Bearing 29%

DDA:Non-Interest

Bearing30%

CDs19%

83% 81%


What’s there to gain?

*Source: PrecisionLender. Data reflects weighted average rates on CD accounts which were opened or renewed in the first half of 2019. Figures include promotional rates.

• How much yield can customers pick up by moving to term deposits?• Limited incentive to tie up funds beyond one year

REPRICED

CD yield curve relatively flat between 1 and 4 yearsCommercial CD rates by Term. Accounts Opened or Rolled Over 1H2019

3.00%2.67%

2.00%

1.50%

1.00%

0.50%

0.00%<3

0.48%

3-6

1.92%2.11%

2.27%2.50% 2.39%

2.52% 2.53%

6-12 24-36 36-48 48-60

Rate

(%)

12-18 18-24

CD Term(months)


What’s there to gain?

*Source: PrecisionLender. Data reflects percent of CD accounts which were opened or renewed in the indicated period with a CD term in the indicated range. Figures weighted by average deposit balances.

• Pronounced shift in short-term end of market (< 18 months)• No meaningful change in incidence of long-term deposits

REPRICED

Fewer short-term CDs, but aversion remains to +18-month terms

Commercial CD accounts by term. Based on account open date.

36%

27%

44%

55%

<6

20% 18%

6-18Term (months)

18+

2H2018 1H2019

Pere

cent

of C

DBa

lanc

es60%

50%

40%

30%

20%

10%

0%


Relationship Size Matters

*Source: PrecisionLender. Data reflects weighted average rates on CD accounts which were opened or renewed in the first half of 2019. Figures include promotional rates. Relationship size reflects aggregate deposits, not only the portion held in CDs.

• Term is not the only deciding factor: banks willing to pay up for larger accounts• Despite higher rates, deposits still a comparatively inexpensive funding source

REPRICED

Premium paid for larger accountsCommercial CD rates by term & relationship size. Accounts opened or rolled over 1H2019.

.

3.00%

2.50%

2.00%

1.50%

1.00%

0.50%

0.00%

Rate

(%)

<3 3-6 6-12 12-18 18-24

CDTerm(months)

24-36 36-48 48-60

$10MM - $25MM

$1MM - $5MM

<$100K


Relationship Size Matters

*Source: PrecisionLender. Data reflects weighted average rates paid on commercial DDAs, CWIs and MMAs as of July 2019, irrespective of the account open date. Figures include promotional rates and non-interest bearing DDAs. Relationship size reflects aggregate deposits, not only the portion held in the non-term deposit accounts.

• Rates paid on DDA and MMA accounts rise considerably with the size of the deposit relationship• Customers with balances over $25 MM now earn more than twice the rates as those in the $1-5 MM range

REPRICED

Size also affects rates on non-term depositsDDA, CWI, MMA rates by relationship size

.

+2x

<$100K

0.16%

0.32%0.41%

0.47%

0.89%1.01%

1.29%

0.60%

$100-250K $10-25MM $25MM+

1.40%

1.20%

1.00%

0.80%

0.60%

0.40%

0.20%

0.00%

Rate

(%)

$250-500K $500K-1MM $1-5MM $5-10MM

Aggregate Deposit Relationship


A Powerful Impact on COF

Source: Federal Reserve Bank of St. Louis (FRED). Deposit rates reflect accounts over $100K.

• While deposit rates have risen steadily, spread between them and wholesale funding rates has widened• Even interest-bearing deposit accounts can significantly bolster NIM in the current rate environment

REPRICED

Gap widens between wholesale and retail funding sources


Credit-Only Relationships Still Common

*Source: PrecisionLender. Data reflects the percentage of loan outstandings on the books as of July 2019 with associated deposit balances, irrespective of the loan origination date.

• Clearly, winning deposits is an important strategy for most banks• That said, a surprisingly high volume of credits is originated or renewed with no associated deposits

More than one-third of commercial loan outstandings lack a deposit relationship

REPRICED37%63%CR EDIT

ONLY

BOTH CREDITAND DEPOSIT


Credit-Only Relationships Still Common

*Source: PrecisionLender. Data reflects the percentage of loan outstandings on the books as of July 2019 with associated deposit balances, irrespective of the loan origination date. Size of Credit Relationship reflects aggregate credit exposure.

• Incidence of credit-only commercial loans diminishes with size• Still, about 30% of credit relationships over $25MM remain credit-only

The bigger the credit relationship, the less likely it will be credit-only

74% 68%56%

45%34% 30% 30%Pe

rcen

t ofO

utst

andi

ngs

<$100K $100K - 250K $250K - 500K $500K - $1MM $1MM - $5MM $5MM - $25MM >=$25MM

Size of Credit Relationship

Credit Only Both Credit & Deposits

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%


Materiality of deposits varies with size

*Source: PrecisionLender. Data reflects the average deposit balances on relationships with aggregate credit exposure in the indicated range. Analysis excludes those credit relationships with no deposits. Data as of July 2019.

• Credit relationships accompanied by deposits can be highly lucrative• Deposit balances tend to exceed credit exposure on the smallest loans – making these credits self-funding –

and help fund larger credit exposures

Smaller credits with deposits may be self-funding


Aggregate Market: Challenges in Commercial Deposit Growth

*Source: FDIC. Chart shows the quarter-over-quarter growth in commercial deposits for banks with assets over $1B. Commercial deposits were estimated based on call report data and include both transaction and non-transaction accounts.

• Inconsistent commercial deposit growth in market as a whole• Sharp declines for larger commercial banks, greater stability among community banks

Commercial Deposit Growth, Banks > $1BOn a Linked Quarter Basis

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

-1.0%

-2.0%

-3.0%

-4.0%

Rate

(%)

2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

6.0%


Aggregate Market: Dependence on Wholesale Funding Remains

*Source: FDIC. Figures reflect the average wholesale funding reliance for commercial banks within the indicated asset range. Wholesale funding sources primarily reflect the following: Fed Funds Purchased, Repurchase Agreements, FHLB Advances, Subordinated Notes & Debentures, Other Borrowings and Brokered Deposits.

• Tepid growth in commercial deposits has contributed to market’s dependence on expensive wholesale funds• In current regulatory environment, some reliance on wholesale funding is unavoidable for largest banks

Wholesale Funding Reliance by Bank Size25.0%

20.0%

15.0%

10.0%

Assets $1B-$50B

Assets $50B-$250B

Assets >$250BAverage Wholesale

Funding Reliance (%)

2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1


Aggregate Market: Deposit Betas Trend Higher

*Source: FDIC. Figures reflect the average percentage of increases in the Fed Funds rate passed along to customers via increased deposit rates.

• Importance of deposits to commercial banks evident in the rising deposit betas, which measure the proportion of total rate increases shared with customers via increased deposit rates

Deposit Betas by Bank Size

30%

25%

20%

15%

10%

5%

0%

2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2019 Q1

Depo

sit B

eta

(%)

50%

45%

40%

35%

Assets $1B-$50B

Assets $50B-$250B

Assets >$250B


Key Challenges in Building – and Maintaining – Deposits

• Lack of oversight and accountability

• Absence of well-defined strategy for attaining the deposits

• No firm agreement with customer to move the business over before loan closing or within a reasonable timeframe

• Opportunity passed along to a product partner, falling off RM’s radar

• Inadequate feedback mechanism to track whether ancillary business came to fruition

• Deposits moved but ultimately closed; lack of ongoing intel on relationship profitability


8 Ways the Best Bankers Win More Deposits

The aggregate results mask significant differences across banks, with some banks consistently winning deposits and others falling short.

What separates the best from the rest?

1. Negotiate moving some deposits over prior to loan closing

2. Tie credit pricing contractually to deposit balances

3. Utilize the borrower’s liquidity data to identify the sales pipeline

4. Cultivate a culture where bankers ask for deposits

5. Stay abreast of market conditions and ensure deposit rates are competitive

6. Track delivery vs. promise and hold bankers and product partners accountable

7. Explain the benefits of maintaining both loans and deposits with a single bank

8. Remove obstacles and simplify the account-opening process


Concluding Thoughts

• Deposit-gathering is among the most important tactics for strengthening NIM in the current banking environment

• Inconsistent deposit growth in the market as a whole has created challenges for banks

• Success stems from staying apprised of competitive market rates and remaining in tune with customer priorities relative to both yield and liquidity

• Stronger results among banks able to track whether promised deposits come to fruition, with proactive follow-up on outstanding deposit opportunities

• Bankers can gain a competitive edge by employing winning tactics, and can limit NIM compression – or even grow NIM – while concurrently achieving their production goals

© 2019 lender performance group llc | confidential 1 · 2019. 8. 16. · •tepid growth in...

Documents