14 Jun Deposit Wars: A Breakdown of Key Trends in the First Quarter of 2019
By Adam Mustafa, President & CEO
Deposit growth in the banking industry has become a zero-sum game for all intents and purposes. Several months ago we published a white paper that revealed the deposit dilemma appeared more serious than anticipated, based on 2018 data. The results in the first quarter of 2019 were mixed. Here are five significant findings from our analysis of first quarter deposits:
- The growth in CDs exceeded the growth in all deposits, including CDs. Total deposits including CDs only grew by $78.5 billion in the quarter versus the fourth quarter of 2018. I guess some growth is better than no growth or shrinkage, but when you consider that retail and jumbo CDs grew by $114.9 billion in the quarter, that silver lining is more like a plastic one. If you think this is a misprint, think again. The only way CD growth can exceed all deposits including CDs is if other deposit products shrink. Transaction accounts, the highest quality form of deposits, and MMDAs both lost ground in the quarter.
In a nutshell, the least-sticky and most expensive form of deposits (CDs) are growing at the expense of the most-sticky and least expensive product (transaction accounts). They are absorbing virtually all the growth in the supply of deposits in the banking system.
- Community banks with assets between $10 billion and $50 billion and $1 billion to $10 billion held their own in the quarter. Both groups combined won 64 percent of the total deposit growth in the quarter. Moreover, both groups seemed to do so in a relatively balanced way across deposit products. The $10 billion to $50 billion group grew transaction accounts by a combined $5 billion during the quarter, which represented 21 percent of its total growth. The $1 billion to $10 billion group at least didn’t lose transaction accounts, but only nibbled its way to $868 million of growth in this category.
For what it’s worth, community banks under $1 billion, which had a relatively strong 2018 in transaction account growth, lost ground in the first quarter by shedding $2.9 billion of transaction accounts. Who knows if this is an aberration or the beginning of a trend, but it does suggest size matters, and community banks might be far better off teaming up with one another through M&A, rather than continuing to slug it out.
- The “Big Four” (JP Morgan, Bank of America, Citibank, and Wells Fargo) lost ground in the quarter. It is well-known in the industry that the Big Four has significantly increased its market share in the post-crisis decade. However, during the last year and change, these banks slipped a little, predominantly due to the Fed’s reversal of quantitative easing. Combined, the Big Four only grew its deposits by $4.8 billion, which is just 6 percent of the total growth in the industry. The top 4 banks felt the brunt of the pain in terms of losing transaction accounts and even savings accounts, compensating by raising CDs. Only Citibank had a strong quarter overall. It led the country with $20.9 billion of deposit growth, of which $15.4 billion came from the elusive and lucrative transaction accounts.
Between the relative success of community banks and the recent struggles of the top 4 banks, one may conclude that community banks are more than holding their own. However, the top 4 banks all have a LTD ratio under 70 percent and have not been growing their loan portfolios, which suggests that they have not yet felt the urgency to release their arsenal on the banking market — or we haven’t yet felt the impact of their existing initiatives. For example, we have yet to see the results from JPMorgan’s heavily-discussed branch expansion plans, which include 400 new locations over the next five years or Citi’s ROI from massive investments in digital banking.
- A shocking 77 percent of banks across the country saw their NIMs decline in the first quarter of 2019 versus the fourth quarter of 2018. This is a significant departure from what we have seen over the previous four quarters, when at least 50 percent of the banks saw NIMs expand rather than contract. However, a closer look at that trend reveals that the number of banks with expanding NIMs was declining, and it fell off a cliff in the first quarter of 2019. NIMs are still relatively high, but it’s very troubling for banks that are loaned up and are having to fund their liabilities at the marginal cost.
It’s also becoming more difficult for banks to compensate by procuring higher loan yields, as our BankGenome™ database shows that prepayment rates are increasing and renewal rates are decreasing as borrowers shop around to pre-empt an increase in their borrowing costs.
- Despite the generally morbid tone of this piece and our popular white paper summarizing key deposit trends in 2018, there were plenty of winners, both large and small in the industry. Below is a list of the top winners and losers in the industry for the quarter (adjusted for M&A), both overall and within the $1 billion to $10 billion asset size group as a sample:
Top Ten Winners – Total Deposits (All Banks)
| 1 | Citibank, National Association | + $20,858,000 |
| 2 | JPMorgan Chase Bank, National Association | +$14,076,000 |
| 3 | Capital One, National Association | +$9,764,698 |
| 4 | Goldman Sachs Bank USA | +$7,600,000 |
| 5 | Ally Bank | +$7,318,000 |
| 6 | Chase Bank USA, National Association | +$4,994,443 |
| 7 | USAA Federal Savings Bank | +$4,526,525 |
| 8 | U.S. Bank National Association | +$4,193,864 |
| 9 | CIT Bank, National Association | + $3,536,114 |
| 10 | PNC Bank, National Association | + $3,504,210 |
Top Ten Losers – Total Deposits (All Banks)
| 1 | Wells Fargo Bank, National Association | ($16,218,000) |
| 2 | Bank of America, National Association | ($13,960,000) |
| 3 | The Bank of New York Mellon | ($13,431,000) |
| 4 | Charles Schwab Bank | ($12,176,000) |
| 5 | State Street Bank and Trust Company | ($12,021,578) |
| 6 | Morgan Stanley Bank, National Association | ($10,549,000) |
| 7 | Capital One Bank (USA), National Association | ($5,123,511) |
| 8 | TD Bank, National Association | ($2,585,004) |
| 9 | The Huntington National Bank | ($2,442,493) |
| 10 | UBS Bank USA | ($2,361,440) |
Top Ten Winners – Total Deposits ($1-10 Billion in Assets Only)
| 1 | Manufacturers Bank | +$1,422,317 |
| 2 | NexBank, SSB | +$887,614 |
| 3 | Green Dot Bank DBA Bonneville Bank | +$756,183 |
| 4 | Bell Bank | +$708,377 |
| 5 | Israel Discount Bank of New York | +$554,039 |
| 6 | Woodforest National Bank | +$455,099 |
| 7 | Seacoast National Bank | +$429,180 |
| 8 | SouthEast Bank | +$394,058 |
| 9 | Live Oak Banking Company | +$374,969 |
| 10 | HomeStreet Bank | +$352,184 |
Top Ten Losers – Total Deposits ($1-10 Billion in Assets Only)
| 1 | Wilmington Trust, National Association | ($828,923) |
| 2 | Bessemer Trust Company, National Association | ($767,472) |
| 3 | EagleBank | ($296,185) |
| 4 | John Deere Financial, f.s.b. | ($238,315) |
| 5 | Atlantic Capital Bank, National Association | ($232,188) |
| 6 | Union Bank and Trust Company | ($207,860) |
| 7 | Washington Trust Bank | ($186,612) |
| 8 | Silvergate Bank | ($185,670) |
| 9 | Banc of California, National Association | ($171,961) |
| 10 | BNB Bank | ($162,122) |
If you would like to see how your bank ranks in the quarter across all deposits or any deposit category by asset size, state, or a selected peer group, we would be happy to provide you with a complimentary report. Please send an email to George Callas at gcallas@invictugrp.com or call him at (718) 219-0441 with your request.