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PCBB Banc Investment Daily July 03, 2019
Banc Investment Daily
July 03, 2019

Deposits - Where Are They & How To Get More

Summary: Deposits at community banks are growing in rural areas faster than big banks. However, more needs to be done in metropolitan areas. We offer some guidance.
Fidelity recently reported the average 401(k) balance for Americans by age grouping as of Q1 is as follows: 20 to 29Ys old ($11,800); 30 to 39Ys ($42,400); 40 to 49Ys ($102,700); 50 to 59Ys ($174,100) and 60 to 69Ys ($195,500). Now you can compare how you are doing and see if you need to do more or can book yourself a nice summer vacation to celebrate.
No matter what you are saving in your deposit account, it is no secret that the nation's biggest banks have been capturing more customer deposits than community banks in recent years.
According to a study released in March by the Bank Policy Institute (BPI), larger banks are indeed still capturing more city-based customer deposits just as they are overall new deposits.
Between 2010 and 2017, banks over $50B in assets far outpaced smaller banks in aggregate deposit growth-86% to 42%. Big banks held a similar margin in larger metropolitan areas also.
However, banks with <$10B in assets are gaining their fair share of deposits in rural markets.
In rural communities over the same time period, BPI discovered that deposits at community banks increased at a faster rate. Here, these banks grew 24% vs. 7% for big banks. Community banks continue to thrive in rural areas, but more work is needed to hold ground in additional metropolitan areas.
Knowing this, you may want to consider the following when planning your deposits strategy:
Rural markets are shrinking. The average number of community banks in each rural market has held firm over the past 20Ys at roughly 4. However, according to US Census data, many rural areas are decreasing in population and deposits, so community banks' coffers may not be growing in relation to large banks as much as data might indicate.
Small-to-midsize businesses like agricultural are still a strong suit. Community banking services are essential to the agricultural industry, but more than 50% of farm households have lost money in recent years (as commodity prices fluctuate wildly). Regional and community banks make 85% of all farm loans and 90% of loans secured by farmland. Make sure you talk to these customers to keep their deposits-especially as market fluctuations continue.
There are still opportunities in suburban and small-city markets. Post-financial crisis, deposit growth has been much stronger in urban areas overall (75% from 2010 to 2017). During the same time period, the average annual deposit growth in rural areas sank to just 2.8%. But, deposit growth over these years in 'mixed' or in-between areas (not urban and not rural) held at 70%. Even if your bank sees heavy large bank competition in cities, you may be able to grow into the suburbs and smaller city markets.
New products and services could draw deposits from younger customers. The broad and emerging base of younger customers can be drawn to large banks by broader offerings, particularly when it comes to digital. If you want to court this power base of younger customers and win over their deposits, try to invest more aggressively in products and services that appeal to their behaviors and sensibilities. Good luck to all!