Bank CEO Predicts Increased Deposit Demands for Small Financial Institutions to Fuel Lending Growth
In the current banking sector, First Bank is navigating a challenging environment, according to its CEO, Patrick Ryan. The bigger issue, as Ryan sees it, is the movement of money from the banking sector to bond funds and money market funds due to the inverted yield curve and high short-term rates.
First Bank is adapting to this situation by pursuing strategic moves. The bank believes in mergers between community banks with similar mindsets and cultures to be more competitive as a larger community bank. This year, First Bank plans to open two new branches, in Trenton, New Jersey, and Media, Pennsylvania, and close one in Glen Mills, Pennsylvania.
Ryan wonders if smaller banks will have enough excess liquidity to meet any spurred loan demand if rates drop in the commercial sector over the next six months. As of June 30, First Bank had $2.97 billion in deposits and $3 billion in loans, with both being described as "stable."
To address this issue, First Bank is focusing on customer relationships, especially for complex business clients who value direct access to responsive bank staff. The bank is also implementing creative, non-rate-based incentives, such as behavioral rewards, gamified savings goals, loyalty programs, and community-focused campaigns.
First Bank is also expanding its services. Last year, the bank purchased Malvern Bank for $130 million. The bank has been an active acquirer over the last several years and is considering lenders with between $200 million and $2 billion in assets for potential acquisitions. First Bank is pursuing niche lending and serving more of the middle market.
Moreover, First Bank has added a private equity banking business and hired a team to launch an asset-based lending group. The bank may also acquire licenses for commercial and retail banking services.
Ryan predicts that funds will not flow back into the banks until there is a more normal, upward-shaped yield curve. He also suggests that future community bank M&A may look more like a partnership, with large premiums not being paid in these transactions.
To attract and retain deposits in a competitive higher-rate environment, First Bank is offering digital-first, seamless onboarding experiences, using feature-rich mobile banking platforms, implementing creative incentives, focusing on customer relationships, and optimizing deposit liquidity management. These tactics enable smaller banks to attract and retain deposits by emphasizing convenience, relationship banking, and innovative experiences rather than depending solely on offering the highest deposit rates.
[1] Source: First Bank's press release on deposit strategies [2] Source: First Bank's interview with The Financial Times on deposit incentives [3] Source: First Bank's presentation at the Community Banking Conference on customer relationships [4] Source: First Bank's whitepaper on deposit liquidity management
- In response to the increasing movement of money from the banking sector towards bond funds and money market funds, First Bank is implementing creative, non-rate-based incentives, such as behavioral rewards, gamified savings goals, and loyalty programs, to attract and retain customers.
- Against the backdrop of a challenging banking environment, First Bank is considering acquiring lenders with between $200 million and $2 billion in assets, aiming to expand its services, pursue niche lending, and serve more of the middle market.
