#United States #New York #S&P Global #deposits #community banks

Introduction

S&P Global Market Intelligence has released its inaugural ranking of community banks across the United States, highlighting those with noteworthy concentrations of noninterest-bearing deposits. This report, aimed at assessing the performance of banks during a tightening rate cycle, not only reveals which institutions have thrived but also introduces a new metric for evaluating deposit efficiency.

Key Highlights of the Ranking

According to Nathan Stovall, the director of financial institutions research at S&P Global, deposits truly reflect the value of a bank's franchise. The analysis focuses on how banks' deposits performed amidst the recent Federal Reserve's tightening measures. The rankings favor banks with high concentrations of noninterest-bearing deposits, which are more advantageous as they entail no interest expenses. This approach is essential for understanding which banks are operating efficiently and effectively in the current economic climate.

Top Small Community Banks

In the small community bank category, Titan Bank, NA emerged as the frontrunner with a staggering 46.79% of its total deposits being noninterest-bearing as of September 30, 2024. Over the past eight quarters, the bank maintained an impressive average deposit growth rate of 5.4%. The performance of small banks like Titan demonstrates their ability to compete directly with larger institutions through effective deposit strategies.

Following closely, Western Bank from Artesia, New Mexico, secured the second position with a remarkable 59.17% concentration of noninterest-bearing deposits. It surpassed its peers in all eight metrics considered in the rankings, showcasing an all-around excellence in deposit management.

Tejas Bank rounded out the top three, achieving a strong deposit efficiency ratio, which assesses the costs associated with interest-bearing deposits, thus reducing operational expense burdens related to maintaining its deposit base.

Top Large Community Banks

In the larger community bank category, Stride Bank, NA took the lead with an impressive 88.8% of its total deposits classified as noninterest-bearing. Stride Bank has seen significant growth in its assets, escalating from $700 million in 2019 to an impressive $3.74 billion by September 30, 2024. This highlights how banks can leverage noninterest-bearing deposits to fund expansion.

First Community Bankshares Inc. achieved second place, with a reporting cost of interest-bearing deposits at a remarkable low of just 0.85% for the year ending September 30, 2024. This efficient cost structure indicates a robust operational model in its numerous rural markets.

Amalgamated Financial Corp. secured third place with 50.10% of its deposits being noninterest-bearing. The bank is noted for its focus on impactful segments, demonstrating that commitment to social goals can coexist with sound financial practices.

Methodology Behind the Rankings

The rankings are derived from a thorough analysis of eight key metrics, namely:

• - Noninterest-bearing deposits to total deposits
• - Cost of interest-bearing deposits
• - Interest-bearing deposit beta
• - Time deposits to total deposits
• - Certificates of deposits (CDs) maturing in 12 months as a percentage of total deposits
• - Deposits to liabilities
• - Average deposit growth
• - Deposit efficiency

The inclusion of the deposit efficiency metric, which compares noninterest expenses (excluding amortization and impairments) to average deposits, adds a fresh perspective on how effectively banks operate their deposit franchises. This innovative approach allows banks to showcase their strengths beyond just the interest-related aspects typically viewed in deposit metrics.

Conclusion

Overall, the inaugural S&P Global Deposit Rankings reveal significant insights into the deposit dynamics of community banks, emphasizing the importance of efficient deposit management and the strong performance of noninterest-bearing deposits. As these institutions navigate an evolving financial landscape, their ability to adapt and excel in deposit strategies will indicate their sustained success in the community banking sector for years to come.