The Federal Reserve will almost certainly raise short-term interest rates when it meets on March 15/16. It will also publish its summary of economic projections which will shed light on whether its leanings are towards another increase in May. At this point, two quarter-point rate hikes seem likely.
So likely, in fact, that some JRN listees have already begun raising their CD rates in anticipation. Even more have begun raising their loan rates. That’s not unusual. Historically, when the Fed moves rates down, savings and CD rates immediately drop while loan rates lag behind. The opposite is true when the Fed boosts rates.
This time around, that phenomena will be even more pronounced because of the large sums of money injected into the economy via the Paycheck Protection Program (PPP) and other stimulus programs. Originally intended to help get us over the worst of the pandemic, the lasting result is that banks are sitting on large sums of deposits they can’t lend.
With savings rates so low, some community banks have successfully been steering deposits toward noninterest bearing accounts. In fact, the banks listed on page 7 each had more than 200% growth in noninterest bearing deposits during the 12-months ending September 30, 2021. Let’s take a look.
With 660% growth in total deposits, 4-Star Barwick Banking Company in GA sticks out like a sore thumb. But we’ve reported on it before (see JRN 38:34). Once Georgia’s smallest bank, Barwick was acquired by an investor group in 2019 and has been full steam ahead since.
We eliminated from page 7 all banks whose growth could be attributed to an acquisition during the 12 months noted. And there are others that may have had growth that was not completely “organic” as well.
For example, Southern States Bancshares, parent of 5-Star Southern States Bank, Anniston, AL went public on August 12, 2021. It started trading at $19.00 and ended its first day on the NASDAQ at $19.77. The stated intention for the IPO was to raise money for growth. And so it has (grown).
But if you notice, there are three community banks listed that actually lost total deposits while gaining substantial noninterest deposits. They are 5-Star Jefferson B&TC, Saint Louis, MO; 3½-Star New Republic Bank, Charlotte, NC; and 4-Star Apple Bank for Savings, NY, NY.
For Jefferson B&TC, the change is in preparation of a pending acquisition by 5-Star First Mid Bank & Trust, N.A., Mattoon, IL. The banks made a strategic decision to allow CDs to expire without renewing them and turned their focus toward wealth management, farm management, brokerage business and insurance. To that end, we see big changes in Jefferson’s balance sheet. In the past year, total assets were down $29.2 million. That is attributed to: cash and due from banks, which is up $48.7 million (347%) and net loans, which are down $81.52 million (15.6%). That marks a clear change in focus.
We can expect more of the same before the actual merger of the banks this summer.
The story is very similar for New Republic. The difference is that New Republic Partners, an investment, wealth advisory and credit solution firm, purchased the bank (11/17/20) instead of another bank making the purchase. Aside from that, the sad truth is that some community banks, like these, are steering away from the business of banking in favor of other, more lucrative ventures.
Even Apple Bank for Savings, a NYC institution since 1863, has had to find new ways to boost its earnings. In this case, though, Apple Bank is sticking to its roots. It has partnered with Upstart, an artificial intelligence lending platform, to launch “Personal Loans by Apple Bank”, a new digital personal loan product.
Apple Bank can now reach more consumers who may be in need of short-term loans during this challenging time, and in the future. Like the two aforementioned banks, Apple Bank has seen a sizable shift from insured deposits to uninsured deposits. Unlike the previous two banks, and probably more inline with the other banks listed on page 7, Apple Bank’s low CD and savings rates are just plain unattractive.
According to the FDIC‘s third quarter 2021 Quarterly Banking Profile, growth in community bank deposit balances was evenly split between interest and noninterest bearing ($29.5 billion vs. $29.4 billion). Growth in deposits exceeding the deposit limit accounted from most of that deposit growth.