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Core Deposit Growth Strategy Options

November 7, 2017

By: Larry Martin

Growing affordable sticky core deposits is not easy. Too often when community banks need deposits to fund loan growth they turn to wholesale funding, debt, or above market rates for certificates of deposits. While these are all appropriate at times, they are not good permanent solutions. Affordable sticky core deposits are the solution


Depending on a bank’s situation and need for core deposits (amount and timeframe), some strategies are better than others for building sticky core deposits. Some strategies allow rapid core deposit improvement while others take time and strategic effort to see results. The following discusses three broad strategies and their high-level considerations. These three strategies are not a comprehensive discussion of possible strategies, there are others strategies we can discuss with you.


Acquisition of a bank

Acquisition of a bank with a relatively low loan/deposit ratio and strong core deposit base allow a large rapid improvement in core deposit ratios. If an in-market acquisition, you may achieve up to 40% reduction in non-interest expenses that allow a much faster earnings accretion.


An out of market or rural acquisition may make strategic sense. While the reduction in non-interest expenses will be less, the markets demographics and reduced competitive intensity may provide lower funding costs and a much lower loan to deposit ratio.


Branch acquisitions can also make sense if the non-certificate deposits are strong and customer trends and other considerations are appropriate.  Integration effectiveness is key to maximizing deposit benefits with either a bank or branch acquisition.


Mining significant net funds provider segments

There are numerous market niches offering substantial amounts of net core deposits opportunity relative to the amount required to fund their loan needs. These deposit rich net-funds provider segments are targets of some community banks but there still exists considerable potential.


Identifying these segments is straight-forward using analysis of bank loan and deposit records, RMA’s statement studies, and industry consulting experience. Once identified, the next steps include sizing the market segments deposit potential, documenting competitor segment approaches, proprietary market research to identify segment banking preferences, opportunities, and reaction to your proposed product/service approach. This and other information is used to finalize a business plan quantifying actions, resources, deposit goals and timing.


Achieving success requires time and consistent implementation of the plan.


Identifying internal and external obstacles

Often the bank is too close to its own situation to be objective. Blind spots develop resulting in the bank not achieving its natural core deposit potential due to manageable internal or external considerations.


These could be banks' business model, customer service issues, accountability or organization considerations, communications issues, technology issues, product line gaps or complexity, staff training issues, and a plethora of other considerations.


Obtaining an objective evaluation can improve natural core deposit growth.



Achieving above level, sticky and affordable core deposits levels requires explicit accountability and strategy. A strong core deposit base adds to bank franchise value and shareholder value. There are strategic options to improving the core deposit base of every community bank. The strategic option or options to employ depend on the bank and its unique situation.


About Bank Strategies LLC 

Bank Strategies, LLC is a Denver, Colorado based consulting firm founded in 1982 that provides a wide array of enterprise-wide risk management solutions which assist executive management teams and Boards of Directors of mid- and lower-tier size financial institutions in improving overall performance and profitability, assessing and controlling risk profile, and strengthening shareholder value.   Bank Strategies LLC and its team of professionals are well known and respected in the community banking sphere of banking institutions, attorneys, CPAs, trade association executives, and the press due to their quality of service, expertise and knowledge. More information is available at www.bankstrategiesllc.com.

To learn how the Bank Strategies LLC team can put more than 100 years of collective industry experience to work in helping your institution reach its potential as a high performing bank, call 303-903-9369. Or email Jim Swanson at jim@bankstrategiesllc.com.

To be added to our email list, email Jim@bankstrategiesllc.com with your name and email information.

Contact Information

Phone: 303-903-9369

Mail: 75 S. Joyce Street, Golden CO 80401

EMail: Jim@bankstrategiesllc.com