Deposits360°® Monthly Industry Review
This month's Review highlights key trends in the Deposits360°® Cross Institution Analytics database and deposit volume/pricing models.
Recent bank failures and the subsequent fallout have impacted deposit balance behavior across the industry. Total deposit outflow in April was the largest outflow total DCG has observed in the Cross Institution database since November 2019. In fact, DCG’s forecasted volume model projects non-maturity deposit balances to remain under pressure even if the Fed were to cut rates by 100bp over the next year.
One of the key contributors to the collapse of Silicon Valley Bank was the high concentration of large-balance deposit relationships tied to the tech and crypto industries. As a result, many bankers have renewed their focus on better understanding their deposit concentrations, particularly among balances that exceed federal insurance thresholds.
To explore this dynamic, DCG analyzed the deposit attrition that has materialized since NMD balances peaked around the third quarter of 2022. We segmented deposit relationships by balance and looked at balance growth trends for each tier. What we found is quite striking. While smaller relationships (balances <$100k) have remained resilient, growing 4.4% over the last nine months, larger balances ($250k-$1MM and >$1MM) have been declining steadily, particularly over the March/April 2023 time period. This trend only reinforces the notion that bankers who can leverage data to intelligently target and manage their high-balance relationships will have a much greater chance of managing attrition going forward.
While dollars continue to flow out of the Cross-Institution universe, DCG is also monitoring inflow/outflow growth trends. Decay rates on existing balances as well as opened account inflow rates are both elevated relative to recent history. This means that depositors are now more active than they have been in more than seven years.
Lastly, we have been monitoring some interesting trends related to average deposit balances. Over approximately the last six months, average time deposit accounts have grown from under $25k to just under $40k, a stunning 60% increase. At the same time, non-maturity balances have decreased about 10%, falling from $20k to about $18k. This makes sense when considering the high-balance attrition story described above.
While non-maturity balances still make up the vast majority of total deposit portfolios (80% NMDs vs. 20% CDs), the recent run-up of CD balances puts an even greater emphasis on the need to better understand these deposit relationships. Deposits360° stands ready to help users identify those CD relationships that are worth retaining versus those that may be fair-weather friends simply waiting for the latest storm to pass.
The average non-maturity deposit portfolio within the Cross Institution database is currently paying 0.90%. This rate is forecasted to move 23bp to 40bp higher over the next 12 months if the Effective Fed Funds rate stays between 4.83% and 5.83%. Even if the Fed were to cut rates by 100bp before April 2024, the residual upward pressure caused by the current tightening cycle could push rates 9bp higher, to 1.00%.
Looking at the Cross Institution Interest Rate Summary, we see that high-tier MMDA rates continue to increase, but increases have begun to decelerate. 90th Percentile rates have reached 3.72% for the $1MM+ tier, only a 4bp increase from last month. On the CD side, 1- to 5-month CD rates have surged higher as many institutions have responded to the yield curve inversion by shortening the term structure on CD specials. We now see that the 90th Percentile rates have all settled into the 4.69% to 4.73% range for CD terms ranging between 1 and 23 months. Lastly, we have seen newly funded CD rates in the 18- to 59-month term ranges decline compared to last month.
When we compare the current average rates paid on Money Market balances versus the rates paid on newly opened Money Market accounts, we see an interesting dynamic. The average rates continue to increase steadily (8bp over the last month and 40bp over the last three months) while the newly opened rates have stabilized (2.11% for the last two months). This suggests that more institutions have made the decision to increase the rates on their existing deposit base versus exclusively rolling out new promotional products. Some institutions have made this decision out of necessity in order to mitigate further outflows.
Darling Consulting Group will continue to monitor the Cross-Institution data in Deposits360° and bring you stories and insights to help you understand the market dynamics occurring in the deposit space.
To learn more about how DCG's Cross-Institution analytics can help drive strategic decision-making, click here.
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