Community banks hit hardest in Q2 2024 deposit decline

Most of the US banks reporting the largest percentage declines in total deposits in the second quarter were community banks.

Among publicly traded US banks that reported earnings by July 22, total deposits fell 1.4% quarter over quarter to $10.349 trillion, according to S&P Global Market Intelligence data. Of the 20 banks with the largest sequential declines on a percentage basis, only M&T Bank Corp. had deposits over $6 billion.

Solera National Bancorp Inc. posted the biggest drop, with its deposits diving 10.9% to $942.4 million, followed by Union Bankshares Inc., where deposits fell 10.4% to $1.05 billion.

Among the other banks with the largest declines, Bank7 Corp.'s deposits fell 6.3% to $1.48 billion, mainly due to "one very large deposit."

At Parke Bancorp Inc., where deposits dropped 4.3% to $1.50 billion in the second quarter, President and CEO Vito Pantilione said the higher-for-longer interest rate environment "puts continued pressure on banks in the battle for deposits and the cost of funding."

M&T Bank Corp.'s total deposits fell 4.4% to $159.91 billion, with broker deposits declining $1.2 billion as the company shrinks its noncustomer funding sources. The company's deposit cost was flat in the quarter, CFO Daryl Bible said.

"As far as the betas go and rates, we continue to just see more rational pricing in the marketplace, and we're able to maybe offer specials, but the specials that we're offering just aren't as high as what they were before," Bible said on an earnings call.

Largest banks

Banks usually log deposit outflows in the second quarter due to seasonal factors, but many institutions, including some of the largest US banks, also said increased competition weighed on their deposits.

First Horizon Corp., which lowered its net interest income (NII) guidance, noted the heightened competition. The company posted $64.79 billion in total deposits, down 1.4% quarter over quarter.

"As I look back at the last couple of months, there has been a significant uptick in the competitive landscape, especially promotional deposit offers, as banks compete for growth against the backdrop of a higher-for-longer interest rate environment and a shrinking deposit base," Chairman, President and CEO D. Bryan Jordan said in an earnings call.

First Horizon had to match the competitive offers that some customers received, a dynamic played out with roughly $1 billion to $1.5 billion in deposits during the last month of the second quarter, Jordan said.

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FB Financial Corp. also saw competition, with three of its large customers moving their deposits for rates "at 75 basis points plus more than we were willing to offer," President and CEO Christopher Holmes said. In the second quarter, the company logged $10.47 billion in deposits, a 0.4% decline from the prior quarter.

Several large banks faced continued pressure on noninterest-bearing deposits, including JPMorgan Chase & Co., which logged a 1.3% decline in total deposits to $2.397 trillion. The company expects continued migration of noninterest-bearing deposits to interest-bearing, which "will be a source of headwinds," CFO Jeremy Barnum said in an earnings call.

A "rotation of deposits seeking higher yield alternatives" was among the drivers of Bank of America Corp.'s sequential decline in NII during the second quarter. The bank's deposits ticked down 1.8% to $1.910 trillion.

Wells Fargo & Co. attributed its year-over-year NII drop to higher funding costs, including the impact of lower deposit balances and customers migrating to higher-yielding deposit products in its consumer businesses, among other factors. Its deposits fell 1.2% to $1.366 trillion.

Citizens Financial Group Inc. booked a 0.04% decline in deposits to $176.35 billion. It anticipates that Federal Reserve interest rate cuts will be helpful in ending the mix shifts that are common across the industry, CFO John Woods said on an earnings call.

KeyCorp reported higher deposits quarter over quarter, ending the period with $145.72 billion in deposits, up 1.0%. The company was able to add deposits despite not seeing "as much opportunity to reduce deposit rates," CFO Clark Khayat said.

"We've continued to attract client deposits without having to lead the market on rates, nor have we been paying the cash premiums that many of our competitors are offering to attract new operating accounts," Khayat said on an earnings call.