As banks continue looking for ways to shrink their branch networks amid a historic shift to digital delivery systems, some institutions are moving in a different direction, opening new branches in a bid to attract deposits.
That's been the case at White River Bancshares in Fayetteville, Arkansas. The $983 million-asset holding company for Signature Bank of Arkansas, White River has opened three locations — White River calls them market headquarters — since December 2021, including a bilingual office in Rogers, Arkansas, that caters to the region's growing Hispanic population.
Though White River reported 12% year-over-year deposit growth last week, Chief Strategy Officer Scott Sandlin said the added locations were too green to contribute much to the 2022 bottom line. On the other side of the equation, expansion costs helped drive a 19% spike in noninterest expenses, which served to mute profits. Following a record-setting 2021, net income for 2022 declined 20% to $5.62 million, White River reported last week.
"We knew we were going to be facing headwinds in the economy," Sandlin said. "We believed taking the money we made in that great year of 2021 and investing in new markets will pay dividends in 2023."
Unity Bancorp of Clinton, New Jersey, opened a branch in Lakewood, New Jersey, last month. The $2.4 billion-asset Unity plans to open two additional Garden State offices, one in Fort Lee, one in Morris County, in 2023. The goal is attracting deposits to reduce the current 118% loan-to-deposit ratio.
Unity had been blocked from expanding for more than two years, the result of a
The expansion moratorium, combined with robust loan growth put pressure on Unity's balance sheet, contributing to the outsized loan-to-deposit ratio Unity reported earlier this month as part of its fourth-quarter financial results. Unity grew loans 28% in 2022. Deposits increased just 1.6%.
On Dec. 31, 2020, Unity's loan-to-deposit ratio stood at 104%. Unity's target threshold is 110%.
"We are eager to resume our geographic expansion, specifically in Bergen, Ocean and Morris counties," CEO James Hughes said in a press release.
Other banks are shuttering their branches, including Northwest Bancshares in Columbus, Ohio, and the $4.1 billion-asset Bank of Marin Bancorp in Novato, California. Northwest, which has $14.1 billion of assets, plans to close eight locations by April, and the $4.1 billion-asset Bank of Marin said it would close four branches. Both companies reported fourth-quarter financial results earlier this week.
Jake Civiello, who covers Unity for Janney Montgomery Scott, wrote in a research note that the bank would manage its balance sheet "through focused deposit-gathering efforts and slower loan growth," as it waits for the Federal Reserve to begin easing interest rates.
"We believe the loan-to-deposit ratio will stabilize at closer to the 120% level," Civiello wrote.
White River also enjoyed an uptick in lending, especially in the second half of 2022. The company reported loans of $826.7 million on Dec. 31, up 21% year over year.
"The past two quarters, you almost had an urgency for people thinking about closing a loan because interest rates were going up so quickly," Sandlin said. "We had [four] 75-basis-point increases in four or five months. You talk about shocking the system."
Those same hikes signaled an end to years of exceptionally low interest rates punctuated by a massive injection of COVID-19-related stimulus spending by the federal government, all of which combined to make deposits cheap and plentiful.
"As far as deposits are concerned, this is back to old-style banking," said Val Srinivas, banking and capital markets research leader at Deloitte's Center for Financial Services. "For the last decade or so, banks didn't have to do much to gather deposits, Now, it's becoming more of a competition."
Srinivas co-authored a new report focusing on the
"Probably for too long, that kind of customer reach-out or interaction has become passive, especially in the deposit context," Srinivas said.
Along those lines, Tim Partridge, Deloitte Consulting's commercial banking segment leader, said banks need to prepare for more deposit-related interactions by ensuring front-line officers fully understand customers' profitability. "Understanding client profitability has been a challenge for banks for a long time, and now with increasing pressure to raise deposit interest rates, it has become even more important," Partridge said Tuesday.
According to Sandlin, White River bankers can pitch a number of attractive products, including a robust treasury service, and they're not shy about asking prospective clients to move all their cash into Signature Bank of Arkansas.
"If you come to us and you're not interested in a relationship, we're not interested in doing business," Sandlin said. "We need to know our customers. We work hard to have that full-on relationship."
