Published in Finance

New customers, federal relief programs drive growth in bank deposits

BY Sunday, October 10, 2021 05:30pm

Some of the smallest banks in Michigan’s market recorded the biggest growth rates in deposits during a recent 12-month period of the COVID-19 pandemic.

While most banks large and small grew their deposits from June 2020 to June 2021, the sizable percentage gains at some community banks stand out in the latest annual summary by the Federal Deposit Insurance Corp.


Bank executives cite several factors that drove up deposit levels, including picking up business after the Huntington Bancorp Inc.-TCF Financial Corp. merger, business customers that had funds remaining from a federal Paycheck Protection Program loan, and consumers who stocked away their federal stimulus checks.

“PPP drove a lot of that deposit growth for our industry. We distributed so much money to our customers,” said Phil Koning, CEO of Hudsonville-based West Michigan Community Bank, which grew deposits 14.7 percent to $670.9 million as of June 30.

Many PPP loans for small businesses have since been forgiven, and “that’s all cash coming right back into community banks,” Koning said.

“Many customers needed it and it saved them, but many customers just stashed it away for a rainy day,” he said. “And that happened both on the commercial side with PPP and with a series of checks that the government sent out to all of our retail customers. Same thing: Some needed it, but some didn’t. That’s one of the reasons we grew so significantly.”

As well, most of West Michigan Community Bank’s industrial customers and many retail clients “have fared very well through this pandemic,” further supporting deposit growth, Koning said. Some restaurants are even having “banner years,” he added.

Eric Eishen, president and CEO of Sturgis Bank and Trust, speculates that a large gain in deposits partly came from a “lack of spending by consumers and businesses over the pandemic.”

“People were penned up at home and not spending or could not spend because products they wanted were not available,” Eishen said in an email to MiBiz. “It may not seem like much, but if you do not have a full work force, or people are not in the office using energy and other resources, you save money.”

Sturgis Bank, which has 14 offices in Southwest Michigan, grew deposits 32.4 percent in a year to $571.6 million as of June 30, according to the FDIC’s Summary of Deposits released last month.

Eishen also credits the strong deposit growth to the opening of two new offices this year in St. Joseph. To staff the new offices, Sturgis Bank was able to hire bankers from larger regional banks who had “a number of customers follow them without even being solicited,” Eishen said.

Growth for small banks

The FDIC’s annual Summary of Deposits provides a snapshot of activity and market shares for banks in their markets. Community banks that recorded large year-to-year deposit growth were:

  • Southern Michigan Bank & Trust in Coldwater, which increased deposits 25.2 percent to $953.4 million
  • Holland-based Macatawa Bank, which increased deposits 22.8-percent to $2.6 billion
  • Grand River Bank, with offices in Grandville and Ada, which increased deposits 21.9 percent to $414.4 million
  • Grand Rapids-based Independent Bank, which increased deposits 10.3 percent to $3.9 billion
  • Northpointe Bank, which is primarily a mortgage lender and operates a single bank branch in Grand Rapids, increased deposits 31.4 percent to nearly $2.2 billion

Grand River Bank President and Chief Operating Officer Liz Bracken credits the strong deposit growth to new customers gained over the year, PPP borrowers who “moved their entire banking relationship,” and to many business clients that “had really good years, weirdly.”

As well, clients who received a loan in the second PPP round may still have had some of the first round’s loan on deposit when Grand River Bank reported data to FDIC, Bracken said.

“Because of the time period from when those loans got funded, we probably still had a little bit of benefit from that,” said Bracken, adding that Grand River Bank’s deposit growth goes to support lending.

“It gives us the opportunity to just focus on growing more,” she said. “Most of these deposits will be put to work by the end of the year.”

Likewise, Koning at West Michigan Community Bank said deposits have been growing faster than loans. The recent deposit growth provides funding to continue growing the bank’s loan portfolio and become more competitive on lending approvals and rates, he said.

West Michigan Community Bank has also picked up customers from TCF who opted to move to a smaller institution after the merger with Huntington.

“There’s that demand from that movement in the marketplace, and we have funds to fund that,” Koning said. “If we can use our own core deposits to fund deals, that makes us more competitive.”

Statewide, deposits across Michigan grew 9.5 percent to $312.1 billion from June 2020 to June 2021. The growth rate followed a 25-percent increase in statewide deposits in the 12 months prior to June 30, 2020, a period that includes much of the PPP’s first round.

In West Michigan, Fifth Third Bank continues to lead the $30.2-billion Grand Rapids-area deposit market with a 21.69 percent share, or $6.55 billion, followed by Huntington Bank at $5.88 billion or 19.5 percent.

Fifth Third Bank also remains the market leader in the Muskegon and Niles-Benton Harbor areas. Huntington ranks as the top bank for deposits in the Battle Creek-area market and PNC Bank leads the Kalamazoo-area market.

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