THE EVOLVING What You Need to Know DEPOSIT LANDSCAPE The rise of digital banking and fintech platforms has transformed depositor behavior, making it increasingly important for community banks to adapt their strategies to manage the cost of funds and remain competitive. This challenge has been a top concern for community banks in recent years, as rising rate sensitivity, digital banking adoption and evolving depositor expectations continue to reshape the industry. To stay ahead, community banks must understand these structural shifts and develop sustainable funding strategies. The Growing Cost of Funds and Deposit Competition Nearly 90% of community banks identified cost of funds as a very or extremely important issue, according to the Conference of State Bank Supervisors’ (CSBS) 2024 Community Bank Survey. This proportion has nearly doubled since the 2022 survey, reflecting both rising funding costs and heightened deposit competition. The cost of funds has more than tripled since 2020, increasing from 0.74% in December 2020 to 2.85% by March 2024. As rates increased, depositors became more rate-sensitive, leading to greater money movement between banks and non-bank financial institutions. By Michael A. Johnson, SVP and Southwest Regional Manager, PCBB 20
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