Amid banking crises, fluctuating interest rates, and the threat of recession, these are some of the most volatile times the banking industry has seen in a long while. 

While the operating challenges are myriad, deposit growth and retention are top of mind for most bankers. Mid-sized banks lost 1.9% of their total deposits in the first quarter of 2023, and bank executives are taking notice. In a survey taken at the end of 2023, 70% of bank executives said small business deposits were a priority, a significant increase from 40% the previous year.

AR Funding maintains relationships with many banks across the U.S., and we reached out to one of them to find out what they were doing to shore up deposits against the persistent outflows affecting banks of every size and type. 

Clinton McKinney has been with Coastal Carolina National Bank (CCNB) since 2018, and his current role is Senior Vice President and Regional Executive for the Midlands region. While his portfolio of clients is diverse, the majority of his time is spent on commercial lending and banking. 

McKinney shared some of his experiences with the bank’s depositary challenges, along with some of the approaches that are helping CCNB maintain strong relationships with business customers.

Among the issues McKinney cited are deposit rates that fluctuate more fluidly with the market, which means that they climb more quickly than fixed loan rates reset. The security of deposits is also an issue. 

“The real challenge is being able to gather deposits and price them so that you can offer competitive loans and put those deposits to work,” McKinney said. “In addition, when loan rates go up, borrowers tend to curb borrowing and use their cash.” 

However, there are several factors that are helping CCNB achieve the dual aims of growing bank deposits and ensuring their commercial clients have the support they need to flourish.

Deposit insurance

CCNB is fortunate to have access to FDIC insurance coverage for deposits. While this increases the cost of deposits, it provides greater peace of mind to their commercial clients and encourages them to confidently deposit their cash. 

Pivot from loans to deposits

McKinney said that gathering deposits has now become CCNB’s top focus, much more so than lending. Two years ago, with ample liquidity, the bank focused on seeking out loan opportunities. Today, deposits are a much bigger part of the growth story. 

“A few years ago, targeting deposit-only customers didn’t really have a return with what our cost of capital for alternative funding sources is,” he explained. “Today, it has really changed more of the focus and the internal knowledge that deposits are a major profit driver as well as an opportunity to grow, and we are targeting some of the folks that are expected to have more of a deposit-only need.”

Focus on value-added service

CCNB has always focused on relationship banking, which entails truly knowing their customers and helping with their needs beyond just lending. In the current banking environment, being able to anticipate and serve the customer’s best interests is more important than ever, but it can also be more difficult. 

“In times of negative economic headwinds, you see banks wanting to restrict advance rates or tighten up concentration limits on more specialized assets,” McKinney explained. “We’re even introducing more restrictions on traditional assets such as real estate, given the fluctuations we’ve seen in value.”

That’s why CCNB’s partnership with AR Funding is particularly beneficial right now. AR Funding enables businesses to access operating cash through invoice factoring, an option that CCNB is unable to extend to their clients directly.

“We can’t make credit decisions in this area with the experience and detail that AR Funding brings,” said McKinney. “They are able to use a different risk model to understand the client and the receivables on a different level, and they can also perform the processing aspect of factoring, which banks aren’t set up to do.”

Connecting clients to factoring options gives them financing options beyond the loans and secured lines of credit that banks are able to offer. For CCNB, referring clients to AR Funding reinforces the banking relationship by providing access to a wider range of quality financial supports. 

“AR Funding has helped our clients during a transitional period, a period of growth or the launch of a new business area,” said McKinney. “So it has been a very positive relationship, where we can offer this additional resource while still retaining our clients’ traditional banking needs.”

Client success leads to banking success

McKinney has worked closely with AR Funding throughout his tenure at CCNB and trusts them to further the best interests of his valued commercial clients. Throughout the partnership, AR Funding has been flexible, thorough and responsive. 

“What I appreciate most is the ability to get a timely answer,” McKinney said. “A timely ‘no’ is as appreciated as a timely ‘yes.’ For customers who need a source of capital, the need is often urgent, so the ability to connect and get an answer quickly makes a big difference to them.”

And when the answer is “yes,” it can have a tremendously positive effect on the client and for CCNB.

“Invoice factoring allows our clients access to additional capital,” McKinney explained. “That access to capital allows them to mature as a company and grow to holding and having those deposit coffers with us.”