The good news is that deposits were up at most U.S. banks last year, according to American Banker's latest annual survey of the top 300 commercial banks.

The bad news is that even faster growth in lending last year, coupled with shrinking margins, means banks won't benefit much from easier deposit- based funding in the months ahead. (Tables start on the next page.)

"Cost of funding is going up," said Frank de Santis, a bank analyst with Donaldson, Lufkin & Jenrette.

More important, he added, "if you look at deposit growth versus loan growth, there's increasing pressure on liquidity, because loans have been growing much faster than deposits for the last six months."

Other analysts expressed similar concerns. "Banks got big benefits from the fall in interest rates, and there wasn't much competition around for deposits," said John E. Otis 4th, a vice president at IBCA Inc. "But loan growth has outpaced growth in deposits, and competition for deposits is heating up," he added.

According to a recently completed IBCA survey of 54 U.S. banks, their total loans advanced more than 11% in 1994, to $1.5 trillion. Deposits, meanwhile, deposits grew to 84.6% of that figure, from 80.4% of 1993's $1.35 billion and 79.6% of 1992's $1.27 trillion.

Said Tanya Azarchs, a bank analyst with Standard & Poor's Corp., "We're seeing a margin squeeze."

Analysts noted that much of the recent rise in deposits stems from increases in interest rates, which have encouraged consumers and corporations to pull money out of other investments and park them in banks.

Unfortunately, most of the transfers have gone into higher-yielding certificates of deposit, on which banks pay more expensive rates than on simple savings accounts.

According to Federal Reserve Board data released at the end of March, savings account balances peaked in April 1994 at $790 billion and have since fallen 8%.

In contrast, small time deposits, mainly certificates of deposit, bottomed out at around $460 million but have since risen 17%.

Bankers said they aren't concerned about the general trend. Even if margins may be shrinking generally, they pointed out, that's not automatically the case for every bank.

"We had an excellent quarter in terms of loan growth and earnings growth, and we've held our margins fairly steady despite rising interest rates," said Peter Magnani, a spokesman for BankAmerica Corp. First-quarter net interest margins at the San Francisco-based bank rose to 4.55% from 4.45% in the same period last year.

However, Mr. Magnani conceded that revenue generation in the banking industry is "not increasing at the speed we'd like to see it. There are certainly huge competitive pressures out there," he said.

Ken Herz, a spokesman for Chemical Banking Corp., noted that sales of CDs are at a five-year high. He said that deposits at Chemical rose more than $2 billion last year. "Retail deposits are doing quite nicely," he added.

Even if net lending spreads shrank at Chemical over the first quarter, the decline in margins was caused by a rise in the costs of other types of funding and not from deposits, he said.

Still, analysts predicted banks are going to start feeling increasing pressure on the spread between deposits and loans.

"Core earnings are clearly not growing at money-center banks. This is absolutely the best part of the cycle for regional banks, and it probably doesn't get any better," remarked Lawrence Cohn, a banking analyst with PaineWebber Inc.

"Banks that benefited from rising rates and lagging consumer pricing are not going to be able to have it the other way when rates start coming down and banks see their margins squeezed on the downturn."

There were relatively few changes in the rankings. Citicorp remained the biggest bank in deposits, with $142 billion, up from $128 billion at yearend 1993. Most of the increase, said Citicorp spokesman John Morris, came from adjustments for the U.S. dollar value of foreign deposits in other currencies.

Mergers and acquisitions contributed to major increases in deposits at a number of institutions and significantly boosted their rankings in the league tables.

For example, First Fidelity Bank, Elkton, Md., rose 13 places to eighth in the ranking as a result of consolidation with four other banks in New York, New Jersey, and Pennsyulvania.

NationsBank Corp.'s Bethesda, Md., unit moved up 106 notches to 30th place as a result of a merger between NationsBank and Maryland National Bank. First of America Bank Michigan, Kalamazoo, climbed 253 places to 37th, as a result of a merger with six other units of First of America.

The biggest loser was Union Planters National Bank, Memphis, which fell 104 places to 262d, after its parent company transferred nearly $1 billion in deposits to four other subsidiaries.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.