RankingBanking 26 Digital - Flipbook - Page 8
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When someone tells a friend where they bank,
he says, they don’t list their home equity loan,
“Every day, we get up, and
we fight to win those accounts.
And then once we win them,
we fight to keep them every day.”
boat loan or mortgage — but where their pay-
Tim McFarlane, Bank First Corp.
NIM, he says. But the bank’s margin “ends up
check lands.
“Every day, we get up, and we fight to win those
accounts. And then once we win them, we fight to
keep them every day,” McFarlane says, highlighting the bank’s focus on “top-notch” customer
service and dutifully resolving any complaints.
Bank First doesn’t have a specific target for
looking pretty favorable,” he adds, thanks to some
30% of its funding base coming from noninterest-bearing demand deposits. Its NIM was 4.13%
that “2025 was a better-margin year.”
It was even better for the top performers on the
RankingBanking list, thanks in part to high-quali-
in the second quarter, according to the bank’s
earnings release.
Noninterest-bearing deposits aren’t free, says
ty deposits. The top 25 banks had an average cost
Rajdeep Sengupta, a senior economist at the
of deposits of 1.52% at the end of 2025, beating
Federal Reserve Bank of Kansas City who focuses
the 1.94% average for other banks in the study,
on banking. Bankers note they invest heavily in
according to Piper Sandler.
their branch networks, online tools and in their
One reason why: their outsize pools of noninterest-bearing deposits.
employees — all of which keeps customers happy
without taking their money elsewhere.
But during the sharp post-pandemic rate hike
Deposit Buffer
Noninterest-bearing deposits are the checking
cycle, those noninterest-bearing deposits were a
key differentiator between banks whose NIMs
account that consumers use to cover rent, buy
rose and fell, according to a 2024 paper that
groceries and pay their bills. Or they’re the main
Sengupta co-authored.
transactional account for a business paying its
suppliers and employees.
Lacking such buffers, other banks’ interest-bearing deposits adjusted quicker to the Fed’s hikes.
Those “operational” funds flow in and out, and
Banks also turned to capital market sources for
their on-demand nature means they generally do
non-deposit funding, where banks effectively have
not pay interest — unlike certificates of deposit
to “pay what the market is asking,” Sengupta says.
and other savings-oriented products. So, when
When rates were low, those sources of funding
interest rates rise, banks with larger shares of
were cheaper. But the “costs increase much more
checking accounts tend to benefit.
rapidly” when interest rates rise, he adds.
That includes Bank First Corp. in Manitowoc,
Wisconsin, which came in at No. 6 on the Rank-
Building the Moat
ingBanking list. Executives at the $5.9 billion
Building a deposit buffer is easier said than
bank view primary checking accounts as the
done. At smaller institutions in more rural mar-
“linchpin” of customer relationships, says Timothy
kets, bankers rely on deep relationships across the
McFarlane, the bank’s president.
community — banking many households rather
