Best Retail Strategy

Community Bank System’s super-low cost of funds — 0.19% — didn’t happen by accident. It’s the result of a strategy the bank adopted 15 years ago.

“One of the elements of that [strategy] was core deposit gathering — because everybody’s out there lending, and the rates are all the same,” says CEO Mark Tryniski. “Where you can really make a distinction and differentiation on the balance sheet is your funding.”

Roughly 70% of Community Bank System’s deposits come from low-cost, sticky checking and savings accounts, he says. “They last longer. So, you’ve got low-cost funds that are stable and also generate fee revenues. To me, it’s a no-brainer” to pursue core deposits.

To identify the best retail strategy among the industry’s high-performing banks, Bank Director examined core deposits as a percentage of total deposits, core deposit growth and cost of funds. We looked at mortgage and consumer lending, based on growth, portfolio health and their proportion to total loans. And we examined the breadth of each bank’s retail offering, use of technology to deliver services, and reputation with customers in its markets. All of these factors were ranked and scored based on an algorithm specific to this category.

Given the importance of digital delivery, we also measured the comprehensiveness of the mobile channel, based on advertised features, and calculated an average of each bank’s rating in Apple’s app store and Google Play.

Community Bank System’s approach to retail earned it the top place in the 2021 RankingBanking study’s Best Retail Strategy category, based primarily on its low cost of funds, retail focus and recent upgrades to its digital platform.

Prior to the pandemic, Community Bank System enhanced its digital marketing capabilities and customer-facing platform. “It’s a process that starts on the front end with digital marketing and advertising, and then on the back end with platforms that are consumer friendly and are robust and easy to use, and quick,” Tryniski explains. The new mobile experience has earned positive feedback from customers, based on app store ratings and reviews.

Success in retail is predicated on getting digital delivery right and continuing to provide a strong customer experience, says Kara Baldwin, a partner at Crowe. “Otherwise, your strategy won’t have long-term value.”

Mortgage banking is another significant driver of Community Bank System’s retail success, says Tryniski. “We have hundreds of mortgage lenders,” he says. And decisionmaking is local: All branch managers have lending authority for mortgage, small business and consumer loans. “That’s a little different about our model,” he says. “The mortgage market has been pretty strong in a lot of markets [including ours]; there’s been significant acceleration of demand.”

Independent Bank Corp., which operates through Rockland Trust Co., scored second in the category. Like Community Bank System, it boasts a high level of core deposits. Mortgage loans have grown 96% from December 2014 to December 2019. Its mobile capabilities include integration with the Apple Watch.

Ranking third, First Capital, which operates through First Harrison Bank, outperforms Community Bank System when it comes to having a high level of core deposits, though it has a slightly higher cost of funds, at 0.23%. Its consumer loans have grown 86% in the five-year period examined by Bank Director.

WSFS Financial Corp., at fourth, boasts strong growth in both mortgage and consumer loans, fueled in large part by its acquisition of Beneficial Bancorp, which closed in 2019. After the merger, it has maintained a strong reputation with customers: 68% of them rated the bank 5 out of 5 in a Gallup survey conducted in December 2019. And WSFS strives to provide all the digital bells and whistles customers could want, such as myWSFS, a mobile app that connects customers with a live banker. WSFS doubled its number of myWSFS bankers in March 2020 to better respond to customer needs during the Covid-19 pandemic.

Finally, First Financial Bankshares ranks fifth, featuring strong core deposit and consumer loan growth, and the lowest cost of funds, at 0.16%. It also has a highly regarded mobile app. But CEO Scott Dueser identifies culture as the true differentiator for his bank; Ritz Carlton co-founder Horst Schulze has been working with First Financial to take customer experience to the next level.

“We really have a very strong team of people that work together extremely well,” says Dueser. The bank’s customer-centric philosophy adds to the bottom line — which enhances its overall value.

Ultimately, high-performing banks that excel in retail exhibit a keen understanding of their markets and the people living in them. “You really have to understand what your customers want, what is important to them, and then be able to meet them in that space,” says Crowe Partner Rick Childs.

How They Ranked: Best Retail Strategy