hanks to the way Amazon and other online retailers have revolutionized the retail experience, financial institutions can no longer rely exclusively on bankers in branches to sell loans, deposit accounts and other financial products. Banks must now factor customers’ digital experience into the equation as well.
Some banks have even begun to retreat from retail banking, particularly from compliance-heavy mortgages, to focus instead on commercial opportunities that leverage their niche strengths. Others still see value in the retail sector, given that financial services remain a critical component of consumers’ lives.
To examine the retail strategies of high-performing banks, Bank Director looked at deposit-gathering efficiency, based on core deposits per employee; lending efficacy, based on the loan-to-deposit ratio; and the size of each bank’s retail loan portfolio, based on mortgage and consumer loans on each bank’s balance sheet—all as of March 2018. Growth in market share, from June 2013 to June 2018, and mortgage and consumer loan portfolios, over a two-year period ending March 2018, were factored in, too, as was the quality of those portfolios, assessed by examining loan charge-offs as of March 2018. In recognition of the digital evolution in banking, we created a mobile satisfaction score to examine each bank’s retail mobile app, based on app store ratings (September 2018), and analyzed each bank’s app features.
In addition, we studied each bank’s retail products, as well as their use of technology for things like online account opening. Bank analysts were also surveyed.
Each bank was scored relative to its regional peers. To determine the overall category winner, regional winners were then scored against each other. Due to this second scoring, the overall winner’s final score differs from its regional score.
South State Corp. has the best retail strategy of the group, according to our analysis.
The bank’s diverse loan offerings include mortgage loans, manufactured housing loans, and loans to purchase cars, motorcycles, boats, personal watercraft and RVs. Its mortgage loan portfolio, at $3.7 billion, is second only to BankUnited ($4.8 billion) in the region, and at $573 million, its individual loan portfolio—which includes auto loans, credit cards and other consumer loans—is second to Bank OZK ($1.7 billion). Those portfolios have grown by 41 percent (mortgages) and 17 percent (individual loans).
Customers of South State Corp. have access to a robust selection of deposit products, which feature online account opening for checking and some savings accounts. Its customers can also apply online for most of the bank’s loans and lines of credit.
South State operates in markets that are growing faster than the national average—namely, South Carolina, North Carolina, Virginia and Georgia. This drives organic growth, says Chris Marinac, director of research at FIG Partners. “It has potential to grow, because there are still big banks they can win business away from, so I feel like that process of winning new business is not over.”
First Republic Bank was assessed to have the best retail strategy in the West. With $16.5 million in core deposits per employee, the bank employs one of the more efficient deposit-gathering operations among the banks analyzed— as detailed in its overall win in the branch network category.
Of all the high-performing banks, First Republic has the largest mortgage portfolio on its balance sheet, at $35 billion, as well as a large portfolio of consumer loans, at $3.2 billion. Its mortgage offerings include options for vacation and second homes—appropriate for its focus on affluent customers.
“First Republic focuses on high-net-worth individuals, and typically they start with the jumbo mortgage loan,” says David Long, an analyst with Raymond James. From there, the bank cross-sells wealth management services or services for their businesses.
Commerce Bancshares topped the Midwest, due in large part to its focus on the digital experience. Its mobile banking app rated a 4.1 out of 5—exceeding an average 3.4 rating for the banks we analyzed—and is one of the few to offer card management tools. Like South State, Commerce also offers an instant balance option, so customers can access their account balance without logging into their mobile app. And along with First Republic, Commerce includes a travel notification feature within its mobile app.
Finally, M&T Bank Corp., with $24 billion in mortgage loans and $8 billion in individual loans, was recognized in the Northeast for its retail strategy. Its mortgage offering includes unique options such as biweekly payments, so customers can pay off their mortgages faster. Despite its size, it grew consumer loans by 41 percent.
M&T recently upgraded its mobile offering by launching Zelle in September (after Bank Director wrapped its analysis). The regional bank joins the big banks, along with just two of our high performers—Fifth Third Bancorp and Bank of Hawaii Corp.—in giving their customers access to the real-time payments solution.
How They Ranked: Best Retail Strategy
|SCORE||MOBILE SATISFACTION SCORE (AVG OUT OF 5)||MORTGAGE LOAN VOLUME (THOUSANDS)|
|OVERALL WINNER: South State Corp.||1.96|
|1||M&T Bank Corp.||2.38||3.15||$24,107,583|
|3||Community Bank System||3.09||2.55||$2,699,168|
|4||Webster Financial Corp.||3.23||2.30||$6,835,625|
|2||Chemical Financial Corp.||2.68||2.30||$4,129,297|
|4||Fifth Third Bancorp||3.22||4.45||$22,393,225|
|5||Great Western Bancorp||3.51||4.65||$740,591|
|1||South State Corp.||2.29||3.10||$3,670,596|
|3||FCB Financial Holdings||2.79||3.20||$2,721,629|
|1||First Republic Bank||2.18||3.95||$35,357,813|
|2||Bank of Hawaii Corp.||2.72||4.35||$5,073,209|
|3||Cathay General Bancorp||2.92||2.95||$4,083,714|
|4||East West Bancorp||3.00||4.55||$7,106,388|
|5||Western Alliance Bancorp.||3.60||3.40||$418,128|
SOURCES: Federal Deposit Insurance Corp., iTunes, Google Play, bank websites, annual reports and filings