Community bankers are having to become creative when it comes to bringing in low-cost deposits.
Targeted campaigns, checking in on dormant accounts and partnerships with local businesses are among the ways bankers are looking to boost liquidity without overpaying depositors. Several executives provided a glimpse into their practices at American Banker’s Retail Banking Growth Stories conference in Austin, Texas.
It is a critical issue for community banks as they fight against bigger banks and credit unions for cheap funding. Deposits at banks with less than $10 billion in assets fell by 2% last year, including a 5% drop in non-interest-bearing deposits, based on data from the Federal Deposit Insurance Corp. Funding costs rose by 21 basis points, to 0.71% on Dec. 31.
“Deposits will be the big battle for banks over the next five years,” Tom Brown, founder of Second Curve Capital, said during his remarks at the conference. “It will be done in an environment where big banks will be fighting with very attractive business models.”
Increased use of data analytics was a common theme for bankers.
FB Financial in Nashville, Tenn., zeroes down to specific ZIP codes to assess opportunities in its markets, said Wade Peery, the $5.1 billion-asset company’s chief administrative officer. FB periodically assesses each market’s profitability, revenue growth and the number of households banked.
Performance influences the compensation for market leaders, Peery said. While leaders can pursue business from beyond their markets, they are not compensated for those loans and deposits.
First Federal Bancorp in Lake City, Fla., is using technology from Quest Analytics to identify “disengaged leads,” or accounts for people who haven’t visited a branch in at least 90 days, said Stephanie McClendon, the $1.8 billion-asset mutual’s director of retail banking.
The bank evaluated personal accounts with balances of at least $10,000 and business accounts with a minimum of $5,000.
First Federal layers in a personal touch, having bankers check in on customers — with instructions to avoid pushing products.
First Federal has used the approach at its Jasper, Fla., branch, where bankers last year brought in $2 million in deposits by contacting disengaged customers. One employee, once in danger of being fired, brought in $934,000 of the amount.
“People will step out on you on the deposit side,” McClendon said. “Banks don’t typically reach out. They’re not proactive.”
First Exchange Bank in Mannington, W.Va., has also been tapping into data for build stronger relationships. The $250 million-asset bank also worked with Quest Analytics to have 12,400 customer conversations last year.
Those discussions led to 2,000 individual sales, including the adoption of online banking to mortgage originations, said Tim Liebrecht, a deposit specialist at the bank. Total products and accounts have increased by 16% since the effort began in 2017, even though the customer base has risen by just 2%.
“Little steps make a big difference,” Liebrecht said. “Customer data is a powerful tool, but we had no way to leverage it.”
First Merchants in Muncie, Ind., has a targeted approach to gathering deposits, said Carrie Valek, the $9.9 billion-asset company’s director of consumer banking. A workplace banking program has been a big factor, accounting for a fifth of new checking accounts.
The company in 2017 streamlined its deposit lineup to three products after soliciting feedback from potential customers. All grandfathered products were rolled into the streamlined lineup last year.
First Merchants is also working on a digital-only branch, though that is raising internal questions about how to connect with certain customers.
“If you segment those customers to their own bucket — and they’re digital only — how do we market and honor their desire to be digital only?” Valek said.
Banks are also using creative partnerships.
During a roundtable discussion, a Midwest banker shared how his institution collaborated with a local gym on a marketing effort designed to tap into New Year’s resolutions. The banker, who asked not to be identified, said the campaign helped the gym bring in members, while the bank handled new account openings.
While most bankers don’t want to compete with pricing, it remains an important factor in landing new business.
First Merchants is spending more time educating branch staff on how pricing works, giving more instruction on the cost of funds and how to determine if matching a rate will be profitable, Valek said.
“You truly have to attract the full relationships of the client,” she said. “There’s been a lot of leaning in over the last 12 to 18 months.”
“Bankers don’t always understand that deposits fund loans and not all deposits are equal,” Peery said. “There’s a fight here. You have to know who you are and who you want to be — and then deliver the experience.”
The bankers made another point clear: A multifaceted approach is necessary to bring in deposits in a competitive environment.
“Not one tactic will drive deposits,” Valek said. “You must focus on culture and keeping clients in the center of your discussions. And you must make sure that people understand that deposits are everyone’s responsibility. It is a whole-bank initiative.”
