Pub. 12 2021 Issue 2 18 West Virginia Banker The Loyalty Factor: Translating Relationships into Non-Interest Income By Achim Griesel and Sean Payant, Haberfeld 2 020 has challenged our industry in ways previously unknown. We began the year expecting our biggest challenge would be continued growth of deposits at reasonable rates. Today, we face three challenges: a prolonged low-rate environment with continued margin compression, the challenge of keeping branches open and serving our communities, and an increasing number of customer transactions moving to the digital arena. Much has been written lately regarding the validity of the branch in the current environment. Has community banking been changed forever based on consumers’ digital behaviors? Possibly. Is some of this for the best? Definitely. Does the branch still have value? Absolutely! Community banking is about community support. It is about being present and accessible. Unless your strategic plan is to shutter your branches and vacate your communities, we encourage you to keep reading. Margin compression is real. So, what can you do? You can offset a portion of it by shifting your deposit mix toward low- or non-interest-bearing deposits. Low-rate deposit relationships should always be the foundation of any strategy looking forward, and community bank data shows your branches are the key to shifting your deposit mix. While new core relationships are strategic in managing and maintaining your margins, they are also a key driver of additional non-interest-income (NII), a critical component in the shorter term. Financial institutions must increase their NII to offset some of the interest income/margin side challenges. To accomplish growing those new relationships, you must do three things: 1. Bring more new customer relationships into your organization. 2. Serve all your customers better than any other financial institution has previously. 3. Make them loyal customers by increasing relational intensity over time