The nation’s 4,839 regional and community banks and 5,041 credit unions are much different financial animals than the biggest banks in the United States. The behemoth banks have substantial chunks of revenue coming from their trading desks, investment banking divisions, and global lending operations. By contrast, smaller banks and credit unions operate a more streamlined business model, focusing often exclusively on the fundamental banking functions of taking deposits and making loans.
This emphasis on the blocking-and-tackling of banking means that smaller financial institutions provide a much clearer window into what’s happening in the real economy. It also underlines the importance of customer satisfaction and loyalty in business success—especially in the current economic environment.
During the Covid-19 pandemic and throughout the quick economic rebound, macroeconomic forces aligned in favor of the financial sector, as trillions of dollars in federal stimulus checks and Paycheck Protection Program loans flowed through the banking system. Consumers were eager to borrow for bigger homes and new cars, and fewer were falling behind on their payments.
The difference between short-term and long-term interest rates has also been helpful. Banks tend to borrow short-term and lend money longer term for mortgages and auto loans at rates that tend to follow yields on 10-year and 30-year government bonds. Profit is the net interest amount, with banks making more money when the spread widens between the interest rates at which they can borrow and those at which they lend.
Over the past two years, smaller banks and credit unions thrived as long-term rates began moving sharply higher, while short-term rates remained at historic lows near zero. When that margin narrows, the most efficient banks will be better equipped to handle the slimmer spreads.
The economic environment in which banks and credit unions operate is now getting more challenging with the Federal Reserve and other central banks around the world pursuing a committed course of short-term rate hikes to fight the highest inflation in more than 40 years. By design, the goal is to slow the economy and reel in rising prices by making borrowing more expensive for banks, businesses, and consumers.
As economic tailwinds dwindle and perhaps turn into headwinds, the imperative to maintain customer relationships rises even higher in importance and becomes more urgent business for small banks and credit unions. The firms with the highest levels of customer satisfaction will enjoy a long-term competitive advantage versus less adept practitioners of pleasing and keeping clients.
Forbes’ fifth annual ranking of the Best-In-State Banks and Credit Unions provides a comprehensive look at the elite of America’s smaller financial institutions.
Forbes again teamed up with market research firm Statista to conduct in-depth interviews of more than 26,000 U.S. citizens from all 50 states about the financial institutions where they maintain accounts. Customers provided an overall satisfaction score and answered whether they would recommend an institution to friends and family. They also responded to a detailed battery of questions about satisfaction in six key areas: trust, terms & conditions (including reasonable and transparent fees), branch services, digital services, customer service, and financial advice.
Excluded from the rankings were institutions that have branches in more than 14 states, which bars from consideration big national banks like Bank of America
Between one and five banks and credit unions in each state were awarded the Best-In-State designation, based on the number of responses in each state. Each bank and credit union on average received completed survey responses from 50 surveys, which queried consumers on topic ranging from mobile banking ease-of-use to transparency of fees and interest rates, plus the hours and accessibility of bank branches.
Overall scores ranged from 74.2 to 93.6, and 133 unique banks and 171 unique credit unions qualified to earn best-in-state accolades, representing just 2.7% of all U.S. banks, and 3.4% of all credit unions.
A trio of larger regional banks—Fifth Third Bank
A handful of elite banks from five different states earned the highest scores from their customers: Rhode Island’s BankRI (91.41), D.L. Evans Bank (90.86) in Idaho, Wisconsin’s Tri City National Bank (90.37), Vermont’s Community National Bank (90.14) based in Derby, and New Peoples Bank (90.01) in Honaker, Va.
Credit unions have long provided a way for their members who had money to lend to put it to work providing credit to members looking to take out a loan. Their nonprofit model blossomed across the United States during the twentieth century as groups of employees from large companies, school boards, local government, and the military came together to offer each other competitive interest rates on savings and loans on reasonable terms. Today there are more than 5,000 credit unions nationwide in cities and towns, large and small.
Aside from basic savings and checking accounts, credit unions are where millions of Americans turn when they need a mortgage to buy a home, a loan to purchase a vehicle, or capital to fund their business. Now that the Federal Reserve is hiking interest rates to fight inflation, that could mean a slowdown in loan demand, although rising rates will tempt many members to add to savings. Keeping customers for life will remain the name of the game for the best credit unions.
As the functions of credit unions and banks increasingly blur in the eyes of consumers, mergers and acquisitions have been active with the buying going both ways between banks and credit unions. In rapidly growing states like Florida and Texas where demographic flows have propelled home and auto lending volumes, credit unions are often more acquisitive than banks.
The data suggest that expansion has not come at a cost to customer satisfaction for the 543 employees at Tampa-based Grow Financial (91.06), which earned the highest overall score in the Sunshine State. Other Florida credit unions earning Best-In-State honors include Pensacola’s Pen Air Federal (89.71), Jacksonville’s Community First (88.07) and VyStar (87.30), and Tampa-based Suncoast Credit Union (86.75).
Earning the top-five highest scores nationwide in 2022 are Oklahoma City-based WEOKIE