In a nutshell, the future of loan, deposit and investment rates look higher, flatter and more competitive. As the Federal Reserve continues to raise rates, investors believe the economy will start to slow. When it does, the yield curve is projected to continue to flatten. Further, systemic changes in banking such as a higher percentage of customers using digital banking, increased media effect and changes in customer behavior are serving to alter some historical relationships.
When the FCC adopted Net Neutrality back in 2015, banks were concerned that wireless carriers where going to turn to payments to make up for the lost revenue that the wireless carriers and cable providers were missing from delivering a premium-priced internet package. That not only didn’t happen, but several players with payment application, such as AT&T’s Softcard partnership never panned out. Now, with the repeal of Net Neutrality, there are worries that the carriers can now direct traffic to their payment channels and better compete with banks.
In 2017, bank marketing expenditures were up. According to financial reports and FDIC data, banks spent an average of 3.5% of total expenditures on marketing and advertising on a year-to-date basis. That is about 6% of total revenues—and up about 0.05% of total expenditures.
In 2010, Paul the octopus was tasked with predicting the outcomes of the World Cup. At feeding time, Paul was presented with two different glass boxes that contained his food each representing one of the teams. To Paul’s credit, he was on a roll as he correctly predicted the outcome of all eight German soccer matches leading up to the final. However, instead of having abnormally strong psychic or predictive prowess, the little cephalopod was just lucky. There was a 1 in 256 chance that Paul would correctly divine the outcome of each German match, and he nailed it.
Many banks manage loan growth absent of other factors on the balance sheet. Historically, that has proven to be a mistake as strong loan growth often leads to a more rate sensitive bank. Many banks increase loan growth in a rising rate environment without regard to risk-adjusted loan return or deposit performance. While we often cover how to manage risk-adjusted loan return, in this article, we want to highlight the tradeoff between loan growth and deposit performance in hopes of giving bankers a better formula for high-performance.
Since we deal with the majority of banks in our industry, one trend that we noticed is the number of banks that are using email authentication in 2017. Only a handful of banks had email authentication back in 2016, and now it seems that about one-in-twenty community banks do from our data.
Most banks are concerned with their credit portfolio. As credit risk increases, the following question comes up: is better to diversify by geography, by property type or by business type? This is to say that next year, do you focus your marketing dollars and pricing on particular counties, commuter zones, types of commercial real estate loans or certain C&I industries? The answers may not be so apparent and varies for each bank. In this article, we provide data and a framework for helping bank risk managers decide how to best deploy next year’s capital.
However popular Microsoft’s Excel is at banks, most bankers just use a fraction of the application’s capabilities. As data and predictive analytics become more popular, we still fall back on Excel as our go-to analytic engine. We chuckle when banks talk about using “artificial intelligence” when they are not using even the most basic statistical functions of Excel.
Banks have smartly used the low rates of the last ten years to restructure their liabilities so that they are much less interest rate sensitive than they were during the last tightening cycle. The fear is that as we face the next tightening cycle, banks will relax and give themselves carte blanche to add more time deposits. This happens every rate cycle, and in this article, we review what happened during the last cycle and point out ways that banks can avoid becoming more interest rate sensitive.
Last week’s benching of the NY Giant’s Quarterback Eli Manning merits a pause from all bankers. Say what you will about his 2-9 playing performance this season but appreciate his respect for the game and support for his team. Manning is a strong contender for the Hall of Fame – he has been to the Pro Bowl 4 times; is one of the few quarterbacks to win multiple Super Bowls (named MVP in both); has the 7th most passing yards this season and maintains a quarterback rating of 84.1, or in the top 32% for the year. Yet, he was told to sit down.