Our contention is that all banks need to get to a sub-45% efficiency ratio over the next five years. We say this based on the current rate of change of operating efficiencies we see at fintech companies and national banks. As these entities become more efficient, they can offer better rates and fees on banking products and spend more money on both customer engagement and customer acquisition. If you roll this concept forward, the model shows that it will be harder and harder for community banks to compete to grab new customers and harder still to retain them.
Tag: Bank Performance
As we have written before, the size and performance correlation is overrated in banking. In good times, asset size does have an affect efficiency and hence earnings, but in bad times, size negatively impacts earnings. If you take the business cycle into account, over a 20+ year period, there is little correlation between size and banking. As a rule of thumb when a bank grows risk increases. Few bankers understand how to grow assets at decreasing or steady marginal credit and operational risk.
Banks continued to build profitability, and while it was at a slower pace than last quarter, the bottom line continued to improve.
We visit hundreds of banks every month across the country and the most common statement that we hear from bankers is this “We are in the most competitive banking region in the country.” While banking, and specifically lending, is highly competitive with pricing and credit structure under pressure across the country, which banking region is the most competitive? In this article, we look at the data for over 900 Metropolitan Statistical Areas (MSAs) to see which areas
We see more bankers and meet more bank management teams than almost anyone else in the industry. We constantly speak on what constitutes a top performing bank and how can banks achieve it. However, it caught us off-guard last week when a banker asked us what makes a top performing BANKER. We gave an incomplete answer at the time and so wanted to present a more thought-out list. We fully admit that this is just one group’s opinion so take this for what it is worth.
Traits of a Top Performing Banker
Most banks serve a geographical area largely defined by a political outline, such as a set of counties. Other banks choose less defined regions, such as the “Tri-city Area” or “Northern Virginia.” While these defined service areas may be fine for marketing purposes, when it comes to operating efficiency, banks may want to think along other dimensions of geography. In this article, we explore how banks can gain more efficiencies by allocating resources to areas other than political areas.
No doubt you have heard the comparison discussed how our current economy now exceeds many economic levels of the peak of the last economic cycle. We wrote about this last month when we analyzed the various commercial real estate markets (HERE) as we equated the general economy to be in the proverbial bottom of the 7th inning.
Back in 2013, we sat through training at Bank of America to better learn how they train their line staff. At the time, Bank of America ranked almost dead last of all the major banks according to the JD Power U.S. Retail Banking Satisfaction Study and scored a dismal 753 out of 1,000 points. The focus of the particular training that we attended was how to deal with upset customers and how best to resolve a problem.
As we have said before, every bank pays for growth. The most obvious case is when a bank hires staff to bring in and service new customers. Marketing, new branches, technology, capital and many other items all contribute to a bank’s growth and are all investments in growth that are often made. In fact, the need to grow is probably the single biggest driver for bank CEOs. While many bank managers say “shareholder return” is their number one priority, their actions speak otherwise.
A banker often wonders where best to spend their time in order to have to biggest impact on shareholder return. In this article, we do a quick overview of where you can gain the largest risk-adjusted operating leverage. While bankers generally know this data, many do not appreciate the difference between activities. We look at eight key activities and ask the question – how would our risk-adjusted return on equity change if we increased production by a standard 10% of our current production levels?