Tag: Bank Performance

Here Is How To Calculate Your Bank’s Cost Of Capital [Calculator]

Bank Cost of Capital

Below you can download an Excel worksheet that will help you calculate the cost of your capital. Your cost of capital is important to know for several reasons. Mostly, it gives your board and shareholders a yardstick in which to gauge a bank’s return. Produce over your cost of capital and you will be able to attract more capital. Produce under and, well, you are going to have to do some good marketing to talk investors into believing you are better than the next similar investment alternative.

 

Here Is The Next Generation Of Deposit Account Tiering [Video]

Deposit Account Performance

You create deposit products to segment behavior and you use tiering to drive performance within that behavioral group. While this used to be taught at banking schools, it is largely glossed over these days.  Unfortunately, many banks get lazy and set their tiers based off the competition. The funny part is, in many areas of the country, whole markets under-utilize their tiering tactics because no one has looked at the data and everyone is following each other.

 

7 Facts From JP Morgan Chase’s Performance That Might Surprise You

Bank Performance

Last Friday, JP Morgan Chase (Chase) released the details of their 2014 financial performance and like an E.L. James novel; it made us a little uncomfortable. While Chase does have its weaknesses, it is dominant in several key areas that will end up threatening the core business model of community banking. Today, we present seven areas that gaining a deeper understanding of Chase will help your bank better set strategy, gain inspiration and/or better compete with JP Morgan Chase.

 

Creating Loan Value: The Construction Through Permanent Loan [Video]

Construction Loan Profitability

A flaw in many bank’s loan production process is calculating the profitability of a non-owner occupied construction loan that is for investment purposes. These are developer-led projects built for investment and thus subject to construction and market risk. Banks that measure the wrong metrics and don’t have a robust risk management process in place are doomed to create construction loans that detract from shareholder value. The problem is many banks and boards are not aware of this risk.

What Bankers Need to Know from Warren Buffet’s Latest Shareholder Letter

Warren Buffet Shareholder Letter For Banks

Berkshire Hathaway’s annual shareholder letter is out and unlike that blue/black/white/gold dress (we really have no idea what color that dress is) meme, this letter is clearly in the color of packed insights and business lessons for all. We read all 42 pages of this 50th anniversary letter and boiled down the most important insights plus added analysis for your consideration.

The Idea Vault: A Bank Best Practice

Bank Knowledge Capture

One of the biggest assets a bank has goes untapped in probably 95% of banks. Everyday term sheets are produced on loans, customer problems are handled and new ideas arise. Unfortunately, management hasn’t put a system in place, and because bankers are busy it is hard to carve out 20 minutes to share their experience and knowledge with their co-workers. As a result, the collective knowledge of a bank is vastly underutilized and solutions to current problems take longer, cost more and produce higher opportunity cost.

 

10 Steps To A Relationship Deposit Account Makeover

Building Bank Relationship Product Accounts

In the quest for greater profitability, one strategy that we are employing here at CenterState Bank is the move to be less transactional and more relationship based products. While lots of banks say they are about the relationship, few banks can point to anything more concrete other than delivering “the personal touch.” Having good people and an accessible CEO is just the price of entry for relationship banking. True relationship banking requires products, process, culture and marketing in order to capture the hearts, minds and wallet of the customer.

Matching Loan Structure With A Borrower’s Asset-Liability Position [Video]

Loan Structuring

For many banks, loan structuring is a one size fits all effort. Like Henry Ford said about the Model T –Customer can have any color they would like in the car as long as it was black, banks say that their value proposition is service, yet offer few choices when it comes to loan structuring. The reality is, to best match the risk position of the borrower, banks first need to understand a borrower’s asset-liability position and then structure the loan in such a way as to mitigate a variety of risks including credit, liquidity and interest rate.

 

Using Prepay Protection To Earn Some Teslas For Your Bank [Video]

Loan Prepayment Protection Value

Sometimes here at CenterState, we feel like hamsters - $25mm of loans go on our balance sheet in a month and $20mm runs off.  Of course, most all of those loans don’t have prepayment protection so the result may be our own doing. When banks originate a loan without a prepayment penalty or yield maintenance provision they are giving away economic value to the borrower – on average 7.2% of total loan value to be exact. For a $1.5mm loan, that is like giving the borrower a new Tesla P85D complete with “Insane” mode.

Why Managing To Net Interest Margin Could Be Wasting Your Bank’s Time

Boosting Bank Performance

Ask bankers what they believe is the number one driver of return on assets and many will answer “net interest margin” (NIM).  Year after year, net interest income has very little correlation to a community bank’s return on assets (ROA).  Chart ROA and NIM together and you find that the most profitable banks don’t have the largest NIM.  Despite the lack of correlation, the perception exists that increasing NIM will result in better performance.  While a larger NIM is always preferable to a smaller NIM, NIM is just one very small part of the bank profitability story.

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