Last week we had a healthy internal debate over the value of municipal customers. When it comes to profitability, municipal customers are either very profitable or not very profitable – there is really not much in the middle. In other words, municipal profitability does not follow a normal distribution and as such, you have to choose your municipal customers wisely.
Banker To Banker
Well, it finally happened - On the verge of being a $4 billion asset-sized bank when yesterday we got the memo that everyone in the bank is now required to use a standard email signature. While some employees might look at this as a corporate intrusion into their lives because they can no longer have the witty quote at the bottom, it is the right thing to do. Corporate email signatures are so easy to do well, yet they are often done poorly.
Your floating rate loan portfolio may be ready to hurt you, and your bank might not be aware. Unlike fixed rate loans, floating rate loans tend not to have prepayment provisions. This part is well understood. What is far less understood is the fact that ANY material rate movement ends up hurting performance. While we have written about how interest rate risk and credit are interrelated, today we focus how rate movement causes unaware community banks to be adversely selected, thereby hurting performance.
Our 2014 Bank Management Conference is coming up on July 10 – 13, 2014, in Amelia Island, Florida and we will have detailed information coming soon. We can tell you that you don’t want to miss it for 5 very important reasons:
5. Due diligence – You get to meet our whole team in person and see what we are about. This is just good risk management – forget the fact that it just happens to be on the beach at one of the best hotel’s in the world.
To amend an old saying, if you give a man a fish he will have food for a meal. If you teach a man to fish he will eat for a lifetime. However, if you convince the world that they need more Omega 3s in their diet, you and that man catching all the fish can be eating steak at Ruth Chris for the rest of your lives – this is the power of marketing.
In the last 24 months, the mindset, the tools and the methodology to deal with a cyberattack have changed. Just the addition of how to deal with mobile attacks is often missing in many bank plans. If you have not updated your incident response plan (“IRP”) in the last year, it might be time – and, this will help.
Many banks have their certificates of deposits modeled on their asset-liability systems without optionality. That is, they treat the final maturity as gospel with little weight given towards repayment. This could be a mistake, as just assuming the forward curve is accurate, CD’s are set to exhibit about a 20% shorter duration than modeled. In a rising rate environment, banks are short the option value of a CD and thus are exposed to a market loss in the form of opportunity cost should the investor redeem early.
The Super Bowl generated 25 million tweets and, by the second half, was more exciting than the game. From “Who wore the fur coat best” to JCPenney’s drunken (or brilliant marketing) Tweets, social media caught our attention and made us laugh.
We monitor many banking schools and credit training programs and it is rare that we see anyone teach the analysis of a borrower’s interest rate risk position. For that matter, in hundreds of credit reviews that we see a year from a variety of banks, there is rarely a quantification of how rising or falling rates will impact credit risk.
Listen, some bankers fear making loans below a 4% margin like I fear Florida sinkholes. To put that in context, I wear an avalanche transceiver whenever I am in the State. This makes bank meetings a little awkward, but gives me a fighting chance to be found when I get swallowed up. By the State’s own website, they refer to sinkholes as a “fact of life” which is why Florida is the only state where banks have to consult the “Sinkhole Clearinghouse” database before making a loan.