May 2015

BofA Will Pay $500 To Open A Checking Account. How Can They Do This?

Checking promotions

Bank of America (BofA) is currently running an offer that will pay new customers $500 to open an interest bearing checking account set up to receive two qualifying direct deposits of $2,000 or more within 90 days AND open a money market savings account with an initial $20,000 deposit. That $24,000 in deposits will net BofA approximately $397 of value according to the current forward curve, the account’s expected lifetime value, BofA’s average beta and net of interest expenses.

Projected Probabilities of Default In The Golden Age of Commercial Credit

Bank Probabilities of Default and Commercial Loan Performance

The 20’s and 30’s were known as the Golden Age Of Aviation and today is a particularly special day in aviation history as it marks the 88th anniversary of Charles Lindbergh becoming the first person to fly across the Atlantic and the 83rd anniversary of Amelia Earhart doing the same in the first female solo transatlantic crossing. In similar fashion, we are in the Golden Age Of Commercial Credit and today marks the day when commercial credit has never been better in the history of banking.


How to Motivate Lenders

Motivating Lenders

Larger banks are paying their lending staff higher compensation than smaller competitors are paying their teams.  The difference in the same market, similar seniority and position can be as much as 100% when factoring salary, bonus, profit sharing and stock incentives.  It can be difficult for a community bank to attract the lending talent it needs, but we point out that many community banks are succeeding by investing in their culture and building an environment that goes beyond traditional compensation.


Should Your CRE Concentration Concern You?

CRE Concentrations

If you are a large bank, the share of commercial real estate (CRE) as a percentage of your balance sheet is likely slightly less than 5%. However, if you are a community bank, the share is likely over 20%, and growing. Even when viewed as a percentage of Tier-1 capital, larger banks hold about four times for commercial real estate exposure. That is a pretty big difference and CEOs (plus risk managers) should at least be asking the question as to why. 


The Disaster Banking Account

Disaster Banking Account Product Design

For banks looking to help their communities plus expand their relationship with their local county municipality, the Disaster Account Set (DAS) is an underutilized product with a strong and growing need. For any given disaster, be it a hurricane, earthquake, tornado or other event that displaces a material section of the population, there is an outpouring of support and donations. The problem is that most counties are not set up to be able to handle incoming payments or make outgoing disbursements for a disaster-specific purpose.

Commercial Real Estate Hedging: Point/Counterpoint

The Pros and Cons of Hedging or Using Swaps

Commercial real estate (CRE) lending for banks continues to be at near-record tight spreads because of the favorable economics.  Property prices are up an average of 4.7% for the first quarter and are now 8.2% above their peak levels from back in 2007.  At this pace, that is almost a 19% annualized rate.  April’s Senior Loan Officer Opinion Survey indicates that banks continue to see stronger demand for CRE loans with 45% of them reporting easing their lending standards by tightening spreads.


Data Analytics: How Cell Phone Use Affects Credit

Bank Predictive Analytics

Daniel Björkegren, an economist at Brown University in Providence, released research that shows that banks can predict how likely someone was to pay back a loan based on cell phone call metadata. After analyzing data from 3,000 borrowers from a bank in Haiti — the number of calls, the length, frequency and who was called, Björkegren found the bank can reduce consumer loan defaults by 43 percent.


Vendor Selection for Community Banks

Vendor Management and Selection

Community banks continue to look for ways to control expenses.  One effective way to minimize overhead costs is to outsource non-critical or non-differentiated tasks to third party vendors who are able to perform the function cheaper and/or faster.  Banks have increased the breadth of outsourced processes and functions: everything from check processing, website management, payment solution and even some underwriting analysis and sales leads.  Outsourcing makes sense where a vendor can perform the tasks cheaper than the bank and the bank can still retain the strategic and d

Why Your Bank Should Be Like A Night Club

Creating Value In Banking

A popular night club represents the perfect allegory for creating a value-fueled bank and should be an exercise that you complete at your next strategic planning meeting. Consider a popular club with its red velvet rope and a line of good looking people waiting to get in. If this is the case, the club can make the decision of who it lets in and how much to charge all the way up to the point where that line ceases to exist. What would it take for a bank to have a line of people out the door waiting to get in?