Given our position mid-business cycle, it is time for banks to consider decreasing their lending to Class A office space and increasing their exposure to Class C space. This is the opposite of what most banks are doing and the concept of going “down market” is counterintuitive for most bankers at this stage of the economic cycle. After all, don’t you want to lend in the highest quality properties in a downturn? The answer is no and in this article we look at the data plus the logic behind shifting your commercial portfolio to a lower class and more worn properties.
As growth slows for mobile adoption, banks will need to find ways to bring on the remaining customer base. For community banks, education of staff and customers is still the best way. However, for strategic planning purposes, banks will need to:
Find Customers That Are Likely To Adopt Mobile Banking – They are usually more profitable.
While community banks already do a great job at building a culture that truly cares about the customer and a culture that does not open perverse incentives for unchecked account opening, that does not mean we can rest. There are some procedural changes we can make in our industry to further build trust. Trust, unfortunately, is what is lacking at banks as evidenced by a new study out by Ernst and Young that shows that banks with branches are falling further behind digital-only banks and fintech applications in some important areas.
If you are a community banker, then you probably leave many voicemail messages every week. If you are a calling officer at a community bank, you may leave even more voicemail messages, and your voice messaging skills can be a big factor in your professional success.
Driven by the need to increase fee income, community banks have been raising out-of-network ATM fees which are now at record highs. While helping with fee income, this could be a long-run strategic mistake for community banks and may serve to decrease profitability instead of helping it. The larger banks, such as Bank of America and Wells Fargo, have a customer base that is comparatively less fee sensitive. Their customers will pay for the convenience of their ATM network.
When it comes to dealing with commercial property, understanding the timing of liquidation in relationship to a loan’s maturity and the time of default is important on several levels. Knowing the data allows banks to make better loan pricing and loan workout decisions. For example, loss severity is greater for loans with 75% loan-to-value (LTV) than with 100% LTV. This is counterintuitive but can be accounted for by understanding that bankers move faster to liquidate properties that have higher LTVs.
Elon Musk, wearing his Tesla Motors CEO hat, was upset that some employees were violating his rule that Tesla’s product shouldn’t be discounted for anyone. This precept was made famous when Mr. Musk famously wrote a personal check for the full price of his Tesla. Not negotiating and not discounting your product’s price, whether it is bank service fees, money market account or car has an important impact on economics but an even more important impact on marketing. Most of all, the concept has a massive impact on culture.
This week we announced the acquisition of Platinum Bank Holding Company, the parent of Platinum Bank. Platinum Bank is a $584mm total asset competitor located next door to us in Brandon, FL. The acquisition makes us a $5.6B asset sized institution and gives us the number one deposit share in our core market and the number two community bank market share in the State. While there are lots of reasons to acquire another bank, this one illustrates a couple of interesting points that both bank buyers and sellers should consider for their next transaction.
Money-market mutual funds have been one of the most popular products for investors but recent changes have made the product less so. A couple years ago (HERE), we wrote about the tactical opportunity that banks had for capturing inexpensive deposits from institutional and corporate investors. The tactic worked beautifully as banks that focused on pitching their money market deposits and CDs saw an influx of funding back in late 2014 and 2015.
With strategic planning season upon us, many banks will be conducting brainstorming sessions to come up with ideas on cyber-risk mitigation, fee income, loan/deposit generation, new product ideas, M&A options and a host of other topics. As we often say, the keys to success are in the process. Get the process right and success will follow. When it comes to group brainstorming, we have tried all sorts of techniques and apps and have found the old Post-It note method works best.
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