February 2017

The Struggle With Growing Income At Banks Given Rising Rates

Preparing for higher interest rates

Most community banks are eagerly anticipating rising interest rates. The banking industry has historically fared well when interest rates rise, and banks’ cost of funding lags - net interest margin expands and banks’ profitability increases. However, in this particular rate cycle, there are a few unusual industry and market developments that community banks must consider. From analysis shown below, and anecdotal discussion with CFOs and CEOs, banks must be mindful of their strategic and balance sheet positioning for the next few years.

Why Banks Are Using The Growth Efficiency Ratio

Bank Growth Efficiency

As we have said in the past, you have to “buy” growth past the normal expansion in the marketplace. If your regional economy, as measured by production, is growing at 5%, then to achieve growth beyond that you need to “purchase” the incremental business with marketing dollars, sales effort, and risk. Growth doesn’t come free. We have taken this concept to the next level and utilize the “Growth Efficiency Ratio” in addition to the “Growth Efficiency Differential Ratio” for looking at potential M&A transactions.

The Cult of A Bank

Creating that special bank brand

We get asked about best practices tips about building a better bank brand. Where banks go wrong is that they confuse marketing with branding. Advertising, creating a slogan, buying radio time and having new shirts for the branch staff is all about marketing. While it helps support the brand, it should not be confused with the brand.  While there are lots of ways to create a remarkable bank brand, one of the simplest is to set out to start a cult - A cult of a bank.


The Three Elements of A Cult

Better Bank Decision Making Thanks To Love

Decision Making

Happy Valentine’s Day! At the risk of being cheesy, since you are a customer, a reader or hopefully both, we do want to take this moment and express our love for you and your support. We meant to run in a post back in December about how effective Valentine’s Day cards can be for both retail and corporate customers, but we will do this in the fourth quarter of this year in order to set up for next year. Until then, we want to give you today’s gift of knowledge to improve your internal decision-making process.

The Value and How To Better Market Bank Bill Pay

Marketing Bank Bill Pay

When it comes to creating value through digital channels, online and mobile bill pay is one of the best products to do that. Marketing dollars spent on targeting new customer acquisition or bill pay routinely produces return on investment (ROI) of over 55%. Getting a customer on bill pay means a customer is almost two-thirds less likely to defect. This dramatically improves a customer’s lifetime value by increasing their lifespan as a customer.

Making Your Bank’s Strategy And Capital Horizon The Same

Bank Strategy

In some of our presentations, we show a five-year performance chart (below). No matter what time period we choose, there are always more banks that underperform than over perform. Further, banks consistently produce under their cost of capital. For example, at present, return on equity performance is about 9.3% or the average bank. However, for the average bank, their cost of capital is between 9% and 12% depending on the bank’s equity liquidity. Why is that? One answer is that banks have the wrong strategic horizon.