The other day we met with one of the turnaround specialists at the McDonald’s Corporation. If you are one of their 5,000+ franchisees running one of the 30,000 independent locations and you are not performing up to expectations, this guy shows up to help you turn your stores around. We were shocked to find out that other than a few extreme circumstances related to the surrounding area, most every franchise can be saved.
Rising rates, regulatory pressure on interest rate risk, competition and the best way to hedge long-term, fixed rate loans is causing a puzzle for many banks. Luckily, we love solving puzzles and take an interest in new and challenging conundrums especially related to banking. A client recently asked us to solve an oldie but a goodie: what is it that a man can do standing up, a women sitting down, and a dog on three legs? The answer is, shake hands.
Mispricing of small balance loans is the major problem facing our industry and is a drag on many banks. It is difficult to make a $50,000 loan profitable. Let’s consider a typical small business commercial loan example: a five-year loan for equipment with a 1% origination fee. To make a 15% risk-adjusted return on equity, a banker must price this loan at a minimum of a 7.75% spread using direct costs and assuming average credit. That is a thick spread and not only could make your bank less competitive but also potentially increases the risk.
One of the best pieces of marketing advice we ever received was this – know what you want your marketing assets to do before you produce it. It is clear on what the intent is for any great marketing effort be it an email, advertising or piece of content. Without knowing what you want your marketing asset to accomplish, it is doubtful you will get there.
In November 2017, the US Navy positioned three of the world’s largest aircraft carriers off the coast of the Korean Peninsula. Each day, as the sun first cracked above the horizon, dozens of F/A-18 Hornet fighter aircraft would depart from the three carriers. With the precision of a Swiss watch, the sleek jets launched from the carrier decks at speeds nearing 200 mph. Once airborne, they formed into huge attack formations as part of the greatest show of military force in modern history.
For any bank not convinced that we face a period of inflation and rising rates, last week was an eye-opener. The 10-year Treasury jumped 21 basis points and the probability higher rates increased. Since rates began to rise in December of 2015, we have now seen a 1.50% increase in rates with four more increases currently built into the market. Outside of the market, the Fed’s Open Market Committee (FOMC) expects another three to four increases in 2019.
In a previous blog (HERE), we discussed why banks should consider implementing a customer relationship management (CRM) software solution and discussed the benefits of such a solution for community banks. We highlighted the relatively low cost of CRM software and the high return that banks can get on the investment. We also asked for feedback and got an ear/email full of insight.
The Tax Cut and Jobs Act of 2017 (TCJA) presented banks with a rare windfall. Of all the industries in America, banking is one of the most rewarded. Because of where banks sit in the economy, the gift of leverage, and the current strength in the economy, banks now have an extremely rare opportunity to place this new found wealth for long-term good. It is an opportunity not to be squandered. Being Valentine’s Day, there is little doubt your bank would like to show all of its stakeholders some love with your tax savings. The question is – where can it do the most good?
After the last recession, Dodd-Frank and the FDIC raised deposit fees which prompted many banks to start including an “FDIC Assessment Fee” in their deposit account charge. The FDIC issued guidance in 2012 that labeled the practice as misleading, so most of those banks just changed the name to a “Deposit Assessment Fee” and kept the practice. One full recovery, one drop in assessment rates by the FDIC and a tax reform change later, and many banks are still at the practice.
At CenterState Bank, we use several customer relationship management (CRM) software solutions at different parts of our bank and know we need to consolidate plus expand its use. Next, to a loan/relationship pricing model, a CRM system is one application that can make a material difference in profitability. CRM helps companies automate and manage the entire lifecycle for customer sales, marketing, acquisition, maintenance, and exit. CRM software is usually used by the customer-focused personnel to maintain contact with customers and improve service.
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