Banker To Banker
Government-sponsored enterprises (GSEs) have been lending to borrowers for many decades. The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) have popular multifamily lending programs so much so that they now control the bulk of the market. For example, Freddie Mac’s total multifamily finance activity for 2018 was $77.5B, and Fannie Mae’s was $65.4B which means that if you have to compete, your bank needs to do so carefully as you have a high probability of getting adversely selected.
Since you probably spent time today discussing the Super Bowl ads (Smaht Pahk, Google, and Snickers were our favorites), we wanted to highlight an all-too-common mistake that many banks make. It can be argued that despite its high price, Super Bowl advertising is one of the best deals in marketing as you are assured a certain level of attention. Unfortunately, some brands waste it. Tim Pannell, the CEO of Financial Marketing Services, asked us last week what we thought of the picture below as it highlights the concept of waste in marketing.
While the eulogy for checks has already been written and cash is starting its demise, the pallbearers are now in place. By our estimation, 14% of banks offer this service and they are starting to reap material rewards. Bank of America, which has offered the product since 2014 is one of the largest beneficiaries and has gathered hundreds of millions in deposit as a result. The rise of real-time processing will only accelerate this move. In this article, we take a look at the benefits and the options for community banks.
Because of tradition, we tier our deposit accounts according to size. For a typical bank, their money market accounts often have six tiers ranging from $2,000 up to $100,000. The question that always comes up is - do you have the right tiers and the right number of tiers? Are you using your tiers to drive profit giving low rates or are your tiers just serving to confuse your customer and drive up operational cost?
We work on thousands of lending transactions every year with hundreds of community banks across the country. We participate and help structure financing on commercial real estate, C&I and Ag properties ranging in size from a few hundred thousand to over $100mm, and we collaborate with community bank lenders and underwriters that span the whole gamut of experience. We witness the good, the bad, the ugly, and occasionally the very bizarre in bank marketing, under
When you are a banker, sometimes your workload doesn’t come in neat memos or emails. A lot of stuff just gets dropped off on your desk with notes to “Fix This” (like below) or solve that. Fortunately, a lot of these problems are easy to solve. In fact, one of the most popular strategic initiatives among community banks right now is the nebulous “Need to increase profitability,” which for more than half the estimated banks is an easy one to solve.
With a flat and low yield curve, borrowers’ demand for long-term fixed-rate loans is high. Furthermore, based on the forward market and most analysts’ predictions, the yield curve is expected to stay low and flat in 2020. The difference between five and ten-year loan rates is currently only nine basis points, and the difference between five and 20-year loan rates is 21 basis points.
Unfortunately, in 2020, most bank websites are nothing more than brochure-ware. That is a problem as not only can a bank’s website be its most efficient source leads, but it should also be the best source of conversions (leads that turn into new accounts and loans). While there are several hundred banks that do handle online lead gen well, it is even rarer to have a bank generate leads from its mobile app. This is also a problem as some banks are now generating the bulk of their digital leads from mobile, not to mention the bulk of their conversions.
Last month, the Federal Reserve released its 7th, tri-annual U.S. payments study, and, as usual, it had some eye-opening trends that all banks need to consider for their long-term strategic planning. For example, while consumers have always said they preferred debit cards over cash, last year was the first year in US history where consumers used their debit cards (28% of all transactions) more than they used cash (26% of all transactions).
If you are like most banks you have your credit approval and risk process based around loan size. The assumption is that the larger the loan the more risk the bank is taking on so a greater level of risk review is needed. But, suppose the data didn’t bear that assumption out? If that assumption is wrong, then that means that your bank is probably underpricing the smaller loans, overpricing the larger loans, applying the wrong cost structure to the larger loans and misaligning risk against your capital.