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Profitability strategies ibat

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Doeren Mayhew - Texas

This document provides strategies for community banks to drive profitability. It recommends developing a strategic plan and niche strategy, containing overhead costs, funding strategies with appropriate spreads, and reinforcing a community bank culture with local decision making and excellent customer service. Risk management is key, involving identifying, evaluating and controlling risks before pursuing new strategies. The banking industry is changing with new customer demands for better control, interaction and information.

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Strategies to Drive Community Bank Profitability James B. Bexley, Chair Smith-Hutson Endowed Chair of Banking Sam Houston State University Huntsville, TX jbbexley@shsu.edu
Some Basics Your bank needs an annual strategic planning meeting and a written plan. Dont let greed put you at risk. Dont do it just because other banks are. Easy money may work inA gambling--but not banking. If it doesnt pass the smell test, dont do it. Like it or not-Dodd Frank is with us Not knowing is not a defense A Old fashion ethics and integrity is in vogue B C
Direction of Banking is Changing In the Past, Customers Sought: Convenience Access Price HOWEVER, TODAY IT IS A NEW BALL GAME THEY WANT: BETTER CONTROL INTERACTION CONVENIENCE INFORMATION
The New Customer Profile 50% College Educated Increasing to 70 % by 2014 Increasing to $65K Average Salary $50K by 2014 Over 60% Own A PC & Will Be On-Line User
The New Customer Profile (Cont.) Use 3 or More Sources-- High Information Seekers Dont Trust 1 Source 30% Will Like Electronic Payments Use Them Will Have 4 or More Accounts
What You Need To Watch Momentum of Large Regional Banks Widening Gap Between Haves & Have Nots Branches in Multiple Markets by Your Competition How This Impacts You! Opportunity to Increased More Merger Take Business Formidable & Acquisition From Weak Competition Opportunities Banks
Evaluate Risk First, recognize there is a certain amount of risk in all that happens in the bank. Evaluate all functions of the bank for risk BEFORE taking a course of action. Establish a program for on-going risk review. Keys to risk management Risk identification Risk evaluation Risk control Document your findings.
Develop A Niche Strategy Limit the number of products. Make products attractive & repeatable. Pick specific loan & deposit products, making sure that your staff knows their benefits & how they work. Keep administrative & development costs low. Advertise specific products. Get the officers out the bank, calling on customers & prospects.
Corporate Governance Corporate scandals cost $40 billion a year Must avoid conflicts of interest Congressional overreaction Dodd-Frank Sarbanes-Oxley Patriot Act Bank Secrecy Act Overreaction Need for director education Cooperation with regulators
Funding Strategies Develop a funding strategy that has appropriate spreads to the asset side of your product mix. Consider pricing deposits at 10% above market average. Consider pricing loans just under the highest pricing in the market. Carefully examine risk related to your funding strategy. Consider matched funding in unique risk situations. Focus should be toward a 4 percent spread.
Overhead Containment Make everyone accountable, particularly your loan officers. Do time & motion studies for staffing purposes. Require cost/benefit justification for staff increases. Keep fixed cost & long-term commitments as low as possible. Dont build branch monuments. Develop renewable non-interest income sources. Use incentives to improve performance.
Sensible Strategies Grow by selective acquisition, minimizing dilution. Branch into attractive markets that fit your niches. Stay true to the community bank philosophy. Dont outgrow your ability to support the bank--i.e. not enough staff, improper training, or inadequate facilities.
Reinforce Community Bank Culture! Local decision making Quick responses Friendly, helpful staff Exceed customer expectations Place major emphasis on customer service Meet the needs of the local banking public
REMEMBER! In spite of how smart you think you are--YOU DONT KNOW WHAT YOUR CUSTOMERS WANT AND NEEDASK YOUR CUSTOMERS! Make every officer & employee accountable! Know your bank & what makes it tick! Know your competitors! Know your customers! Know your market & take what it will give you! Evaluate everything you do for elements of risk!

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Profitability strategies ibat

  • 1. Strategies to Drive Community Bank Profitability James B. Bexley, Chair Smith-Hutson Endowed Chair of Banking Sam Houston State University Huntsville, TX jbbexley@shsu.edu
  • 2. Some Basics Your bank needs an annual strategic planning meeting and a written plan. Dont let greed put you at risk. Dont do it just because other banks are. Easy money may work inA gambling--but not banking. If it doesnt pass the smell test, dont do it. Like it or not-Dodd Frank is with us Not knowing is not a defense A Old fashion ethics and integrity is in vogue B C
  • 3. Direction of Banking is Changing In the Past, Customers Sought: Convenience Access Price HOWEVER, TODAY IT IS A NEW BALL GAME THEY WANT: BETTER CONTROL INTERACTION CONVENIENCE INFORMATION
  • 4. The New Customer Profile 50% College Educated Increasing to 70 % by 2014 Increasing to $65K Average Salary $50K by 2014 Over 60% Own A PC & Will Be On-Line User
  • 5. The New Customer Profile (Cont.) Use 3 or More Sources-- High Information Seekers Dont Trust 1 Source 30% Will Like Electronic Payments Use Them Will Have 4 or More Accounts
  • 6. What You Need To Watch Momentum of Large Regional Banks Widening Gap Between Haves & Have Nots Branches in Multiple Markets by Your Competition How This Impacts You! Opportunity to Increased More Merger Take Business Formidable & Acquisition From Weak Competition Opportunities Banks
  • 7. Evaluate Risk First, recognize there is a certain amount of risk in all that happens in the bank. Evaluate all functions of the bank for risk BEFORE taking a course of action. Establish a program for on-going risk review. Keys to risk management Risk identification Risk evaluation Risk control Document your findings.
  • 8. Develop A Niche Strategy Limit the number of products. Make products attractive & repeatable. Pick specific loan & deposit products, making sure that your staff knows their benefits & how they work. Keep administrative & development costs low. Advertise specific products. Get the officers out the bank, calling on customers & prospects.
  • 9. Corporate Governance Corporate scandals cost $40 billion a year Must avoid conflicts of interest Congressional overreaction Dodd-Frank Sarbanes-Oxley Patriot Act Bank Secrecy Act Overreaction Need for director education Cooperation with regulators
  • 10. Funding Strategies Develop a funding strategy that has appropriate spreads to the asset side of your product mix. Consider pricing deposits at 10% above market average. Consider pricing loans just under the highest pricing in the market. Carefully examine risk related to your funding strategy. Consider matched funding in unique risk situations. Focus should be toward a 4 percent spread.
  • 11. Overhead Containment Make everyone accountable, particularly your loan officers. Do time & motion studies for staffing purposes. Require cost/benefit justification for staff increases. Keep fixed cost & long-term commitments as low as possible. Dont build branch monuments. Develop renewable non-interest income sources. Use incentives to improve performance.
  • 12. Sensible Strategies Grow by selective acquisition, minimizing dilution. Branch into attractive markets that fit your niches. Stay true to the community bank philosophy. Dont outgrow your ability to support the bank--i.e. not enough staff, improper training, or inadequate facilities.
  • 13. Reinforce Community Bank Culture! Local decision making Quick responses Friendly, helpful staff Exceed customer expectations Place major emphasis on customer service Meet the needs of the local banking public
  • 14. REMEMBER! In spite of how smart you think you are--YOU DONT KNOW WHAT YOUR CUSTOMERS WANT AND NEEDASK YOUR CUSTOMERS! Make every officer & employee accountable! Know your bank & what makes it tick! Know your competitors! Know your customers! Know your market & take what it will give you! Evaluate everything you do for elements of risk!