Taking Control of Your Portfolio

Are you actively steering your portfolio?In recent years, Asset/Liability Management has shifted more and more toward the liability side of the equation, with the bulk of our ALM efforts focused on deposit pricing – primarily certificates of deposit and money market accounts. At many banks, it would be far more accurate to describe it simply as “Liability Management.” And even when we do focus on assets, we look almost exclusively at our securities portfolio… What should we be holding? How far out on the yield curve should we go?

Unfortunately, this shift may be causing us to lose sight of what drives the bulk of our profitability… correctly assessing the asset quality and pricing appropriately for the risk in our commercial loan book. That’s not to say that commercial loan pricing doesn’t come up in ALM meetings, it certainly does. It’s just that the conversation typically centers on the current “irrational” state of the market and how there really isn’t much we can do about it. At that point, yielding to market pressure (matching the competition) feels like just about the only valid approach to pricing the next deal. Continue reading

Retail Banking as a Commodity – Reversing the Trend

How do community banks avoid becoming a commodity?I’ve been speaking with the folks at Promontory Interfinancial Network quite a bit lately, and they recently featured an article of mine on making banking an information service in their Bank Expert Roundtable discussion series.

“…Today, most people don’t walk into a community bank thinking that they are going to engage a financial expert, especially in the retail deposit line of business. They think they’re just going to conduct a transaction. That may explain why some have expressed the idea that banking should be boring, or even reduced to a rote function within the post office. This type of suggestion clearly demonstrates how little expertise customers have come to expect from banks…” Continue reading

Developing a Culture of Profitable Relationship Building

Are you building PROFITABLE relationships?The most successful lenders seem to be those whose relationships are built on a foundation of trust and mutual success. They take the time to really get to know people and learn what drives them – both personally and professionally. When you think about it, being a great lender isn’t all that different from being a great friend, and in fact, many of the relationships I developed as a lender are still going strong some twenty-plus years later.

Unfortunately, building close relationships doesn’t always drive the bank’s bottom line. Why is that? In some cases, lenders are kept out of the loop and don’t really know where the bank is trying to go or how profitable the deal needs to be. And even when they do, they may not have the wherewithal to turn those goals into concrete actions. Continue reading

Price Differentiation for Enhancing Revenue and Profitability in Community Banking

Should everyone pay the same price?I was fortunate to publish an article on Price Differentiation for Enhancing Revenue and Profitability in Community Banking this week in the Journal of Product and Pricing Lifecycle Management.

“…Banking is, in many ways, a very simple business. Bankers seek to make a living by managing, and helping others manage, the ultimate commodity – money. Our industry helps people who 1. Need money they don’t have, or 2. Have money they don’t need. Those needs aren’t going away, but it’s becoming increasingly difficult to generate a profit in the banking business. Is that because our services are becoming commoditized? If that’s really the case, then ultimately the low-cost provider will end up winning. But, I don’t believe it has to be that way…”

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Why is Interest Rate Risk a Regulatory Priority?

Yesterday, Dallas Wells from Asset Management Group posted the most insightful article on the state of community banking I’ve read in a long time. In the article, Dallas points to a rather alarming trend… Over the last four years, smaller community banks (less than $10B in assets) have doubled their long-term holdings – moving from 18% to 36%, while the larger banks are holding fast.

Smaller community banks have doubled their holdings in long term assets since 2010

“…Regulators are concerned that community banks are ill equipped to manage interest rate risk of this magnitude, and worse, they fear that small banks are victims of “duration drift.” In other words, the asset extension has not been intentional, but has instead happened over time without the banks necessarily even seeing it happen. Because of this, expect regulatory scrutiny of interest rate risk to not only stay high, but perhaps even increase…”

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The Five C’s of Bank Vendor Assessment and Selection

A rigorous method for evaluating software vendors based on a framework you know and trust

The Five Cs of Bank Vendor Assessment and SelectionIn the earliest days of society, “banking” was pretty straightforward. We loaned money to people we knew and trusted, and we had a pretty good idea if they were going to pay us back. But today, things are a bit more complicated… lenders and borrowers aren’t nearly as connected, but we still need to underwrite each borrower’s ability to repay. So how do we get to that same comfort level BEFORE we hand over the cash? The answer: The 5C’s of Credit… the modern framework for understanding the credit worthiness of each and every borrower.

The story isn’t so different when it comes to buying subscription-based software solutions. Today’s landscape is like the Wild West, and knowing which vendors we can count on is getting more and more difficult. So, how do we choose? How do we ensure that the vendor we select is going to “pay us back?” We already have a framework that we know and trust, so what if we took a credit underwriter’s approach to vendor selection? Enter, The 5 C’s of Vendor Assessment and Selection… Company, Culture, Customers, Churn, and Conditions. Continue reading

Is CRE Taking Wing?

Is commercial real estate lending really taking off?Our good friend Katie Kuehner-Hebert posted a great article on the uptick in commercial real estate lending on Independent Banker today.

“…According to the FDIC, community banks reported increases in loan balances across all loan categories in 2013 and the first quarter for 2014. Several commercial lending experts project the average total industry loan growth will be about 5 percent this year. For commercial and multifamily mortgage originations, however, loans across the banking industry this year could increase by 7 percent, to $300 billion, from last year, according to the Mortgage Bankers Association. By 2016, such commercial loan originations are likely to rise another 11 percent, to about $333 billion, the MBA forecasts…”

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How do I compete with ridiculously low rate long-term fixed deals?

The secret to competing with crazy deals... stop competingI received a really interesting email from a young commercial lender in western New York this week, and it touches on something we’ve been hearing a lot over the last 6 months…

How the heck do I compete with someone offering long-term, ridiculously low (fixed) rate deals?

I’ve had this question so many times I thought it was worth sharing. Here’s the actual email (the names have been changed to protect the innocent)… Continue reading

Slow but Steady Loan Growth at Community Banks

Janet Yellen, Federal Reserve Chair, gave an encouraging speech yesterday at the Independent Community Bankers of America (ICBA) – 2014 Washington Policy Summit. She highlighted the fact that community banks have started to increase the pace of lending, and she went on to reassure community bankers that future regulation would not be overly burdensome.

“…After several years of reduced lending following the recession, we are starting to see slow but steady loan growth at community banks … While this expansion in lending must be prudent, on balance I consider this growth an encouraging sign of an improving economy…”

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Delivering Real Value to Your Retail Banking Customers

Delivering Real Value to Retail Banking CustomersWhat do retail banking customers want? The obvious answer… high yields on their deposits and low rates on their loans. As a customer, that’s what I’d ask for. But is it really what I want? When I hire a roofer or a plumber, I never choose the lowest bidder. I carefully consider who I’m about to do business with, and ask myself: Do I trust them to do the job right? What happens if something goes wrong? Will they stand by their work?

Why is banking any different? As bankers, we’re not just clearing houses for cash, we provide a service to our clients and to our communities. We provide our clients a safe place to keep their money, help them plan for retirement, and lend them money to start and build businesses that they’ll pass on to their kids. Continue reading