Correspondent Blog

A central part of any bank AI strategic plan is the path banks will take to acquire and train human capital to manage this challenge. Artificial intelligence (AI) and its component parts, machine learning, generative AI and agentic AI, is unlike any technology we have ever seen. While undoubtedly some of the complexity will fade…

As of May 2025, the Federal Open Market Committee (FOMC) maintained the federal funds rate at a target range of 4.25% to 4.5%.  This decision not to move reflects the Fed’s cautious approach amid rising risks of both inflation and unemployment, influenced by recent tariff policies.  Fed Chair Jerome Powell emphasized the heightened uncertainty, stating,…

Larger banks have long relied on Application Programming Interfaces (APIs) to streamline operations, enhance interoperability, and enable digital transformations. Yet, as we enter a new era dominated by agentic artificial intelligence (AI)—AI that autonomously executes actions on behalf of users—traditional APIs are increasingly showing limitations. Banks need to begin thinking differently, considering the adoption of…

During first-quarter updates, many US banks amended their expectations because of economic uncertainty and a possible business downturn. How should community banks interpret the current economic uncertainty, the possible reset to the business environment, and how should managers address risks? Economic Uncertainty We considered two bellwether indices that measure policy-related economic uncertainty.  The indices measure…

When it comes to bank performance, there are lots of metrics to manage. The two that we would submit are the most important, are risk-adjusted return on capital (RAROC) and customer relevancy. While we have spoken at length about managing loans, deposits and customers around RAROC, in this article we focus on measuring relevance. Producing…

When it comes to bank acquisitions, there are metrics that matter. We analyzed all community banks acquired from 2020 to the end of 2024 (approximately 600 banks), and we measured those defunct banks’ performance compared to surviving banks.  The defunct banks were all under $10Bn in assets and our hypothesis was that return on assets…

In the quest for deposits, one successful tactic at top-performing banks is to target the right types of customers. While desiring to bank everyone in your community is noble, it can be a poor use of resources. Some customers offer better returns because they use more banking services and have more deposit balances. Not to…

We compared community bank profitability on hedged commercial loans to those same banks’ reported return. The goal of our analysis was to investigate if community banks can improve their performance by utilizing a hedging program.  We want to caution readers that our analysis may not extend to all banks, borrowers, or regions, but the results…

It is a long held notion in banking that you only move deposit rates when the Federal Reserve moves rates. However, if you think about this practice, it doesn’t make much sense in terms of a bank’s profitability. Markets are dynamic. Interest rates, and funding costs, move independently from the Fed.  In this article, we…

Many bankers are struggling to analyze the current business environment and need help predicting the future.  Community bankers are especially concerned about economic forecasts such as GDP, interest rates, inflation, consumer and business demand, and default rates.  The difference between a good decision and a bad one may not lie in spreadsheets or economic charts…

When a bank makes a loan, it’s stepping onto a multidimensional terrain of risk. Credit, interest rate, liquidity, optionality, legal and operational risk all interplay with each other to expose the bank, and the borrower, to a set of risk that can be visualized as a three-dimensional area. Given the current state of the economy,…

Customer profitability is often talked about but rarely understood. We analyzed the commercial loan portfolio of a regional bank to determine what products, scale, cross-sell opportunities, and expected life translates to profitability.  The results may be surprising to some readers. The granularity of this data reflects the state of the banking industry, and the lessons…