Correspondent Blog

Many community banks are searching for ways to increase fee income, and many bank CEOs have concluded that fee income is a significant driver of revenue and profitability.  We argue that larger banks do not have an inherent advantage over community banks in generating fee income because of their scale.  Most fee income generated by…

Banks don’t respect the power of understanding customer lifetime value (CLV). It is the one performance metric with the highest correlation to long-term bank profitability, around 88%. It is more important than margin, cost of funds, non-interest income, and loan profitability COMBINED. Not only do few banks calculate it, but many banks also spend resources…

For decades community banks have structured fixed-rate loans with adjustable features – the most popular structure is a ten-year fixed-rate loan with a five-year reprice. With short-term interest rates expected to rise through 2022, many community banks are reconsidering their ALCO strategies.  What percentage of a community bank loan portfolio should be fixed-rate, and what…

Oil Prices Hit Cycle High, Treasury Prices Head Lower With the Treasury set to auction $21 billion in 10yr notes this afternoon, the market finds itself on the defensive yet again with the 10yr yield back over 3%, currently at 3.02%, off 11/32nds in price. In fact, 3-handle yields begin at the 5yr mark at…

Investors Brace for More Treasury Supply and May CPI Two factors will probably drive most of the price action this week and that’s long-end Treasury supply coming to auction and on Friday the May CPI report.   Testing the latest trading range will be a trio of Treasury auctions with $32 billion in 3yr notes…

Strong Job Growth Continues While Wage Gains Moderate Nonfarm payrolls increased 390 thousand in May with those gains fairly  widespread. Expectations were for 318 thousand jobs and the increase was just below April’s 436 thousand new jobs. The largest gains came in leisure and hospitality, in professional and business services, and transportation and warehousing. Total…

May Data Starts to Bloom The May ISM Manufacturing Index is due at 10am ET and is expected at 54.5 vs. 55.4. The series has been softening of late, reaching a cycle high of 63.7 in March of 2021 but trending south since then. It’s still, however, above the 50 mark which divides an expanding…

Inflation Scares Erupt Again Treasuries open the holiday-shortened week on the defensive as the highest inflation reading on record in the Eurozone sent yields there higher. Oil prices resumed their rise and signs the China lockdowns are easing also contributed to higher yields. Treasuries are playing a bit of catch-up too after yesterday’s holiday with…

Some Friendly Inflation News Appears The last major piece of economic information is out this morning and April personal spending slightly bested expectations rising 0.9% vs. the 0.8% forecast but was off against March spending which was revised higher from 1.1% to 1.4%. Adjusted for inflation, spending rose 0.7% vs. 0.5% in March.   That…

While every bank talks about delivering on their service promise, only about 35% of banks have a formal effort and track key performance indicators (KPI). It is no surprise that these banks not only have higher customer experience performance but have a higher return on equity numbers. A better customer experience means less churn, a…

Customers and competitors are challenging community banks to extend loan duration – borrowers are eager to lock fixed rates before they rise further, and many competitors are happy to oblige.  But what are the optimal fixed terms for community banks given today’s interest rate, credit, and liquidity environment?  While every bank’s mix of deposits and…

Treasuries Under Pressure as Week Opens Equities are finding an early bid this morning off news that President Biden will review the China tariff policy. That comment boosted risk assets on the possibility that some tariffs may be rolled back. Going from a review of China tariffs is one thing and getting to actual rollbacks…