The Potential Value of Hedge Fee Income

Community banks have historically generated less non-interest or fee income than larger lenders.  One reason for this is the lack of analytics on how fee income translates to revenue and profitability.  While there are many ways that community banks can increase fee income, one specific source of non-interest income should be particularly appealing to community…

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Our Favorite 15 Quotes on Quantitative Banking

We are big fans of data, but recognize that analysis, and presentation of analysis, can lead you astray. Here are 15 (approximately) of our favorite quotes and maxims that we try to keep in mind every day in order to be more effective at banking. Hopefully, this will remind you of old quotes while introducing…

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A Banker’s Primer on Defi, Blockchain and The Future of Banking – Part II

In Part 1 (HERE), we gave bankers an overview of decentralized finance and the increasing use of smart contracts in banking. Our tortured analogy was based on how children are similar to using smart contracts as they are a store of value and a message all in one bundle of joy that can move independently…

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Understanding The Capital Structure – Better Real Estate Loan Advisory

The capital structure of a business refers to the mix of debt and equity used to finance the company’s assets and operations. The simplest forms of financing for a business are equity and debt, although there are many hybrids. Equity represents the most expensive form of financing.  Because debt is legally first to be paid,…

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Infrastructure Act Banking Impact

On Friday, Congress passed the $1.2T Infrastructure Investment and Jobs Act (the “Act” or “IIJA”) which goes to the President’s desk next week when Congress returns to become law and starts to go into effect January 1, 2022. IIJA targets our electricity grid, transportation infrastructure, the digital divide, and economic resiliency. In this article, we…

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Non-Farm Payroll Implications for Community Banks

As Mark Twain said, it is difficult to make predictions, particularly about the future.  However, there are a substantial number of concrete and high probability events that we think we can prognosticate about the next couple of years that will have significant impacts on community banking. The October payroll gains at 531k were the largest…

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Defi, Blockchain, Babies and the Future of Banking – Part I

Today, the President’s Working Group released its long-awaited report on cryptocurrency (HERE) and the use of stablecoin in the payment system. The report gives a prominent role for banks causing many bankers to celebrate while others are left wondering what it all means for the future of banking. If you seek a working knowledge of…

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Managing Loan to Value with Rising Rates

If your bank is like most of its peers, your credit policy permits loan to value (LTV) ratios somewhere between 65% and 85% depending on the category, business cycle, and other forms of support.  In today’s competitive lending market, many banks are pushing boundaries, and loan to values are creeping higher.  We argue that banks…

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15 Traits of a Top-Performing Banker

We see more bankers and meet more bank management teams than almost anyone else in the industry. We constantly speak on what constitutes a top-performing bank and how banks can achieve that status. However, it caught us off-guard recently when a banker asked us what makes a top-performing BANKER. We gave an incomplete answer at…

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The Updated Dangers of Net Interest Margin

Most bankers and analysts believe that maintaining net interest margin (NIM) is crucial for bank profitability.  Many community banks are working hard to maintain NIM and thus profitability (ROA) – so the thinking goes.  However, the current focus on NIM may actually be hurting banks’ performance. The Dangers of Net Interest Margin We have tracked…

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Inflation and Managing Loan Duration

The graph below demonstrates loan repricing changes quarter-over-quarter from June 2020 to June 2021 for banks in three asset bands (under $1B, $1-3B, and over $25B).  The top three stacks of the bars show fixed-rate loans that reprice 3-5 years, 5-15 years, and over 15 years.  The bottom three stacks show floating and adjustable-rate loans. …

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Bank Strategy Using The Cube Framework

On our path to describing the Bank Strategy Cube framework, we laid down the four horizontal layers (HERE). In this article, we tackle the vertical layers that complete the cube. Where the horizontal layers pertain to strategy development at different parts of the Bank, the vertical layers provide the foundation for execution. These vertical layers…

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