Correspondent Blog

As banks finish strategic planning, it is helpful to understand your bank’s performance assuming you DON’T make any changes. A statistical reliable model that factors historical performance, current business model and future market assumptions allows bank executives to more accurately apply capital, resources, and risk to improve performance with a higher degree of confidence. In…

On the path to improving bank profitability, we concluded our summer performance series for a handful of community banks.  Because of the demand and success of the format, we are extending this program for a “Fall Performance Series.”  For banks that are consistently earning below 1% ROA, we may be able to help increase performance…

The banking industry’s average return on assets (ROA) for Q1/25 was 1.16% – an improvement from the prior quarter and the one before that.  Community banks between $100mm and $10Bn in assets recognized 1.13% ROA.  Community banks are facing several primary challenges.  If your community bank management team aims to improve your bank’s financial performance,…

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,…

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…

In our previous article (here) we analyzed the data on community bank M&A and performance, and we concluded that there is no relationship between community bank size and profitability, as measured by return on equity (ROE).  While superficially it makes sense that bigger is better, size itself does not lead to better bank performance.  Combining…

There are many experts who claim that to achieve profitability, community banks (banks under $10B in assets) must gain scale by acquiring assets.  On the surface that seems reasonable but does scale in banking result in better performance for community banks?  The answer to that question can be analyzed both empirically and anecdotally, and we…

Banking is woefully inefficient. There is a myriad of manual processes that take place everyday in banking driving up unit economics and causing the average bank to operate with a 77+% efficiency ratio. To be competitive in the future, banks need to be operating at an efficiency ratio of below 40%. Part of the issue…

In Q2/24 the average return on assets (ROA) for community banks (under $10B in assets) was 1.08%, with an average ROE of 10.44%.  But within the community banking sector, performance varied among banks significantly.  We analyze the drivers of ROA for the community bank segment last quarter and consider what financial variables explain bank performance….

In Q2/24, the average return on equity (ROE) for the entire banking industry increased to 11.67% (from 11.11% in the previous quarter).  However, for community banks (under $10B in assets), the ROE declined to 10.44% (from 10.57% in the previous quarter).  When we analyze the causes of the decline in ROE for community banks we…

Most community bankers we talk believe they will get a boost to bank performance with declining short-term rates.  The thinking is that a lower Fed Funds rate will mitigate credit risk, spur loan demand and potentially soften competition for deposits, leading to wider NIM and more profitability.  Unfortunately, the empirical evidence shows otherwise.  While the…

Charlie Munger said, “Show me the incentive and I’ll show you the outcome.”  That is exactly what is happening in the community bank industry. Unfortunately, bank managers often give their lenders misguided loan compensation, resulting in suboptimal outcomes. In Q2/24, community banks (those under $10B in assets) were able to expand net interest margin (NIM)…