Correspondent Blog

If you want to grab a material amount of new deposit balance, offer a 5.05% money market rate, post it all over Instagram, and sit back and watch the money roll in. This approach has many problems, the first of which is a negative return on your investment (ROI). You will also end up cannibalizing…

In an article last week (Here), we discussed how the higher-for-longer interest rate environment will affect the community bank sector. Stable short-term rates for the next year or longer will increase cost of funds (COF), hold yields on loans steady, decrease net interest margin (NIM), and pressure return on equity (ROE) for new credit assets. …

Ask most banks how they construct their lending portfolio, and they say that “it is what the market gives them.” That is not a great answer. That level of passivity will likely cause us to lose 75+ banks during the next downturn. Loan portfolio asset allocation should be active. Credit risks are increasing, and a…

On September 20, 2023, the Federal Open Market Committee (FOMC) left its benchmark rate unchanged, but it would be a mistake to conclude that the committee did not send a strong message about the projected path of future interest rates.  The FOMC revised its view on future projected interest rates – rates will be “higher…

Not all customers are created equal. Some customers are more profitable than others, and if you are out to build a more profitable bank, it pays to have a tactical plan to go after more profitable customers. The treasury or cash management customer is usually a bank’s most profitable customer on a risk-adjusted basis (HERE). …

The banking industry’s average efficiency ratio worsened for the first time since 2021. The industry’s efficiency ratio increased to 54.30% in Q2/23 from 52.98% in Q1/23. This development is very important to community banks, as their efficiency ratio also increased, but to 61.63%. The national banks have already indicated how they plan to reverse the…

Most banks have still not committed to RTP® or FedNowSM for their commercial customers – a bank’s most significant single profit driver. Most banks ignore instant payments or are still worried about fraud. The irony is that of the estimated $25 trillion in B2B payments in the U.S., 33% are still made via check that…

On September 7, 2023, the FDIC released its banking profile.  This quarterly publication provides a comprehensive financial results summary for all FDIC-insured institutions (4,645 commercial banks and savings institutions insured by the FDIC).  While banks under $10B in assets comprise 97.8% of all banks by number, those same banks comprise only 14% of all banking…

We have discussed the importance of bundling or packaging deposit account services to speed up customer choices, increase profitability, and enhance deposit performance. However, many banks still offer just two choices, whereas if they offered three, they would increase profitability. In this article, we examine how behavioral deposit pricing works and how to use it…

We analyzed the loan performance (return on equity, loan yield, fee income, and loan size) of hedged borrowings in a large group of community banks and compared this to the community bank industry averages.  We conclude that loan-level hedging offers community banks a strong competitive advantage in the current interest rate and competitive commercial loan…

One challenge in banking is that many banks know data is the bank’s future but lack a data framework. As a result, their progress in leveraging data and machine learning is slow. In this article, we explore what a data strategy looks like, how that translates into tactics, and how the “Next Best Action” should…

Bankers need to consider the term structure of rates, also known as the yield curve shape, when structuring and pricing commercial loans to maximize return and reduce risk.  Many bankers and borrowers are convinced that a recession is imminent, but the current term structure of rates does not necessarily establish this conclusion.  The yield curve’s…