Western Independent Banker - May/June 2009 - (Page 20)

to deposit calling officers, the average officer is responsible for $25 million in deposits and $16 million in loans for an average ROE of 44 percent. Interestingly, the top 10 percent of profitable customers utilize 3.48 different products, while the least profitable customers utilize 3.50 different products. What To Avoid The top 3 items which hurt bank profitability according to the 2007 data are: • Poor loan pricing/structuring (contributes 60 percent to lower than average ROE) • High rate CD promotions (contributes 22 percent) • Excessive fee waiving on deposit accounts. The most profitable account at the bank is business checking, while the least profitable is student checking. The most profitable CD structure in 2007 was the 1 year or 1.5 year, which were tied. The least profitable CD structure had a 5-year maturity, but it was closely followed by the 3-month CD. An interesting deposit fact: A bank had an equal chance of losing money with public funds than making money last year. For that matter, 21 percent of the average bank accounts lost money for the institution (compared to 14 percent for 2006) due to mispricing. As in years past, the 90-10 rule still applies: The top 10 percent of profitable customers for the bank contributed more than 85 percent of profits. Five Ways To Increase Profitability Based on this data, what are the top 5 things banks can be doing to increase profitability in 2008? 1. Find out who the top 10 percent of your customers are and aggressively protect them – having a profitability system can help bankers start measuring these metrics 2. Figure out how to market, bundle products, segment customers and sell more business DDA accounts 3. Get a loan pricing model so you know if the loans you make contribute to profitability or take profitability away. If banks can increase the average life on profitable loans (through prepay protection, longer maturities, etc.), loan profitability will exceed credit risk (i.e. most of a loan’s credit risk is between years 2 and 3, not on the tail end). 4. Cross-sell profitable products to your profitable customers, particularly on the deposit front. 5. Figure out who the most profitable customers are, figure out ways to keep them and figure out why they are profitable. Then work to develop programs to target similar accounts. Bottom line: Bankers matter now more than ever. With a thoughtful strategy focused on maximizing profitability and avoiding mistakes, financial institutions can manage through challenging times. Chris Nichols is CEO of Banc Investment Group, the broker-dealer subsidiary of San Francisco-based PCBB, which serves banks in 13 western states. He can be reached at cnichols@bancinvestment.com, 415-399-5800. The Only Solution For Your Processing Needs. To learn more, contact Todd Cline at 847-871-6005 or Todd.Cline@53.com EFT.53.com AT M C A R D P R O C E S S I N G | D E B I T C A R D P R O C E S S I N G | P O RT F O L I O M A N A G E M E N T C A R D P R O D U C T I O N | N E T W O R K G AT E WAY S E RV I C E S | AT M T E R M I N A L D R I V I N G C R E D I T C A R D P O R T F O L I O S E RV I C E S | C O R R E S P O N D E N T A N D C A S H L E T T E R S E RV I C E S 20 www.wib.org Western Independent Banker http://www.53.com http://www.wib.org

Table of Contents Feed for the Digital Edition of Western Independent Banker - May/June 2009

Western Independent Banker - May/June 2009 Contents A Message from the Chairman How to Keep Employees Happy … On a Shoestring Budget Keeping Good Employees in Today’s Marketplace Asset Appreciation: Front Line Employees Hold the Secret to Balancing Customer Loyalty and Profitability Great Places to Work – WIB Member Banks Why Real, Live Bankers Still Matter Getting the Best Results from an Executive Search Best Practices in Lender Incentive Programs The Enlightened Control Freak: How to Lead So Your Team Will Love, Follow and Work Like Crazy for You Even in These Wild and Tough Economic Times The Frightened Leader Don’t Train – Educate! WIB Service Corporation Report WIB Calendar New Members Advertiser.com Index of Advertisers

Western Independent Banker - May/June 2009

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