ABA Banking Journal - September 2007 - (Page 58)

Real World Solutions Advertisement Are Your Net Margins Shrinking? By John M. Floyd As margins continue to get tighter, competition is going to get tougher, and you can’t do a thing to change them. To succeed in a low-margin market you must focus on increasing non-interest income in a way that adds value to the experience as seen by your primary asset: your customers. Recognize the signs. The winds of change are blowing in today’s marketplace and will affect your continued growth. There is very little asset and liability pricing elasticity to draw on, which could lead to a negative impact on earnings and capital levels. It is an unfortunate reality that liabilities will reprice more quickly than asset yields when interest rates change, making your bank liability sensitive and reducing your net interest margin. We know that the rate of loan growth will slow during periods of rising interest rates, increasing levels of consumer debt, and higher oil prices. This will also have a negative impact on the origination of home mortgages and home equity lines of credit, biting into your origination fee income as well as your interest income. You should expect higher interest rates to cause consumers to spend less and start to save more, leading to increased competition for deposit accounts. Now is a good time to begin a careful analysis of your rates and the benefits you offer your customers as competition for these deposit increases across the financial industry. Ways to improve your bottom line. The focus should turn to finding new noninterest income streams to compensate for opposing market influences. Consider conducting an audit of every service you offer that generates fees. If your bank is without the internal resources to conduct such an audit, look at engaging a third-party consultant to perform an evaluation of current programs and fees. A third-party provider should also conduct a review of your policies, test the consumer friendliness of your programs, and evaluate key performance indicators. With their insight you will then be in a better position to see what measures you should take to positively impact your bottom line. A consistently proven method of margin enhancement is increasing operational fees. Consider the following: • Are you securing fees on all loans, not just car loans and mortgages, but on refinances and HELOC’s? • Do you have service charges on basic checking accounts that fall below a specified minimum deposit, and if so, should they be increased? • When was the last time you reviewed and increased your “stop payment” fees? • Have you implemented an overdraft privilege program yet? If not, maybe now is the time to consider it, to give your bank a chance to substantially increase fee opportunities while providing a valuable customer service. Your customers are the true measure of success. Increasing your customer base and expanding your product penetration is critical to your long-term success. Growth options to consider include: • increasing cross-selling efforts to current customers; • conducting promotions to attract new customers to existing products and services; • offering new products and services; • expanding the market area by opening new branches in new geographic areas as well as in existing market areas; and • expanding your presence on the Internet. Plus, keep in mind that in order to attract new customers and deepen your penetration with your current customers, it is important that you always make the customer experience a good one. John M. Floyd is Chairman and CEO of John M. Floyd & Associates, a profitability improvement consulting firm recognized for earnings enhancement programs, executive placement, fraud protection solutions, as well as product, service, pricing and technology improvement consulting. For more information visit the company’s website at www.JMFA.com Act now to position your bank for long-term success The possibilities today for economic growth are uncertain and potentially troublesome. As we know, today’s narrow margins are generating less income, and smart bankers are addressing that shortfall now to ensure financial viability and customer satisfaction in the years ahead. 58 SEPTEMBER 2007/ABA BANKING JOURNAL www.ababj.com/subscribe.html http://www.JMFA.com http://www.ababj.com/subscribe.html

Table of Contents Feed for the Digital Edition of ABA Banking Journal - September 2007

Contents Editor's Column Briefing: Why Money Sense is a Top Priority Briefing: Sleight of Mind Briefing: Snapshot: What the First Half Tells Us About the Second Half Briefing: ABA Resources ABA Chairman’s Position Briefing: Get Away and Get Ahead: ABA's Banking Leaders Forum Community Banking: Trim the Fat: Winning the "Battle of the Buck" Community Banking: Pass the Aspirin Cover Story: Meeting the Challenge of the "Unbanked" Bank Marketing: Don't Miss the Boom! On the Job: Time to Power Up Your Presentations? Insurance Sales: The Art & Craft of Cross Selling Tech Topics: The Price is Right? Tech Topics: Security: Protect Information First Tech Topics: Hackers for Hire? You Bet'cha Tech Topics: Case in Point: Tellers Scan, Too, at First Federal Compliance Clinic: Adverse Action Clarified The Economy Banker’s Mart To Advertise/Index of Advertisers

ABA Banking Journal - September 2007

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