ABA Banking Journal - May 2014 - (Page 21)
PASS THE ASPIRIN
THE BANKER-TO-BANKER EXCHANGE
The Headache: "How am I doing (really)?"
Peer-group comparison remains a fundamental method of seeing how well your bank performs. Traditionally, the regulators'
Uniform Bank Performance Reports served the purpose. But increasingly bank strategies differ, such that one $500 millionassets bank may be a very different creature from another.
Perhaps befitting a bank named
for explorers who headed Thomas
Jefferson's so-called "Corps of
Discovery," Lewis & Clark Bank's
use of peer comparison has been a
Trey Maust, co-president and
CEO of the $128.7 million-assets
Oregon City, Ore., bank, says that
early on in its young life, the bank
found peer comparison to other de
novo banks was the only yardstick
that made sense.
The bank's use of peer comparison has matured as the bank
has matured, according to Maust.
Today, Lewis & Clark's management and board observe its performance versus a group of banks up
to $500 million in assets with similar
business models. Lewis & Clark is
an urban lender concentrating on
small business and entrepreneurs.
Ratios are the most important data
points, due to the variance in size
among the group.
"Getting away from simple size is
important," says Maust, "especially
as there is ongoing concern about
the viability of smaller institutions."
Maust says a key element in using
peer numbers is recalling the purpose. Rather than being a robotic
decision engine, the method is "a
catalyst to discussion," he says. "It
helps us ask, 'Do we want to make a
change in direction?'"
To save time and obtain data
beyond FDIC records, Maust uses
SNL Financial's database for creating customer peer reports, as do
some other bankers interviewed.
At Sound Community Bank,
Seattle, Wash., evolution away from
being a thrift was part of the reason
that the $442.4 million-assets bank
abandoned standard peer group
reports from the erstwhile Office of
Thrift Supervision to customized
reports using Fiserv's BankAnalyst
Financial software. A key factor for Laurie Stewart, president
and CEO, is comparing the bank
to institutions with similar portfolio
composition, and then to the top ten
performers by given metrics.
"You can drill down into the
comparatives and see what particular components might be impacting your performance," says Stewart.
She credits peer comparison for
helping the bank rebalance its loan
portfolio, post-recession, moving
further from a concentration on
home lending. It also helped the
bank get moving on a long-discussed
wealth management program.
One challenge of peer comparison
is that call report data is static, but
banks are dynamic. At Farmers &
Merchants State Bank, Archbold,
Ohio, with assets of $950.9 million,
the emphasis is on forward-looking
comparisons. "We're keeping more
of an eye on the next peer group
break, the $1 billion banks," says
Paul Siebenmorgen, president and
CEO. "Things do change when you
move from group to group. Once we
get there, we will be the small fish in
Siebenmorgen has found that
devising peer comparisons more
closely matched to the bank's
characteristics results in more useful data. For example, the bank
has been somewhat aggressive
in branching in recent years, so it
makes more sense to compare operations with other banks that have
strong branch networks. Another
distinctive factor is that F&M is a
public bank, which Siebenmorgen
says makes a difference in operating
strategy. "I don't know that there is
a perfect screen," the Ohio banker
says, "but you want to have a feel for
banks like yourself."
Sometimes peer comparisons
may be purpose-built. Joe Reilly,
president and CEO at $907.7 million-assets Centrix Bank & Trust,
Bedford, N.H., uses several general peer analyses for broad comparisons. But he says the bank has a
specific group, selected by bank size
range and commercial lending activity, that it uses for comparing its
allowance for loan and lease losses.
Frequently, peer comparisons
play a big part in board meetings,
enabling management to give directors a sense of how the bank stacks
up. It's important in that context
to remember that peer comparisons
work best as self-improvement tools,
says Chris Nichols, chief strategy
officer at CenterState Bank Central
Florida, N.A. "Sometimes," says
Nichols, "people pick peer groups to
For Jim Edwards, CEO at $1
billion-assets United Bank, Griffin,
Ga., one of the biggest values
of peer comparisons is a series of
small meetings organized three
times a year by the Georgia Bankers
Association. A facilitator guides
member CEOs in head-to-head
roundtable discussions where they
pick apart each other's numbers,
praise the winners, kid the laggards,
and share ideas.
ABA BANKING JOURNAL
Table of Contents for the Digital Edition of ABA Banking Journal - May 2014
Who will fill the chair?
Pass the Aspirin
Doing well by doing good
ABA At Your Service
ABA Banking Journal - May 2014