Western Independent Banker - May/June 2013 - (Page 11)

By JP Nicols Banks Must Face Their Own Fiscal Cliff During my 20 years at U.S. Bank and its predecessors, I had the opportunity to work with not one, but two American Banker Bankers of the Year – Jerry Grundhofer and Richard Davis. The bank currently leads the industry with many enviable key metrics, including an ROE over 15 percent and an efficiency ratio below 50 percent. I certainly learned a few lessons during my tenure, and I still apply many of them in my work today with other banks: Great things happen when revenues grow faster than expenses. This was one of Jerry’s famous mantras, and it informed all of our business decisions. Jerry and Richard joined $6 billion Star Bank in 1993 and this approach helped triple the size of the bank over the next five years and led to two 3-for-1 stock splits in less than 36 months before acquiring Firstar, Mercantile and U.S. Bank over the next five years to ultimately become the fifth largest bank in the nation. Over time, banks with lower efficiency ratios have more and better options and tend to be acquirers during periods of consolidation. MUCH HAS BEEN said about the U.S. Government’s “fiscal cliff” issues, but setting aside the political posturing and arbitrarily imposed deadlines, the heart of the issue is the fact that outflows (government spending of all types) are outpacing inflows (tax revenue). This is not sustainable. Many community banks find themselves in a similar situation, with expense growth exceeding revenue growth and ROEs not covering the cost of capital. This is not sustainable either, and like the United States Government, bank leaders will have to consider all of their options to address both sides of the problem.  A look at FDIC data analyzed by Bank-Trends.com shows that efficiency ratios over the past five years have been rising most noticeably for banks over $2 billion in assets, while trendlines are flat to slightly declining for smaller banks. But the larger banks still enjoy a 10 percent-plus advantage over banks under $500 million in assets. That means that 10 cents more will flow to the bottom line for every dollar of revenue. I expect expense pressures to increase on banks of all sizes, and the smaller banks have less flexibility to absorb increasing costs. Lead with courage and communicate with vision. It is painful at first to cut some of the things that many believe to be sacred. A detailed inventory of expenses will typically reveal things like multiple duplicate subscriptions for seldom-read publications that can be shared amongst many or even eliminated. Initial and ongoing communications are key to staffers understand the goals and the progress being made. I will admit that I joined the chorus of clucking mid-level employees when Jerry Grundhofer first announced the “Supply Olympics” at what was then known as Star Bank. I couldn’t believe that the CEO continued on page 12 A detailed inventory of expenses will typically reveal things like multiple duplicate subscriptions for seldom-read publications that can be shared amongst many or even eliminated. Western Independent Banker May/June 2013 11 http://www.Bank-Trends.com http://www.wib.org

Table of Contents for the Digital Edition of Western Independent Banker - May/June 2013

A Message from the Chair
Data Mining for Profits in 2013
Banks Must Face Their Own Fiscal Cliff
Boost Your Bottom Line with Lending Process Enhancements
Managing Interest Rate Risk to Achieve Strategic Profitability
Moving Mobile Banking Toward Acceptance – and Profitability
Alternative Revenue Strategies to Improve Bank Profitability
Analyzing Customer Performance to Increase Bank Profitability
WIB Service Corporation Report: Secrets to Success in 2013
Professional Development Resources
Welcome New Members
Index of Advertisers/ Advertiser.com

Western Independent Banker - May/June 2013

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