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Smaller banks are beginning to see more revenue from service charges as they experiment with new fees and products.
February 5 -
Bad times are driving a large majority of banks to rethink their operating models, a KPMG survey says. Wealth management and technology are priorities, branches may have to be turned into marketing stores, and M&A is still back burner.
June 6
LAS VEGAS — Community banks relying on cut-rate loan pricing are taking the wrong approach to generating returns.
Rather, banks that build a business model around
CS looked at 50 banks with $50 million to $999 million of assets that had posted the best returns on assets from 2006 to 2011.
A number of banks have become more competitive with loan pricing for the most creditworthy borrowers, drawing complaints from the industry's more conservative lenders.
But the study found that 92% of the banks it studied identified relationships and intimacy as their key value propositions. Convenience was the second-highest priority, at 38%, and less than 25% selected pricing, rates and terms. (Respondents were allowed to select up to two answers.)
None of the top 50 banks surveyed discussed plans to aggressively change underwriting, pricing or terms, though 42% of respondents said they were conservative in those areas.
"These are not price leaders," Cady said. "That is very interesting and an important takeaway."
Efficiency was another key takeaway from the study. More than 90% of respondents identified cost control as a core competency, while 67% selected staffing and productivity.
Nearly 75% of the bankers said they had made minor adjustments to their business models. A
Merchants Bank of Indiana in Indianapolis topped the list in the CS Consulting study. The $936 million-asset bank takes pride in its "very personalized touch" and customized products and services, Cady said. The bank doesn't have tellers, choosing to instead assign a personal banker to each customer.
Merchants is also willing to send out staff to meet clients who are too busy to visit the bank.
Merchants' model is surprisingly efficient. During last year's second quarter, the bank's efficiency ratio fell below 30%, Cady said. This fact drew whistles from the crowd, with one banker even whispering, "That's crazy."
CS found that the mean return on assets for the banks in its study was 2.17%, compared to 0.57% for all banks with $50 million to $999 million is assets. Banks included in the study had a net interest margin of 4.91% at the end of 2011, compared to 3.95% for all banks within the selected asset range.
Top-performing banks generally followed one of two business models. About 80% offered traditional community banking, such as business and retail services. The rest focused on niche areas like commercial real estate, mortgages and asset-based lending.
"Strong relationships are very important," Cady said. "These guys are able to get a much higher loan yield than the typical bank. … They are able to find customers that are willing to pay for relationships and do so at a much higher premium."
