The keys to success in NBC's hit show The Biggest Loser are: 1) determination, 2) expert coaching and 3) monitoring progress. In the show, contestants compete to see who can reduce their body weight by the largest percentage each week. We were immediate fans of this program because, as bankers, we can easily understand rules based on percentages and clear cut goals.
When bankers rigorously track and monitor their bank's performance against a set of peers, it can help them stay ahead of the pack. Trending an institution's performance over time and using a well thought-out peer group as a benchmark can help a bank identify areas where they can "cut the fat."
We have spent the past few weeks analyzing recent bank data and have identified some interesting opportunities for community bankers. For example, when we compared a particular bank (approx. $1.2B) against similar-sized institutions in the Western region, we immediately realized that this bank was staffing their branches much more heavily than the banks in their peer group. This bank's high staffing level was reducing its net income by more than $9mm over the past 12 months, when compared to its peers. Based on this analysis, we discovered two opportunities this bank could take to cut the fat: 1) reduce staff, or 2) generate a larger deposit base within their existing footprint through proper (i.e., not rate-based) promotional efforts.
In our above example, our analysis also found a strength that was being overlooked by this particular institution. Due to its geographic location, the bank's compensation expense per employee was about 30% less than its peer group. Another bright spot was the bank's ability to generate deposits at rates 4% below their peer group. For many bankers, it might be tempting to assume that a 4% difference in deposit rates really isn't that significant, but our analysis showed that this slight difference, when applied to their funding base, contributed over $10mm per year to net income, as compared to the selected peer group.
For this institution, taking the time to "weigh in" and analyze its performance relative to the peer group produced immediate, actionable results. First, the bank was able to isolate areas that were dragging down ROE and evaluate what activities were negatively impacting net income. Second, identifying areas of successful performance allowed the bank to increase its focus on protecting strengths that they had worked so hard to achieve.
For banks looking to cut some fat, the next step after "weighing in" is to look into the mirror and muster the determination necessary to take advantage of opportunities.
If you attend our Executive Management Conference this May, we will run a complimentary analysis for your institution to help you identify strengths and opportunities. The information may give you the expert coaching you need to drive your determination and monitor progress in order to move your institution to the front of the pack.