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Using Information to Effectively Engage With Clients

Posted by Brad Dahlman

Aug 10, 2016 10:00:00 AM

How often do you go to your favorite restaurant or shop at your favorite store?

I personally visit Costco every week to pick up items for my family of five. This gives Costco 52 opportunities per year to “engage with me” at their store, for roughly 45 minutes each week. Now turning to banking; how many times a year do you engage with your clients?

In a recent FDIC report titled “Brick and Mortar Banking Remains Prevalent in an Increasingly Virtual World” and Brett King’s article “What the FDIC study on bank branches misses and it’s a massive hole”, there is a healthy discussion of this topic – how many times do clients visit your branch? 

While this key stat isn’t available for US banks, I was drawn to one chart from a UK bank. Spare Bank has tracked visits per year and from 1995 to 2016 the results are staggering – branch visits dropped from 24.5 visits per year to 1.3 visits per year. Put simply, clients visit their bank or credit union once or twice a year and their favorite store weekly!

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Topics: Relationship Management, Profitability Management

Net Interest Margin in a Rising Interest Rate Environment

Posted by Brad Dahlman

Sep 16, 2015 9:16:00 AM

 

We all know it will happen, the real question is when?  As the Federal Reserve monitors unemployment inflation and global markets closely, it is widely expected that the federal-funds rate will be increased in the last quarter of 2015.  It has been almost ten years since the Fed raised rates!  The Fed dropped rates from 2006 to 2008 and has held them steady ever since.  An increase in the federal-funds rate would signal a dramatic change and should cause all financial institutions to consider the impact of a rising rate environment on their portfolio.  This will likely cause clients to reassess their products, services, and rates with their existing FI. 

Now is the time to:

  1. Quantify the impact of rising rates on your earnings – thru the use of an Asset Liability Management (ALM) tool or service.
  2. Devise customer facing strategies to protect profitable clients and provide pricing guidance.

Today I’ll focus on the customer facing strategies.

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Topics: Profitability Management

Key Client Identification and Retention

Posted by Brad Dahlman

Aug 28, 2015 4:31:02 PM

Did you know that, according to a recent J. D. Power and Associates study, 8.7% of customers switched their primary bank in the past year? Think about that … 8.7% of your customers left last year, and just to “maintain” your client count you need to attract that many new clients.

Now think about it in a different way. The loss of some of these clients hurts much more financially than the loss of others. As a profitability expert I know that, for most banks, over 180% of their profit comes from the top 20% of their clients. Losing these top clients really puts a dent in the bottom line. Therefore, financial institutions need to focus their retention efforts on their key clients in order to yield the greatest benefits.

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Topics: Profitability Management

How to Fight a Decreasing NIM in Your Financial Institution

Posted by Brad Dahlman

Aug 25, 2015 4:38:49 PM

The economic down turn of 2009 – 2012 is behind us.  We have started to see economic growth and increased loan demand, and charge-offs have returned to normal levels.  These are all positive trends for banks and credit unions.  The next big challenge bankers face is fighting the trend against margin compression.  For the banking industry over the past five years we have seen overall NIM decline by 19bp (3.02% - 2.83% - see Chart 1).

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Topics: Profitability Management

How Does Customer Profitability Increase Our ROE?

Posted by Cheryl Wondrasch

Aug 25, 2015 4:36:43 PM


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Topics: Profitability Management

Five Common (and Costly) Loan and Deposit Pricing Errors

Posted by Jon Kozlowski

Aug 25, 2015 4:33:05 PM


At most community financial institutions, deal pricing is typically set by loan officers, and approved by loan committees, in a process that essentially lets the institution’s competitors price their deals; experienced lenders generally have a good sense for what rate/fee proposals will work on different types of deal structures in their markets, and look to meet or beat what competitors are likely to bid on the same deal.  One of the biggest revelations institutions implementing a pricing model for the first time have is how frequently competitors misprice deals.  This could mean either “giving it away” and not being adequately compensated, or realizing there were quality credit opportunities the institution could have bid more competitively on and still enjoyed strong profitability.

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Topics: Profitability Management, Loan Pricing

Top 5 Questions to Ask Before Changing Your Branch Structure

Posted by Cheryl Wondrasch

Aug 25, 2015 4:30:37 PM


Very early in my career, my professional mentor and manager frequently made the comment “banks make money in spite of themselves”.  I was in my mid 20’s, a financial analyst, and just learning about banking.  To me, it seemed the opposite, we used complex concepts like funds transfer pricing, and credit allocations.  How could smart people, that understood these topics, lose money?

Twenty years later, I’m beginning to see the wisdom of his comment.  Hopefully, I have not upset my fellow finance managers in the industry.   I have built my career around financial reporting and analysis.  I have had the opportunity to be a financial manager in large and small institutions.   The last eight years have been spent consulting on and installing customer, organizational, and product profitability systems.

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Topics: Profitability Management

How Many Branches are too Many?

Posted by Brad Dahlman

Aug 25, 2015 4:28:38 PM

 

Most bankers I talk to these days are saying two things…

First, they are thankful to have weathered the financial downturn and feel somewhat optimistic about an economic recovery.  Second, they are all focused on improving profitability as a way to strengthen their balance sheet.

Any accountant can tell you that improving profitability is rooted in either higher revenues, lower costs, or a combination of both.  With weak loan demand and increased regulatory focus on fee income, many financial institutions (FIs) are taking a much harder look at expenses.

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Topics: Profitability Management

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