MARKET UPDATE Your Competitive Advantage


At the MIB Community Banking Conference one of the enigmatic speakers, Dr. Benjamin Akande gave a presentation titled, “Leadership Through Storytelling”. The presentation itself shined with anecdotes about his time in the boardroom as a consultant for Fortune 500 companies such as Ralcorp, Boeing, and Anheuser- Busch. One of his answers during the Q&A session that struck me as both simple and brilliant was, “What is one common trait these hugely influential and successful companies employ that sets them apart?” The answer was simple—they recognize their unique competitive advantages and exploit them to the fullest. I think the same mindset can apply to community banks, many of which are probably doing this already whether they are aware of it or not.


What is your advantage?


Community bank leaders responsible for paving the pathway to success need to be cognizant of what their competitive advantages are. Advantages can be something concrete, such as a preferred branch location or a high producing lender. They can also have an intangible presence such as reputation in the community or corporate culture. Whatever form these advantages take, awareness and recognition is the first step to using them to truly set your business apart and secure those advantages for the future.


Bigger is not always better


This magazine will find institutions of various sizes across the states of Missouri, Nebraska, Illinois and Iowa. Of the 1,183 banks, 59% in those states are below $200 million in total assets and 75% of the banks in those states are below $400 million. Smaller banks have challenges that larger banks do not have to tackle, but being small can also be an advantage in and of itself. Smaller banks can often bypass the bloated bureaucracy of multiple loan committee levels to arrive at a decision more quickly. The same red tape can also


be a hindrance to efficiently implementing strategies internally and externally.


Models vs Real World


Both sides of the balance sheet can fall victim to modeling assumptions. Assumptions for a “generic bank” may not have a practical application for every institution. While not every bank will need a deposit decay study it is important to have some understanding of how their deposits have behaved in the past and if interest rate risk models are capturing and applying that behavior to a specific institution. Models often predict that a bank with


a “positive gap” from an asset-liability per- spective will experience a greater margin expansion in a “rates up” scenario than is captured in the real world. The real world has disruptive competition that may force cost of funds to inflate more rapidly than the model in order to retain deposits. If your institution is in a competitive area, you may not be able to book new loans at rates that were anticipated in the sterile modeling environment. It has been our ex- perience that community banks have their finger on the pulse of their markets and the patterns that have proven out over time. Building these institution specific environ- mental factors into risk modeling can be an important driver to more accurately reflect the situation at hand and outlook forward.


Free Funding


Using some crude averaging, banks in Missouri, Nebraska, Illinois and Iowa below $400 million in total assets have on average have 95% of those assets in the earning category. Those same banks have an average of 73% of their liabilities in the interest-paying category. The difference of 22% essentially represents a level of “free funding” that banks can develop strategies around to ensure they put themselves in the best position possible for success. In a world of relatively low rates, flat curve and margin pressure, banks need to develop strategies to keep their deposit base, funding mechanisms and investment portfolios at appropriate risk-reward levels. The efficiency and success


ARTHUR W. SPELLMEYER, President/CEO, First Bankers’ Banc Securities, Inc.


awspellmeyer@FBBSinc.com


Missouri Kansas


Nebraska


888-726-2880 866-530-2846 866-630-1131


Oklahoma 405-638-3248


of employing your “free funding” can make the difference between a good year and a great year.


Always Improve Your Shelter


Survivalists have a saying along the lines of “You can always improve your shelter”. From a strategic perspective, even if the bank is humming along and the year seems to be in autopilot, there is always something you can give attention during the down time to in order to be opportunistic as the environment allows. Banks that are able to identify their specific advantages and build a strategy that exploits those advantages will solidify their position in their respective markets. If you are having trouble getting started with identifying those advantages, put yourself in the boardroom of your competition…it can be a useful exercise. Strategic Planning is a topic that can put some people to sleep, but for those that can use it to exploit their advantages it can help them sleep better.


MIB Community BANKING 5


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16