Headache #1: Deteriorating Efficiency Ratios At Community Banks
Deep in FDIC’s latest quarterly performance report was a chart demonstrating a serious degradation in community bank efficiency ratios. At yearend, the average ratio for banks under $1 billion stood at 74%, whereas banks over $1 billion in assets had an average ratio of 53%.
Why you think this disparity exists and does it match your bank’s experience? And has your bank had any success with a remedial strategy?
Remedy 1
Larry Myers, president and CEO, First Savings Bank, FSB, $490.7 million-assets, Clarksville, Ind.
Expenses and fee income are the drivers for the efficiency ratio. Smaller banks typically do not have the multiple sources of fee income available to the larger banks. There is also efficiency with size, especially with operations and compliance.
In response to this situation, we have increased fees on our depository products and have added bank-owned life insurance as another source of fee income. The expense side is being addressed as we consolidate our merger with another bank, reducing overhead by integrating systems, etc.
Remedy 2
Rheo Brouillard, president and CEO, Savings Institute Bank & Trust, $864.6 million-assets, Willimantic, Conn.
SOX 404, in a nutshell. For banks under $1 billion, the Sarbanes-Oxley Act has caused a significant increase in compliance, audit, and risk-management costs that banks over $1 billion have not generally had to deal with.
At the same time, margin compression—driven by low loan rates; and, in more recent years, the need to increase loan loss reserves and pay special FDIC assessments, all contributed to the degradation of smaller bank efficiency ratios.
Remedy 3
Mike Murphy, executive vice-president and CFO, First American Bank, $294.7 million-assets, Norman, Okla.
The efficiency ratio this past year was impacted on several fronts.
First, our net interest margin shrank as asset yields fell faster than did interest expenses.
Second, noninterest revenue fell primarily as overdraft/NSF charges fell due to more prudent management of accounts by our customers.
Third, our expenses were up related to regulatory burden and the FDIC special assessment.
As to why those banks over $1 billion in assets actually saw their ratios improve, many of those banks operate more efficiently already, and have multiple sources of noninterest revenue and can more easily shed noninterest expenses with minimal impact in public perception.
Headache #2: Employee Burnout
Community bankers are doing more with less in a time of unusual challenges. How is your bank helping employees cope?
Remedy 1
Jeffrey Smith, president and CEO, Ohio Valley Bank Co., $810.4 million-assets, Gallipolis, Ohio.
Our bank has tried to offer different things for our employees to help keep them happy and engaged. Here’s a list of things we think helps boost our employees’ moral; they were devised by our former Training Department, now dubbed the Employee Development Department:
• “Wellness challenges”
• Casual dress-down day once a month
• Educational classes online (rather than at an inconvenient location)
• Free lunch to all departments in appreciation of their hard work
• Celebration of “Go Red for Women Day” by providing health care workers to check employees’ blood pressure
• Fitness day in May gives the employees an opportunity to dress down casual and walk on their lunch break.
• Allowing employees to buy or sell extra vacation days
• Free sick days to employees with the flu who had no sick days left
• Birthday and anniversary cards sent out each month to employees
• Wellness newsletters, emails, and seminars
• Annual health fair
• Carryover of unused sick days
• Educational classes
• “Employee Love Fund” (to assist employees with emergencies)
• Flu shots at no charge
In addition, we recently had sales and relationship training provided by Ohio Bankers League to help employees learn how to build their communication and sales skills.
Remedy 2
Larry Myers, president and CEO, First Savings Bank, FSB, $490.7 million-assets, Clarksville, Ind.
Everyone is subject to burnout. One of the best ways to address that issue is to always celebrate and recognize. Sometimes it is as simple as recognizing the employee(s) at our weekly meetings or providing a dinner for the employee and their spouse. We have multiple bonus plans in place, but sometimes a spot bonus will get miles of goodwill and enthusiasm.
Wanted: Headaches & Remedies
Want to weigh in on these or other topics? Or seek answers to your headaches? Send your thoughts along with name, title, and bank to
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Additional remedies to the above headaches will be posted as received. Go to www.ababj.com/ blog/277.html
The electronic version of this article available at: http://www.nxtbook.com/nxtbooks/sb/ababj0410/index.php?startid=24
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