5 Principles to Improve Financial Benchmarking

In financial analysis, the question of “How are we doing?” should almost always be answered with “Compared to what?”

As directors prepare for year-end meetings, there are a number of key ways executives and directors can improve the bank’s approach to benchmarking. A focused program can decrease workload, reduce information overload and yield strategic insight. Here are five ways banks can start.

1. Reconsider Your Peers
Most bank directors are familiar with the national asset-based peer groups featured in Federal Deposit Insurance Corp.’s Uniform Bank Performance Report, or UBPRs. These peer groups can serve an important purpose when it comes to macro-prudential purposes (such as regulatory monitoring for safety and soundness within the entire banking system). But for bankers trying to extract value from this data, we recommend looking beyond asset sizes toward more relevant factors such as geography, funding strategy and lending portfolio.

2. Look Toward Leaders, Not Averages
Being above average is not the same thing as being a leader. Rather than compare themselves against the mean or median, banks should be more focused on how they stack up to the best of their peers. If they want to set realistic goals for high performance, boards should first understand what excellence looks like across a relevant set of bank peers.

3. Use Multiple Peer Groups
It’s rare that a bank can be purely labeled as an agricultural or commercial or industrial lender, or something similar. By design, most community banks have a balanced and diversified portfolio of loans and services. The same can be said for funding sources, risk tolerances, investments and fiduciary activities, among others. Despite these complexities, many banks tend to benchmark themselves against a single, universal peer group. Executives may find it more productive and insightful to use multiple, targeted peer groups, depending on the context of the analysis.

4. Add Context to Trends
Trend charts are a powerful way to monitor for constant improvement — but they only tell half of the story. Many bankers will close out 2021 celebrating a much deserved “record year;” a smaller group of insightful executives will pause to consider their stellar results in the context of the entire sector’s stellar results. Nearly every bank has been excelling at growing the portfolio, capturing fee income and improving efficiency ratios. Prudent directors should ask for additional context.

5. Limit the Scope
Since Qaravan’s inception in 2014, we have helped hundreds of banks pull together board packs, dashboards, decks, report cards and all sorts of other financial reports. The biggest challenge our clients encounter in this process is the information overload they inflict on the report recipients. In a sincere attempt to arm directors with as much information as possible, bank management ends up sending the board an overwhelming amount of data. Pulling these “kitchen sink” reports together is not easy, and it takes bank staff away from more important things. Directors can help minimize the inefficiencies associated with these data calls by encouraging a more focused review of key performance benchmarks.

To learn more, visit https://www.qaravan.com/.

Benchmarking Best Practices

Data has never been more important for the banking industry. In this video, Eric Weikart, a partner at Cornerstone Advisors, interviews South State Bank Senior Vice President Jamie Kerr about the bank’s disciplined approach to data and benchmarking. She also explains the importance of incorporating benchmarking into South State’s culture.

  • Developing key metrics
  • Using data daily

Your M&A Success Could Depend On This One Thing

merger-12-19-18.pngBenchmarking key performance indicators (KPIs) can help you more fully understand your bank’s financial condition and operating results, as well as the true value in a potential M&A market.

The success of your M&A strategy – whether buy, sell or stay – measurably increases with a sound grasp of the metrics that drive shareholder value.

KPIs as M&A drivers
KPIs can help you to identify important strengths in your target organization and your own institution. This can help determine the areas you could strengthen in an acquisition, or understand where your bank’s value lies within a merger. You can also learn about your organization’s, or your target institution’s, primary challenges and how this might impact the transaction.

These metrics can also help the organization evaluate the success of the transaction after completion. Have the key performance indicators drastically changed? Was that change different from the anticipated adjustment from the combination of the two entities? Understanding the metrics, and some of the forces impacting them, can be a strong foundation for successful M&A transactions.

Q3 2018 KPI observations
Community banks throughout the U.S. used the strong economy and relatively stable interest rate environment to maintain steady operations throughout the third quarter of 2018.

Baker Tilly’s banking industry key performance indicator (KPI) report reflected almost no change in comparison to the same benchmarks for the second quarter of 2018. Earnings, credit quality and capital adequacy benchmarks all remained essentially the same. This consistency appears to reflect a more stable economic environment, disciplined management of credit pricing and quality, notwithstanding a continued highly competitive environment, and the early stages of a move to higher interest rates.


If there is anything to take away from the relatively unchanged KPIs over the first nine months of 2018, it is that community bankers have diligently pursued the opportunities emerging from the strong economy.

Loan growth, reflected in the comparison of the loan-to-deposits ratios each quarter, has been somewhat subdued. Potential drivers of this include increasing liquidity pressures arising from changes in interest rates, early stages of the potential for a downward credit cycle and the uncertainty of the November midterm elections. These factors kept many community bankers focused on internal matters such as compliance and technology during the second and third quarters of 2018.

Many banks continued to assess consolidation opportunities on both the buy and sell side. Until the recent series of market declines, bank equity currency remained quite strong, supporting a continued active consolidation of the industry, at price points that, on average, exceed 1.5 – 1.7 times book value.

We expect more of the same consistency in the KPIs as we have seen throughout 2018. It does not appear there will be any significant shifts in either direction arising from changes in economic policy. However, the pace of deregulation may subside due to the change in leadership in the U.S. House of Representatives.

If equity markets rebound following the midterms and the Federal Reserve pauses its increase of interest rates, we may see a re-acceleration of the consolidation of community banks, especially those with assets of $500 million or less. Other than an increased emphasis on securing and maintaining low cost deposits, we anticipate community banks to maintain a steady course into early 2019.

What Your Bank Needs to Know About Data

board-9-12-18.pngBanks executives and directors of all sizes are or should be continually discussing and crafting strategic initiatives for the future of the institution. Today’s competitive ecosystem that’s rooted in continually evolving technological developments and uses of data has made it essential for bank leaders to continually adapt.

From the top of the company to the most basic product and talent level, banks are building strategies to maintain competitive positions using these different kinds of data assets. But with any new or developing strategy, there is a potential for added cost and risk that could negatively affect the bank.

efficiency-7-18-18-tb.pngThinking Beyond The Efficiency Ratio
The ratio of operating expenses to operating revenue has long been a metric by which banks track performance. But there’s much more to accurately and effectively evaluating the performance of your bank and improving efficiency, and management should be exploring further to truly assess opportunities to improve.

agenda-9-12-18-tb.pngWhy Data Should Be On Your Board’s Agenda
More and more executives have come to realize that data management needs to be a priority and not a back-office function for a select group within the organization. Almost everything in the company can be tracked or monitored with data, and it can lead to long term efficiencies.

strategy-9-12-18-tb.pngFive Steps to a Data-Driven Competitive Strategy
There’s no mistaking that leveraging the right data the right way should be a key component of any bank’s strategic planning. Assessing and evaluating your bank’s practices with data can enable you to deliver improvements and advantages for both the bank and its customers.

survey-9-12-18-tb.png2018 Branch Benchmarking Survey
As traffic in branches continues to decrease and as possible changes to the Community Reinvestment Act are discussed by regulators, bankers are continually trying to craft optimal branch strategies. In Crowe’s latest research, we review data from 457 branches around the country to find trends in branch operations and performance.

consumer-9-12-18-tb.pngFive Ways to Measure Success in Consumer Channels
Amazon is able to not only monitor consumer preferences, but deliver aligned products to deepen and extend the relationship with those consumers. If retailers like Amazon can achieve that with its data, banks should be able to deliver a similar experience for consumers as well. Banks must take an objective look at performance across their consumer channels to prepare to compete.