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.
Benchmarking 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.
Banks 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.
Thinking 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.
Why 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.
Five 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.
2018 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.
Five 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.