Financial Wellness as a Profit Center for Financial Institutions

So many financial institutions list "financial literacy" or customer "financial wellness" as one of their higher purposes. Which makes immeasurable sense given how defined benefit pension plans are now the exception and households are left to fend for themselves when it comes to their own financial wellness. 

And by objective measures they are not doing too well. According to a 2023 Payroll.org study, 78 percent of Americans live paycheck to paycheck, meaning if they miss a paycheck they would have trouble paying their bills.  That is up 6 percent from the prior year. 

Further, in 2022, only about 46% of households reported any savings in retirement accounts. Twenty-six percent had saved more than $100,000, and 9% had more than $500,000. This was why my firm did a recent This Month in Banking podcast with our friends from CentSai as our guests on how promoting financial literacy can help financial institutions perform better. You read that right. 

The need for someone, anyone to help Americans become first financially sound and then financially free was driven home by Anne Shutt of Midwestern Securities, presenting Creating a Financial Oasis at a recent banking conference I attended. Anne said that only 14 percent of respondents of a recent survey said their financial institution helped them with their financial wellness. 

I contend that financial institutions should serve a higher purpose other than maximizing profit to benefit shareholders. But in serving your communities, employees, customers and shareholders, profit should be your yardstick in a stakeholder driven, higher purpose financial institution. And right now, financial literacy is executed for the benefit of one, maybe two constituencies, at the expense of the others. To create alignment, I propose a different path.

Make financial wellness a profit center. Like a branch. Assign personnel to it. Like a branch. Instead of branch manager, assistant branch manager, and three universal bankers, staff with two financial coaches, and a financial wellness assistant. 

When we onboard new customers, as part of our Know Your Customer, determine their financial well-being. Ask if they would like, as part of being a customer of the bank and for a small quarterly fee (perhaps... might waive this as the Financial Wellness Center (FWC) builds its customer base) they can opt-in to improve their financial well-being. If they opt yes, then their account, balances, spread, fees are part of the balances and revenue streams of the FWC. 

In addition, we can market to existing customers that struggle financially based on observable criteria, human judgment, or generative AI. At first, this center will bleed red ink. So do new branches. Even some mature branches that banks refuse to close. But red ink should not be the goal, as many altruistic, CRA-driven community initiatives are.

The challenge is that those most in need of the FWC will likely carry low balances and are in the Cash Flow & Basic Needs or the Financial Safety rungs in the chart below, presented by Anne. Low balances per account have a strong correlation to low profits, as spread represents so much of profit in community financial institutions. Revenues are generally driven by balances, where expenses are driven by number of accounts. Not a great mix for the FWC.

But we don't have a physical facility, like a branch. Although the FWC might have to absorb or incur some sort of internal transfer payment to branches servicing their accounts. That said, there would be less expenses than a branch that would have more employees and physical plant than the FWC. The FWC would likely have more fees, as lower average balances and the need for a financial coach probably equates to more insufficient funds charges, etc. This has consistently been the case when we measure the profitability of higher versus lower average balance accounts in our profitability outsourcing service. And there would be those coaching fees. 

In addition, I find it plausible, even likely that a bank with an FWC designed to improve their customers' financial well-being will include some account ornamentation, such as credit score monitoring, lower my bills services, etc. that the bank can charge a fee for service. 

I don't think the FWC could achieve the same level of profit as some of the bank's larger branches, commercial lending center(s), or mortgage department (during good times). The FWC could strive to achieve some pre-tax profit number as a percent of average deposits of, say, 50 basis points for a bank that strives to achieve over a one percent ROA. In addition to that accountability metric, the FWC could ensure all of their clients are on the bank's personal financial management tool, and gauge improvements in customers' net worth as a sign of success. Lastly, the FWC could use improvement in customers' credit score as objective evidence of success. 

And when customers elevate to Accumulating Wealth or higher in the chart above, they can graduate from the FWC with a natural referral to our wealth group. Because right now, wealth groups are not seeking many customers at or below the Accumulating Wealth level. They just can't make any money doing it. So we let customers seek other alternatives and hope we win them back when they have $500,000 or more in investible or bankable balances.

Financial Wellness Centers can work. But we have to elevate beyond altruism and CRA and migrate to profit to make it a viable line of business to our financial institution.

~ Jeff

Guest Post: Financial Markets and Economics Update - Second Quarter 2024

Financial Markets Update – Second Quarter 2024

A dream vacation!  I went with family and friends to Holland and Belgium during peak tulip season during April.  It was so beautiful and lots of fun.  We saw so many fabulous places, including Amsterdam, Kinderdijk and its windmills, Keukenhof Gardens, Brussels, Bruges, and Antwerp.  We learned how Holland keeps the floodwaters away.  It was my first vacation in decades where I did not have work waiting on my desk when I got home.   Also, my family and I got to spend three days in Hershey last week watching the excitement on the children’s faces as they moved from ride to ride and played in the water parks.  For me, this is what my retirement is all about.  That and getting consumed by Euro 2024 and Copa America soccer and of course, the Phillies.

Where is the Recession?

I think I’ve spent too much time reading and studying economics.  The time-honored indicators that so many of us review for signals of recession continue on, month after month, and yet their ability to project recession has not turned into reality.  Take, for instance, the inverted yield curve.  In July 2024, we will mark two years of inversion between the 10-year Treasury and the 2-year Treasury yields.  It is already the longest inversion on record, surpassing the 624-day inversion ending in 1978.  The spread currently stands at -37 basis points.  At times, the spread exceeded -100 basis points.  The 10-year Treasury versus the 3-month Treasury spread, which turned negative in October 2022, is now -101 basis points.  So, after 18 months to 2 years later, where is the recession?  Some say it will appear when the curve re-steepens and some say it is coming soon.

And what about the index of leading economic indicators?  For this cycle, the LEI first had a negative monthly reading in April 2022.  Other than a slight positive of +.2% in February 2024, when the Conference Board gleefully announced that there would be no recession, the index has been negative for 27 months and is down a cumulative -15.1%.  So where is the recession?  I think we have to wait.  We know the Conference Board measures three factors with the LEI, including duration, depth of the decline, and diffusion indices; but, seriously, two of three are screaming watch out below.  The same Conference Board reversed course and now says there is a “fragile outlook,” making themselves look ridiculous as the LEI continued its descent.

And what about tight Fed policy leading to weaker growth, especially if they hold rates too high for too long?  We have many examples, notably 2000-2001, 2006-2008, and 2019, when restrictive rates impaired growth and recession followed.  Between March 2022, and July 2023, the Fed increased rates by 525 basis points, with Fed Funds at 5.50% ever since.  Are they restrictive?  Yes, when Fed Funds is above inflation and above nominal GDP growth.  Note all of the following:

FF less CPI of 3.3%= 2.2%; 

FF less core CPI of 3.4%= 2.1%; 

FF less PCE of 2.8%= 2.7%; 

FF less core PCE of 3.7%= 1.80%; 

FF less nominal GDP 1Q24 of 4.5%= 1.0%; 

FF less nominal GDP 4Q23 of 5.1%= .4%.  

We’ve seen slowing from this restrictive policy but not recession.

And what of QT?  The Fed was allowing $95 billion of Treasuries and MBS to roll off of its balance sheet but reduced the total to $70 billion starting in May.  It seems to be an acknowledgement that they must reduce this restrictive policy and that easing is coming soon as money supply was being impacted too much.  But I will get to money supply later.

Parts of the economy are suffering, including housing from high rates affecting affordability, weak housing starts and a 30-year low for existing home sales with low inventories keeping home prices higher than normal.  Manufacturing is weak.  Consumer spending and retail sales are declining this quarter as people cope with high inflation, especially on food prices.  Retail store closings have escalated as sales weaken and retail theft skyrockets.  Both consumers and businesses are paying high interest rates on their increasing debt balances.  One of the components of the LEI which is up strongly is the S&P 500 stock market index, by +14.5%.  Rallies in the Magnificent 7 stocks and Artificial Intelligence’s transformational potential mean that we may not get a recession signal yet from stocks.

So there is still no recession, although I stubbornly refuse to remove it from my forecast.  Rates that are kept too high for too long will not lead to anything good.  Signals from the yield curve and leading indicators dampen the outlook.  In my mind, recession should have already happened.  So I am obviously not accounting for existential or even psychological factors that are delaying the inevitable.

Real GDP.

Chairman Jerome Powell recently called economic growth “strong” in his press conference.  I hope he was not looking at the first quarter at 1.4%.  OMG!  Or maybe he was looking at the notoriously volatile Atlanta Fed’s GDP Now projection for the second quarter of 2.2%.  It’s a sad day when GDP growth of 2% or less is “strong.”   Of course, that’s what we lived through from 2010 to 2020.  Regardless, the FOMC projection for GDP is 2.1% for 2024 and 2.0% for 2025 and 2026.

My favorite banker, Jamie Dimon, recently called his economic outlook “cautiously pessimistic.”  He has been worried for such a long time; remember when he said in 2022 that there would be a storm, or even a hurricane that would hit the economy.  I have shared this same view with him.  And interestingly, he must now be thinking about retirement, because when asked how much longer he will stay at Chase, he did not respond with his traditional “five years,” but said “less than five years.”

With recession in many people’s projections, but not appearing on the horizon yet, we have to navigate our boats as best we can.  GDP is projected at 2% for an extended time.  I think it could be lower.  If we look at out-of-control federal government spending, budget deficits, and ever-increasing debt, it is having an impact on our growth potential.  Debt-to-GDP at the end of the 1Q24 was 122.3%; studies show that debt levels greater than 90% of GDP (which we’ve had since 2010) lead to a severe reduction in GDP.  Debt service payments for the government are accelerating at an unsustainable pace.  Lower GDP means lower inflation but it may also mean lower tax receipts.  Maybe the roller coaster in Treasury yields will come to a stop and we will see lower long-term rates.  The 10-year Treasury has been quite volatile in 2Q24, starting at 4.20%, peaking at 4.65% in April, and ending at 4.35%.  The 2-year Treasury started at 4.62%, peaked at 5.01% in April, and ended at 4.72%.

Money Supply M2

The 16-month streak of declining M2 money supply has been broken, when April and May showed slight year-over-year increases of +.2% each month, following declines of -1.0% in March, -1.9% in February, and -2.2% in January.  M2 had been declining on a y-o-y basis since December 2022 and this was the first time since the 1930s where we saw M2 fall.  We are still far below the long-term average M2 growth of 6% to 6.9%, which approximates nominal GDP growth.

In the past 150 years, excluding the current 2022-2024, M2 has declined only four times on a y-o-y basis, in 1878, 1893, 1921, and 1931-1933.  These four instances led to recession/depression and high unemployment.  I’m not sure about this time, but I think it was necessary to offset the massive federal deficit spending so that inflation could fall.

Let me repeat Milton Friedman’s quote and add more to it: “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output (GDP).”  He made this quote in 1963, referring to persistent inflation, not short-term supply shocks.  Maybe everyone will forgive the Fed and people like myself in 2021 for initially thinking inflation would be “transitory” because of supply shocks.   We were wrong and quickly realized it because M2 was growing so much faster than GDP.  Not until mid-2022 did CPI peak at +9.1% y-o-y and start its deceleration in pace.  But now think of Friedman’s quote in reverse; if the quantity of money drops more than output, should we not see disinflation?

Misconceptions about Fed Inflation Targets

The Fed’s targets for inflation of 2% apply to PCE and core PCE.  The Fed does not target CPI.  I repeat, they do not target CPI, but they inherently consider it.  Prior analyses have shown that CPI tends to exceed PCE by .5%, due to the different construction of the underlying indices.  If the inflation target is 2% for PCE, CPI can be 2.5%.  

The Fed does not target wage growth per se.  Did anyone catch Powell’s comment during the press conference in June that linked inflation and productivity to arrive at acceptable wage growth.  I’ve written about this several times; if PCE is 2% and productivity averages 1.5% (as it has for long periods of time), then wage growth can be 3.5% and can co-exist with a 2% PCE inflation target.

Employment

In my last newsletter, I wrote that I had real reservations about the employment report.  Now I feel vindicated.  In his press conference, Chairman Powell expressed the same doubts about the employment report and the birth/death ratio applied to small businesses, which accounted for over half of all jobs added in the establishment report in the past twelve months.  Since April 2023, the B/D ratio accounted for 1.9 million, or 56%, of all new jobs.  In the May 2024 report, payrolls rose by 272,000 jobs, which included 231,000 jobs added for the B/D ratio in the face of declining business formation.  It’s ridiculous.

Look at the contrast between establishment (payrolls) and household surveys since February 2024 and the number of unemployed and pool of available workers:

Payrolls May +272,000, April +165,000, March +310,000, February +236,000; total +983,000

HH survey May -408,000, April +25,000, March +498,000, February -184,000; total -69,000

Unemployed May 6,649,000, April 6,492,000, March 6,429,000, February 6,458,000; chg +191,000

Pool AW May 12,366,000, April 12,129,000, March 11,872,000, February 12,130,000; chg +236,000

The unemployment rate now stands at 4.0% in May, up from a low of 3.4% in 2023.  The payroll numbers get the headlines, with almost 1 million jobs added in 4 months, but look deeper.  Household jobs are down and the unemployed and pool of available workers (unemployed plus those not in the labor force who want a job) are growing and the unemployment rate is on the rise.   Thankfully, the unemployment rate is calculated from the household survey, not the fictitious payroll numbers.  They are almost as fictitious as the JOLTS reported job openings.  Additionally, full-time jobs are down 1 million to 133.3 million in the past year, while part-time jobs are up 1.5 million to 28.0 million.  So, you tell me, is this a strong labor market?  Should I keep recession in the forecast?

End of an Era

In June, there was another end of an era for one of our rate indices.  Just like LIBOR was kicked to the curb, now FNMA discontinued posting its historical daily required net yields for 30- and 15-year mortgages on June 3rd, claiming that many market participants didn’t use them.  But what about the ones who did?  To me, they were worth tracking as an indicator of the mortgage whole loan versus MBS market spread.  Gone is the history back to 1985, too.  Very sad.

Summer is here.  May you all enjoy wonderful dream vacations!

I appreciate all of your support!  Thanks for reading!  DLJ 06/30/24

Dorothy Jaworski has worked at large and small banks for over 30 years; much of that time has been spent in investment portfolio management, risk management, and financial analysis. Dorothy recently retired from Penn Community Bank where she worked since 2004. She is the author of Just Another Good Soldier, and Honoring Stephen Jaworski, which details the 11th Infantry Regiment's WWII crossing of the Moselle River where her uncle, Pfc. Stephen W. Jaworski, gave his last full measure of devotion.

Disclaimer:  This publication is provided to you solely for educational and entertainment purposes.  The information contained herein is based on sources believed to be reliable but is not represented to be complete and its accuracy is not guaranteed.  The expressed opinions, views, and estimates are those of the author as of this date and are subject to change without notice.  The author cannot provide investment advice but welcomes all comments.

Regulators War on Banking

Last year I wrote a Forbes Finance Council article What's Missing in the CFPB's War on Junk Fees? That war was being waged against overdraft fees. I stated that comparing the fee assessed on an overdraft to the cost of processing one is like comparing the cost to manufacture a pill to the cost of the medication. It is short-sighted to isolate overdraft fees from the total cost to originate and maintain a checking account. If the CFPB was so concerned about fees charged by banks, perhaps they should perform an analysis of over regulation that is a key contributor to fees charged by banks.

Regulators must not have read that article. Because they have since expanded their war to include, among other things, debit interchange. Oliver Wyman said this in their Impact of Simultaneous Regulatory Proposals in Retail Banking: 

"The Fed proposes under Reg II to decrease the maximum allowed debit interchange fee from $0.22 + 5 basis points to $0.157 + 4 basis points for issuers above $10 billion in assets. With a 2021 average ticket of $46.26, Reg II would decrease the average interchange transaction by ~28%. Debit interchange is a significant component of checking accounts non-interest income (around 50% according to data from payment card publication Nilson Report). Therefore, the proposed rule has a more significant impact on the profitability of low-balance checking accounts due to banks' relatively higher reliance on non-interest income for these consumers (versus high-balance checking accounts that rely more on interest income). Additionally, this may lead banks to start charging for fraud losses to recoup lost revenue - under Regulation E, banks are able to charge $50 for fraud losses to the customer, however, most banks cover those losses for their customers."

I should point out that when the Durbin Amendment of the Dodd-Frank Act (2010) capped interchange fees, it did not result in any measurable benefit to the consumer. Why take a second bite at the apple?

In my Forbes article, I demonstrated that banks' reaction to downward pressure on fee income, be it overdrafts or other fees, was to increase their average deposits per account. Meaning that they started focusing on more affluent customers that tend to carry higher balances so they can offset the fee decline by driving more spread through the account. 

Yet here they go again. And Oliver Wyman is what I believe to be correctly assuming that banks will make moves to cover the revenue shortfall from debit interchange mandated by Reg II. What do regulators think will happen?

When I look at the average cost per retail checking account, be it interest bearing or non-interest bearing (see chart, courtesy of The Kafafian Group performance measurement), I see consistency in operating cost per account.

This is in spite of the average balance per account in interest checking growing 44% between the first quarter of 2007 to the fourth quarter of 2023. The average balance per account of non-interest checking accounts grew 152% during that same period. Banks themselves grew asset size to achieve that holy grail of growth, economies of scale. So why have we not lowered our average operating cost per account in retail checking accounts?

I cannot lay the sole blame at the feet of regulators. In every institution we have served with Process Improvement services we have found onerous processes, inefficient technology utilization, and silos prohibiting greater efficiency and therefore lower average costs per account. But many of those processes were belts and suspenders responses to regulatory scrutiny or the fear of that scrutiny in the bank's next exam. 

If regulators work overtime to keep bank's operating expenses higher than need be through regulatory activism (see recent consent orders to BaaS banks around BSA/AML/OFAC compliance-classic checking account critiques) and keep pretending to be the Champion of the Consumer through price fixing regs like Reg II, expect financial institutions to rightly try to fill that profit hole. Be it through charging other fees or increasing minimum average balances that is suggested in the Oliver Wyman report, or through focusing on more affluent customers that carry higher average balances, as stated in my Forbes article.

Either way, will it end up better for the consumer? Look at how so many banks have significantly curtailed consumer lending. It's not because they don't want to serve their retail customer base with a more robust product offering. It's because regulation increased the cost so much and elevated the risk, that they drove many banks out of it.

Is that what we want?

~ Jeff

We Need a New Funding Strategy

In December 2021, when the Fed Funds Rate stood at 0-25 basis points and prior to the Fed's tightening beginning in the first quarter of 2022, there were $18.2 trillion in domestic deposits, according to the FDIC's Statistics at a Glance. In December 2023, a full three quarters after the Fed paused its tightening of the Fed Funds Rate (QT continued), domestic deposits stood at $17.3 trillion. Nine hundred billion dollars, or 5% of deposits... gone. 

What happened?

Money market total financial assets, according to the St. Louis Fed, went from $5.2 trillion in total assets at December 2021 to $6.1 trillion in December 2023. Not so coincidentally, a $900 billion change.

Read this comment from M&T Bank Corporation's (MTB) fourth quarter earnings release:

"Net interest margin of 3.61% in the recent quarter narrowed from 3.79% in the third quarter of 2023 reflecting the higher costs paid on deposits amidst a continued shift of customer funds to interest-bearing products."

And indeed, MTB did grow deposits during this period. But the industry as a whole, not so much. Nationwide, depositors did switch to interest bearing accounts. But money market mutual funds seemed to be the benefactors of the switch. 

As far as community banks, I look to data gleaned from all of the banks where my firm does profitability outsourcing because we have a level of granularity that the FDIC and most readers do not have. Look at the two average balances per account charts below courtesy of The Kafafian Group.

It is true that the average balance per retail (non jumbo) CD account was higher in the fourth quarter 2023 than the fourth quarter 2021. But it was not materially so. In fact, if I multiplied the change in CD balances per account times the average number of CD accounts for all of our outsourcing clients, it would equate to a positive aggregate change in CD balances per bank of $65.7 million. For retail money market deposit accounts alone, the same math equates to an aggregate decline in those balances of $105 million. Of note there were 11% more CD accounts and 8% more retail money market deposit accounts. 

The outflow of deposits was not driven by a decline in the number of accounts. It was driven by the decline in the average balances of those accounts. The story is similar regarding business deposits (see chart above).

Although financial institutions cost of funds are now stabilizing yet still slightly increasing, it has been one year since the Fed paused its Fed Funds Rate tightening. This was similar to the tightening cycle between 2004 and 2006 when Fed Funds rose again to 5.25%-5.50%. But since the financial crisis came quickly on that cycle's heals, banks cost of funds rose two or three quarters after the Fed paused. Because the Fed then precipitously dropped the Fed Funds Rate to offset the negative economic impacts of the financial crisis. For this tightening cycle, the tail of increasing cost of funds amidst a Fed pause is lasting much longer. Higher for longer.

Most of our deposits are immediately callable. We believe we established relationships with our customers so they won't flee with every rate increase. A relationship is built on trust. And if our deposit strategy was to keep rates as low as possible so long as our depositors didn't notice, we have broken that trust. And they fled. Or we had to apologetically raise their rates to be closer to the market to keep their money. Something we continue to do.

What we can learn from this is there is value in a relationship, if we truly have a relationship where our depositors know our bankers and have someone to call to discuss banking matters. Some self-reflection might be needed here.

And secondarily, we have to assess the value of that relationship or other differentiated value we deliver. And by value I mean how much less than market deposit rates they will accept for that perceived value, which appears to be what they can earn in a money market mutual fund. Maybe it's 50 basis points. Maybe 100. But as we found out, it's not 300 or more.

Our cost of deposits will have to be managed by the strength of our differentiation and the mix of our deposits. Because this cycle proves that customers will flee. They may not close their account. But they will drain it. And we may not even notice it.

~ Jeff

Memorial Day Post: Honor Those Fallen During Our Afghanistan Withdrawal

On August 26, 2021, ISIS-K detonated a deadly bomb outside of the Abbey Gate of Kabul's international airport. The blast killed 13 U.S. service members and 170 Afghans. It occurred amidst the chaos of the U.S. withdrawal from Afghanistan.

The pullout was indeed chaotic and marked by a series of rapid events that unfolded unpredictably. 

Here's a sequence of events:

Initial Plans

The withdrawal was part of a broader plan initiated by the Trump Administration and continued by the Biden Administration. If we listened to representatives from either Administration, you would think it was the sole fault of the "other" Administration. Both have their fingerprints on it. As my former Navy division officer once told me, "Careful pointing fingers because the others are pointing at you."

Rapid Taliban Advance

As the withdrawal commenced, the Taliban rapidly gained ground across Afghanistan, seizing control of provincial capitals and major cities with surprising speed that was not predicted by U.S. forces nor intelligence. Afghan security forces that we trained struggled to resist the offensive. As provinces fell, the Taliban acquired U.S. weapons and equipment.

Fall of Kabul

The situation escalated dramatically when the Taliban entered Kabul on August 15th, leading to the collapse of the Afghan government. President Ashraf Ghani fled. Chaos ensued as panicked residents rushed to leave the city.  

Evacuation Efforts

The U.S. military, along with our allies, launched a massive airlift operation to evacuate American citizens, Afghan allies, and vulnerable Afghans from Kabul's airport. The scenes of desperate Afghans crowding the airport, clinging to departing planes, became emblematic of the chaos and desperation of the situation. U.S. troops stationed there and new troops shipped over to assist with the evacuation were concentrated at the airport. A ripe target for terrorists to indiscriminately kill to grab headlines.

Concurrent with the fall of Kabul and chaotic evacuations, there were heroes. Retired Green Beret Lt. Colonel Scott Mann assembled a group dubbed the Pineapple Express, so named because Afghan allies were instructed to display pineapples on their phones to gain access to the Kabul airport and eventual freedom. The group of active and retired military orchestrated the evacuation of those that helped U.S. forces during our time there. Mann's account of what happened can be found in his book, Operation Pineapple Express. 

Amidst the chaos, an explosion. ISIS-K is no friend to the Taliban. Although the Taliban would form an Islamic State, ISIS are generally more radical, believing only God can rule. From time immemorial despots have been using God's name to assume power over people. ISIS-K took advantage of the chaos surrounding the airport and at the Abbey Gate in particular to do their "Godly" deed. 

Those Who Perished

Below are those U.S. forces that perished in the blast outside of Abbey Gate while they were trying to establish security during the evacuation. Their photos are courtesy of NBC News. I ask that you remember them this Memorial Day.

David Espinosa, 20, Laredo, Texas

Nicole Gee, 23, Sacramento, California

Darin Hoover, 31, Salt Lake City, Utah

Ryan Knauss, 23, Corryton, Tennessee

Rylee McCollum, 20, Jackson Hole, Wyoming

Dylan Merola, 20, Rancho Cucamonga, California

Kareem Nikoui, 20, Norco, California

Hunter Lopez, 22, Riverside, California

Johanny Rosario, 25, Lawrence, Massachusetts

Humberto Sanchez, 22, Logansport, Indiana

Jared Schmitz, 20, Wentzville, Missouri

Maxton Soviak, 22, Milan, Ohio

Daegan Page, 23, Omaha, Nebraska

Sources:

Kabul airport explosions: US Marines among troops, Afghans killed | CNN

Service members killed outside Kabul's airport remembered as heroes (nbcnews.com)

Timeline of U.S. Withdrawal from Afghanistan - FactCheck.org

Ex-army generals testify on chaotic US Afghanistan withdrawal - BBC News

Two weeks of chaos: A timeline of the U.S. pullout of Afghanistan - The Washington Post

What Was Operation Pineapple Express In Afghanistan? (va.org)

Special op veterans carry out secret ‘Pineapple Express’ mission to rescue 500 Afghans | The Independent

What is the ROI of a Banking Conference?

Are conferences more than a vacation? 

Last week I attended two back-to-back banking conferences and it was apparent that attendance was down. This is the likely reaction to banks' profit challenges resulting from net interest margin pressures that are due to slowly repricing loans accompanied by ever faster repricing deposits. Let's tighten our belts to offset revenue decline. By the way, I'm off to a warm and swanky place next week.

I wrote most of this article early on a Saturday morning during the business session at one of the conferences. During the prior break, I struck up a conversation with a person from Lendio, a small business lending platform, that was there to promote their white-label platform to bankers. Back in 2015, almost nine years ago, I wrote an article about banks building their own small business loan platforms. Getting much needed capital into the hands of small businesses that can lead their economies forward. 

I still find this to be a challenge at community banks. They want to grow small business deposits. But they will only lend what fits in their credit box. And the hypothetical loan to the expanding engineering firm that leases their office doesn't fit the bill. So the engineering firm ends up at "Big Bank", and the community bank wonders why.

I described the problem to the Lendio guy, and we had a back-and-forth on how community banks can solve it. Using the Lendio platform of course, but that doesn't decrease the value of the problem-solving discussion that happened only because I met him at the conference and we got to talking. 

Who should call on the small engineering firm: a lender, branch manager, or possibly a small business banking specialist? His platform would have the borrower enter the information and the loan could be routed based on the credit appetite of the bank, and its partners outside of the bank if it doesn't fit the bank's appetite. This makes it more possible that a branch banker could be the relationship manager, as I often hear that fear of credit discussions keep branch managers from being effective small business bankers. How do I calculate that ROI?

I talked about the concept of pulling into the pits in my 2021 book Squared Away-How Can Bankers Succeed as Economic First Responders. It goes like this: when a race car enters the pits, it is losing time. If not to recalibrate, refuel, and re-tire, drivers wouldn't do it. If you compare bank strategy to a 500-mile race, banks would also enter the pits. But if you compare bank strategy to a few times around the track, you would be foolish to do so. Is saving the money by skipping conferences short-term track thinking? That is, if the conference was purposefully leveraged to benefit the bank, help solve its challenges, strike relationships with other problem solvers (either bankers or suppliers), or further develop employees. 

Here are ways that I think banks can leverage conferences to deliver long-term benefits to a strategically focused bank.

1. Solving a particular challenge at your bank. When we identify weaknesses in a strategic plan, we encourage bankers to only identify ones they wish to solve. Pick one or two of these weaknesses that are most conducive to getting a variety of ideas of how to solve by engaging with other bankers, particularly ones that don't directly compete with you, or suppliers that are anxious to talk to you at the convention. Many bankers avoid the suppliers because they fear the barrage of post-convention sales pitches that sometimes follow. But there is a reason why they are often called "solutions providers." My ideas on how bankers can solve the small business banking challenges are more informed because I had the discussion with a solutions provider. Once you are focused on finding ideas to your greatest challenges, you can bring ideas back to your bank for discussion and debate with your leadership team and implement a plan to solve them.

2. Purposeful Education. The conference agenda is set and you know the topics and speakers. Perhaps you influenced the agenda because you are on the association board or you provided input via survey. You know the blind spots of your management team and knowledge gaps with your board. Put together a game plan where an executive can amass information that can be presented to the rest of management to help reduce your blind spots or have a board member attend the relevant sessions to help improve board education. A trade association could make it easy for executives with perhaps a "blind spots" presentation tool that could be easily built in the convention app or another tool so an executive could drop slides from multiple presentations to create something unique to their bank's strategy that could be taken back, shared, and presented. 

3. Reward for a job well done. I recall being in a Pittsburgh bank CEO's office where he said he sends the director with the most customer referrals to the state association's annual convention. This is aligned with banks that want to establish a positive accountability culture, where they visibly reward employees (or directors) for moving the bank forward. Expanding on the concept, perhaps consider taking a high-performing, high potential next-level employee to the conference charged with amassing information (see Purposeful Education above) to present to either executives or the Board (or perhaps both) when they return. It will give that next-level employee exposure to the association, suppliers and other bank executives so they plant the seeds for relationships, and builds their presentation skills, knowledge base and confidence. What a great succession planning tool!

How else can bankers leverage conferences so they pull into the pits to refuel and move their bank forward?

~ Jeff

Notes from This Month in Banking Podcast

I was rustling through papers on my desk to clean it up and not look like a candidate for the Hoarders TV show. In the clutter I found my sloppy copy notes from two podcast interviews. I put them in the shred pile.

Then I read them. And rethought about shredding them. There were some valuable nuggets in there. They were uttered in some form by our guests and I thought them so insightful that I wrote them down. So I wondered if my Jeff4Banks.com readers would appreciate them. 

Not knowing for sure, here they are. Why not, right?

Episode: Managing Through Change (or in other words, getting stuff done).

Release: November 2023

Guest: Mike Butler, CEO of Grasshopper Bank

Link: Managing Through Change (or in other words, Getting Stuff Done!!) - The Kafafian Group, Inc.

JPM Notes

- Mistakes are often silo issues.

- Despise bureaucracy.

- Our bank does not want to be a software company.

- We have a partnership strategy with technology companies.

- Successful companies that get stuff done push decision making down.

- Fail fast and fix it.

- Commercial banking is ripe for disruption.

- Build an environment where people can thrive personally and professionally. 

- Culture: When hiring people, the candidate has three decisions to make: 1) is it exciting for the candidate, 2) is it not for them, and 3) do they believe or call BS on what the CEO is trying to create. 

Episode: Ingredients to a Successful Management Team

Release: March 2024

Guest: Bartow Morgan, Jr., CEO of Geogia Banking Company

Link: Ingredients to a Successful Management Team - The Kafafian Group, Inc.

JPM Notes

- We changed how we attracted talent. Didn't necessarily need the banking experience.

- We run each line of business in a more entrepreneurial way.

- Only one person drives culture (CEO).

- Put people at the top. Successful people are usually successful. Passionate people usually win.

- Break down silos by creating cross-functional teams.

- What to look for in leaders: driven, accountable, self-aware, collaborative and ethical.

~ Jeff