Does your financial institution need to be different than the five others in town or the multitudes outside of town?
If you believe the paradigm that a business model must generate low-cost solutions or differentiated solutions in order to build a sustainable competitive advantage, then my guess would be that your answer would be yes. Truth be told though, I still hear that "our money is no different than the banks' across the street" defeatism.
If you believe that to be true, then the pair of Levi's jeans you purchase at the JCPenney in the mall, at Walmart, or on Amazon are no different, either. Yet one of those three has built a low-cost competitive advantage, the other a unique distribution network differentiation, and the third might go the way of the General Store.
It is annual report season. As a bank consultant, and bank stock investor, I review many of them. And my opinion is, I can't tell them apart by their "Letter to Shareholders". Chairmen and CEOs alike spout undifferentiated bromides that tells me their strategy in their markets must be low cost. Because I can't make out any difference.
Below are three such letters, taken from publicly available annual reports for three financial institutions headquartered in the same large U.S. city. I removed names, numbers, and geographies. But they are public companies, so these letters are available to the public in unedited form. No reason to call them out here, as it is beyond the point of the post.
Do these banks sound alike? Do they sound like your bank?
~ Jeff
Bank A:
To our shareholders,
Since our inception, we have used the word ‘‘Absolutely’’ as
a part of our brand. We believe this word reflects our customer centric and
solutions oriented approach to banking. In 2016, we decided to ask our
customers for feedback on their relationship with [Bank A]. Frankly, we
couldn’t say it any better ourselves.
[Customer comments were here]
We are both extremely proud of, and honored by, this
feedback. We also believe there is a direct correlation between these customer
quotes and our bank’s performance, and we’re very pleased to report that 2016
was an outstanding year for tangible results at [Bank A]. Numerous milestones
were achieved, including record earnings, crossing $x billion in total assets,
and maintaining sound asset quality. Growth in interest and noninterest income
outpaced declining accretion income, resulting in a significant increase in
total revenue. Disciplined execution on our strategic priorities resulted in
exceptional growth in organic loans and core deposits, which combined with
effective expense management, collectively yielded net income of $xx million.
In addition to our financial success, we announced two bank
acquisitions during the year: [Bank acquisitions]. Both of these acquisitions
were completed on [date], providing us with well-known and talented bankers and
an expanded statewide footprint into new strategically compelling markets. We
now have a meaningful presence and efficient footprint in seven of the eight
largest MSAs in [state].
[Bank A’s] results in 2016 demonstrate our commitment to
grow low-cost transaction deposits, improve our noninterest income lines of
business, maintain strong credit metrics while growing loans, prudently deploy
capital, and become a more efficient company.
Our payroll, treasury services, and cash management product
offerings continue to provide a competitive advantage in growing core funding
and allow us to successfully compete with banks of any size. We had $xx million
of deposit growth in 2016, including $xx million, or x%, growth in transaction deposit
accounts. Noninterest-bearing deposits comprised xx% of total deposits at
year-end 2016. Our long-term success is going to be primarily driven by the
quality of our deposit base and having very deep relationships with our primary
depositors.
We also generated organic loan growth of $xx million, or xx%,
while managing our risks effectively and without compromising our high credit
standards. Our credit quality metrics continue to be among the best in the
entire industry.
Positive momentum in our noninterest income lines of
business carried over into 2016 as all three of our key fee income
initiatives—mortgage, SBA, and payroll—had double digit growth in 2016. In our SBA
business, we added a team with a national market focus and completed major
improvements to our operating processes that will significantly improve
productivity and efficiency. We remain very pleased with the pace of growth in
payroll clients, which in turn, delivers core funding and a solid recurring
revenue source.
We are making measureable progress with our commitment to
become a more efficient company. Total noninterest expense, excluding merger
and credit-related expenses, declined nearly x% in 2016.
Expense reductions occurred across the board in nearly every
category leading to a significant improvement in our efficiency ratio in 2016. In
addition to the capital deployment through two acquisitions, we maintained an
attractive dividend, with a yield of more than x% based on our year-end share
price, equating to a dividend payout ratio of approximately x% for the year,
and we repurchased over $x million of our common shares. We continuously
evaluate our overall capital management strategy and remain committed to being conservative
stewards of your investment in [Bank A].
In summary, we are blessed to operate in genuinely
attractive markets with diverse growth drivers and positive economic trends,
which make us very optimistic about the future for [Bank A]. Our existing markets
represent a significant growth opportunity for our company. We continue to grow
market share in the [metro] market, strengthen our number one market share in
[region], and are excited about the tremendous opportunities we have in
our new markets.
As we reflect upon the successes of 2016, we are grateful for
each client, board member, and employee that contributed to this success, and
are ‘‘Absolutely’’ thankful for your continued confidence as a
shareholder.
Bank B:
Dear Shareholders and Friends:
It seems the pace of change escalates as our business continues
to expand. Integrity, intelligence, energy, sense of responsibility is more
important than ever. The understanding that our role is to serve our customers
– and each other – is critical. Attitude really is everything, and first
experiences do make lasting impressions.
We try to run our businesses with these truths to guide us
and our success, along with a dose of luck, indicates we are on the right
track.
Mortgage grew both in production and in markets served,
adding offices in [state], [state], and [state], as well as adding lenders in
existing markets. Wealth Management added new product offerings and we are now
building our marketing team. SBA increased production and expanded the lending
footprint to include the [region] as well as the [region]. Commercial and
Construction Lending continued steady expansion.
Our focus on retail branches shifted from expansion to one
of efficiency and profitability for these new markets, though we remain open to
new acquisition opportunities. To keep up with increasing production, we
invested heavily in internal systems and software. Online Account Opening, when
fully introduced, will give us another way to be accessible and user friendly.
Our financial results remained strong with net income of $x
million or $x earnings per diluted share.
For you, our Shareholders, both cash dividends and book
value per share increased again in 2016.
Some highlights are listed here to give a sense of our
momentum:
[Financial highlights here]
[Name], with the team he has selected, is building a
foundation to last and has the talent to meet our market opportunities. He will
properly be named CEO of the Bank at the April meeting.
Our “Golden Rule” philosophy works. Increased Shareholder
value from customer service is the result.
We thank you for your continued support and confidence in
our Company.
Bank C:
For [Bank C], serving our clients means connecting with
people. It means engaging at a deeper level than simply doing business or handling
transactions. We are committed to leading and strengthening our relationships
and serving the needs of others. For us, the best way to accomplish this is
earning trust and investing in these relationships to grow our Company.
[Bank C] built its reputation by remaining firmly rooted and
accessible in the communities we serve. We combined trust, loyalty and
personalized relationship banking with the delivery of high touch service and
life focused financial solutions. Our rich history and legacy has provided us
the foundation and the inspiration to innovate and seek ways to continue to
drive shareholder value.
Now, more than ever, we know that innovation paired with
human interaction enables us to not only provide financial empowerment and
guidance on a grander scale, but also sets us apart in the marketplace. By
increasing our visibility and footprint in new as well as existing markets we
are attracting, building, and maintaining a growing customer base and a more
sustainable future for our internal and external stakeholders.
We launched our 95th anniversary year by
remaining purposefully focused on building our brand with a deliberate charge
toward the future. To make us even more agile to face and optimize new opportunities,
we focused on four core strategic priorities: Bringing the Brand to Life; Defending
and Growing the Business; Mobilizing the Brand across All Platforms; and
Driving Organizational Excellence. As you will learn throughout this message,
the successful implementation of our initiatives revealed our ability to
execute and utilize technology to be responsive to our clients and grow our
business.
[Financial highlights here]
[Separate discussion of each of the core strategic
priorities mentioned above here]
Our legacy is who we are...Our future is what we are
defining.
Lastly, we celebrated our 95th anniversary in
2016. This is a significant milestone of which we are extremely proud. I would
like to thank our clients and community for supporting us all these years and
for putting their trust in us, our board of directors for their encouragement to
reach new milestones and our teammates who created the successes that we are
reporting with their efforts and dedication.
To our shareholders, thank you for partnering with us by
investing in our Company. We commit to you that we will continuously strive to
build a better bank that will support our values, serve our clients and provide
you a return.
We are looking forward to 2017 and the exciting
opportunities it will bring.
