Message from CEO

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The Secret to Adding 5 Basis Points.

August 2010

We had two great webinars in July and August. This month’s was all about the ABCs of Interest Rate Risk for CEOs. Listen to the recording if you could not attend—we received some great feedback and many are using the presentation to help educate their team and the board.

Our July presentation featured Jerry Johnson, EVP/CFO of First Bank in Burkburnett, Texas (read some of his comments below). He and I revealed the secret of how high performers are adding basis points to their net interest margin …despite this crazy environment. You can also watch the recording of this webinar anytime at your convenience.

The reality is that a single basis point is so significant right now—you have to be on top of every detail to get ahead. A lot of banks are continuing to focus on cutting expenses, but is that really where you should be spending your time? Think about it. The net interest margin is the source behind about 90% of your bank’s bottom line. For a $250M bank with $220M in earning assets, an addition of 5 basis points represents about $100K ($22K per basis point) to the bank. How easily can you find that kind of money by reducing expenses?

All banks, regardless of size, have an opportunity to find basis points in their margin. Smaller banks have an easier time tracking and managing their numbers while larger, multi-branch banks have more areas or targets to take advantage of. High performers have it down to a science. The key to adding 5 basis points boils down to this:

Understand what impacts the margin and your opportunities
Track and monitor key components daily
Deliver information to the people who can make an impact

Hear directly from Jerry Johnson as he discusses how First Bank is using Banker’s Dashboard to track the margin and find those basis points.

First Bank Reveals Daily Routine
I’ve summarized a few of Jerry’s comments below, but encourage you to listen to the webinar recording to hear his presentation - it begins about 30 minutes in.

Before the Dashboard, we used a homegrown Excel-based margin analysis routine that was performed monthly. All numbers had to be manually input.
We got a glimpse of the Dashboard at a Texas conference and saw immediate opportunity particularly with the Margin Analysis. We realized we could save hours eliminating data entry, and recognized the benefit of daily versus monthly margin tracking.
Dashboard is a great managerial tool that allows us to quickly look at the bank and see what’s happening, identify aberrations, and make moves to immediately improve margin performance.
Every day, we view Margin Analysis and compare YTD actuals to both budget and prior YTD results to isolate any issues.
We closely track loan volume and spread, evaluating yield and basis points differentials. The Margin Analysis report clearly indicates how much of the income earned is caused by an increase in volume versus rate. The same holds true for deposits.
Automatic color-coding (red) of negative issues helps us easily identify problem areas. This process enables us to make decisions on a day-to-day basis that will resolve these issues.
Also a great operational tool. Our loan officers access Banker’s Dashboard daily to look at credits and isolate opportunities to make a little bit more; they each have goals that are tied directly to increasing the margin.
We view loans and CDs bank wide, by branch and by officer or CSR. Quickly see what is coming due and where we need to make moves to impact earnings. Helps drive accountability at the branch and loan officer level.
Board reporting is so much easier and it only took 20 minutes to set it up. With one button, we have all the financial board reports we need; we don’t use a single core report now.
Dashboard is absolutely integral to First Bank’s success and is worth its weight in gold. It helps save hours of time monthly and provides access to our financial numbers from anywhere...even the iPhone.
The margin is not something you should manage once a month or make a guess on. Day to day analysis is what will drive the decisions that help you find those basis points.

One thing that Jerry also said in his presentation that really hit home is that Banker’s Dashboard has helped him become a “better banker”. That is exactly what we set out to do with this tool from the beginning – help bank executives and their teams to focus on the strategic management of the bank by arming them with the daily financial data they need to drive performance.

It’s a tough environment out there. Getting your team educated on the margin and how they can make a difference is critical to improving bottom line results. Regardless of what tool you use, start your routine now and find those 5 basis points – it’s not that hard.