Banking is more than numbers

Tom Bengston

I am hoping there is still a place for human initiative in banking. I understand banking is defined by the numbers: ROE, ROA, NIM, net income and much more, but generally I have found over the years it is the people behind those numbers who make the industry something special.

Roxanne Emmerich, who recently hosted a conference for people from high performing banks, urges bankers to focus on net interest margin. Successful banks, she said, open up that net interest margin far beyond industry averages and, therefore, grow much faster than their peers.

I was at another conference recently where an economist said higher-than-average NIM is a danger signal because it means the bank is taking higher-risk loans. A customer who accepts an above-market interest rate on their business loan is a customer who has been turned down by other banks.

Still another economist I heard recently referred to the Rule of 70 to argue that the U.S.’s long-term average GDP growth of about 3 percent means a typical bank should be twice the size today as it was some 23 years ago. Organic growth beyond that might indicate credit quality issues or excessive risk taking.

The economists have a point if banking is about only the numbers. But Emmerich is on to something if banking is about more than numbers. If people can make a difference in this business by delivering great service, offering hard-to-find services or otherwise hand-holding customers, then a bank can charge more than the bank next door and enjoy the benefits of additional revenue.

You might think intangibles like great service would be more influential on retail customers. But I talked to a number of people working exclusively in the commercial arena who said the intangibles are a factor for their customers as well. People borrowing millions of dollars to finance manufacturing operations or real estate also want great service and apparently are willing to pay for it. The services offered to a $30,000 personal loan customer are going to be different from those offered to a $3 million commercial real estate customer, but in both cases it is outstanding service that gives a bank the opportunity to charge a few more basis points.

The largest banks have an advantage over community banks because they can reduce costs as a result of scale and efficiency. But relationship-oriented community banks can charge more because of their ability to provide outstanding service. And in terms of defining success, generating more income tops cutting costs every time.