Académique Documents
Professionnel Documents
Culture Documents
GROWTH
Trends
High Performance
Growth Trends in the Past Decade
By L. T. (Tom) Hall, President & CEO Resurgent Performance, Inc.
A new, broader perspective on revenue growth is needed to enhance sustainable bank share value, even amidst the almost-overwhelming degree of industry change that is happening today. Despite the financial challenges of the recent recession (which may or may not be over depending upon whom you ask), the highest performing banks in the country have managed to sustain an overwhelmingly healthy rate of growth in the past decade. Growthwhether organic or via acquisitionis vital to the ongoing success of financial institutions. As William S. Burroughs tells us, when we stop growing, we start dying. That maxim is particularly meaningful in community banking today, as we face what could potentially be the greatest period of consolidation in the industrys history. In fact, knowing that they do not have the resources to remain competitive, some organizations are strategically planning to be part of the acquired side of that equation. This strategy makes sense, as many banks dont have the resourcespeople, culture, products, capital, sales / marketing, markets, and systemsto generate significant growth. But what about those banks that do want to be thriving in 2025? What marks do they need to be hitting today in order to stay in the top 20% of growth performance in the coming decade?
www.resurgentperformance.com
These normalizations resulted in the following size groups: Asset Size Bank $50 million to $300 million $300 million to $1 billion $1 billion to $3 billion $3 billion to $10 billion All included in this analysis Number of Banks 3268 1324 365 135 5092
A Player High Growth banks are those whose growth numbers ranked from the 90th to 99th percentile. B Players are those whose growth numbers ranked from the 80th to 89th percentile.
www.resurgentperformance.com
The first measure that we considered was the historic growth in asset size from 2004 to 2013. The A Players and B Players, not surprisingly, saw growth rates heavily dependent upon their asset size today. While the A Player banks from $50 million to $300 million in assets more than doubled their asset size within the ten-year period, their counterparts from $3 billion to $10 billion in assets increased their size more than 1300 percent. For the B Players, the multiples were lower, but the asset-size-based trend remained the same. Particularly in the banks over $1 billion in assets, the ten-year growth rates appear astronomical at first glance. However, when viewed in terms of Compound Annual Growth Rate (CAGR), they seem more achievable. A Player banks that, in todays assets are from $3 to $10 billion in assets, were literally doubling in size every year. CAGRs below provide a high-level framework for well-performing banks going forward.
For perspective, note that the C Players and below (those in the zero to 79 percentile) for all asset bands combined grew at only 46% (CAGR) over this same period. The difference between those players and the top 20% points to the degree of revenue growth concentration within the industry.
www.resurgentperformance.com
www.resurgentperformance.com
They Have a Strategy First and foremost, High Growth banks all have a strategy that sets forth goals over clearly defined timeframes. These banks have decided where they want to be in terms of customers, deposits, loans, and products. Then they also have the ability and the will to execute on those strategies. They Have Diversified Their Income Since the advent of Gramm-Leach-Bliley in 1999, youve heard the refrain over and over again: Successful banks will have diversified revenue streams. Even smaller organizations have launched or purchased insurance companies, mortgage and title companies, brokerage firms, and more. Its not necessary to find the most creative avenue ever; its more important to determine, depending on your market, which line of business is likely to be consistent and profitable while aligning with a market need of your customers and prospects. They Have Implemented Business Intelligence Years ago, just knowing how you thought your bank was performing against the competition, within market trends, and in terms of customer, branch, and product profitability was enough. Its no longer even near enough. High growth organizations understand that banking is first and foremost a business, and to run their businesses successfully they have implemented tools that combine financial analysis, market trends, and customer behavior. They Have Maximized Customer Interaction We have successfully steered many of our most profitable customers to alternative delivery channels, like web and mobile. But now we dont get to see these profitable customers much anymore. High growth organizations have found ways to stay in touch with customers, whether they have business development teams making personal calls, are incenting customers back to the branch, by focusing on advisory services, or by maximizing Omni-Channel banking.
www.resurgentperformance.com
ROA Comparison between High Growth and High Performance A Player Banks
2.00 1.50 1.00 0.50 0.00 $50M to $300M $300M to $1B $1B to $3B $3B to $10B 1.17 1.48 1.12 1.50 1.00 1.85 1.74 1.62
In terms of Return on Equity, High Growth banks do seem to take a reduction in favor of High Growth. The A Player High Growth banks under $3 billion achieved respectable numbers in the range of ~11%, while High Performance banks saw numbers almost 3 points higher. High Growth Banks between $3 and $10 billion performed much more closely to their High Performance counterparts.
ROE Comparison between High Growth and High Performance A Player Banks
16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 $50M to $300M $300M to $1B $1B to $3B $3B to $10B
14.26 15.13 14.94 14.72
13.34
11.11
11.22 9.91
Also, the Efficiency Ratio in High Growth Banks is significantly higher than Efficiency Ratios at their High Performance A Player counterparts. Its a truth universally acknowledged that banks experiencing growth spurts, either through acquisition or with increased focus on organic growth, can simultaneously lose some efficiencies, at least temporarily. Again, these High Growth banks are clear
www.resurgentperformance.com
high performers on many measures; as such, their Efficiency Ratios are still highly respectable. Still, they do not reach the level of efficiency that similar high performing banks not experiencing growth can achieve. Yes, there is a short-term (if managed properly) cost to high revenue growth. It comes with the territory but is truly manageable.
Efficiency Ratio Comparison between High Growth and High Performance A Player Banks
80.00 60.00 40.00 20.00 0.00 $50M to $300M $300M to $1B $1B to $3B $3B to $10B 66.18 56.30 65.53 54.82 68.32 59.26 54.48 48.27
www.resurgentperformance.com
www.resurgentperformance.com
WHAT GOT YOU HERE WONT GET YOU WHERE YOURE GOING
As compelling as are these numbers, should High Growth be a goal for every bank? Most assuredly, it is profitable growth that will determine the winners in the consolidation. Well-managed profitable growth will likely be more significant than we can imagine right now because the consolidation is just gaining momentum. While many banks should be extremely pleased with how far they have come, the same activity that propelled these High Growth banks will not produce the same levels of growth for the next ten years. The industry has changed too drastically for the same strategies that worked last decade to continue to work, at least to the same extent, in the coming decade. Banks who want to continue to grow will prepare for changeongoing and sometimes unpredictable change. The community banking model and the delivery models for many commercial and retail services are changing rapidly.
10
www.resurgentperformance.com
Strategies to consider in terms of people: Hiring lift out teams of lenders, bankers, and mortgage personnel Developing sales cultures with associated training and accountabilities Expanding into new lines of business coupled with successful sales integration
11
www.resurgentperformance.com