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The week after Comptroller of the Currency closed First NBC Bank of New Orleans another billion dollar plus bank was closed, Guaranty Bank of Milwaukee, Wisconsin.

Bad loans seemed to be the primary cause but Guaranty Bank also had an insane number of branches located in grocery stores. Out of 119 branches, 107 were located in grocery or similar retail outlets.

I have often discussed Efficiency Ratios (non-interest expense/net income) and how important it is for a bank’s profitability. A strong cost foundation is the most significant influence on sustained profitability. The best performing banks run around 52% efficiency ratios, while medium performing banks run around 75%. That’s a large difference and I bet Guaranty Bank with all of their overhead was running significantly higher.

One benefit of a community bank working with SAMCO is lowering a bank’s non-interest expense, thus improving their efficiency ratio. The lower the ratio the more profit a bank will generate. Call us if you would like to know more. 

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