A REPORT BY Callahan and Associates recently stated that commercial real estate loans are 5.8 % of the total credit union lending. This past year commercial lending has increased by 17% with the nation's credit unions, something that the community bank should be concerned with.
One of the big mistakes in retirement is leaving the workforce too soon. It may sound great but you won’t be eligible for Medicare until 65, and insurance costs to get to that age are surprisingly high.
The Dept. of Labor Statistics reports that the average income per year for people 75 years and older is $37,000 and that half of that is taken for housing and health care. So saving enough for retirement is also crucial for success. When it comes to your home have it paid off before you retire, consider future upkeep and repair costs, and consider downsizing. Downsizing can deliver you a newer, easier to maintain (cost effective), and contribute extra cash for your retirement fund.
CoreLogic recently released their national sales data for all residential homes (including distressed sales) for August 2016. Compared to a year ago, home values have increased 6.2%. The CoreLogic forecast estimates that prices in 2017 will increase at a minimum of 5% over the next year. There is a growing demand for single family residential both from home buyers and investors. In many markets now in the U.S. there is a growing affordability crisis.
Around 20 years ago a key performance measure was developed to help community banks. It’s called the efficiency ratio. The equation is simple, total non-interest expense divided by net interest income plus total non-interest income. Most banks which recognize the value of this concept and utilize it shoot for their efficiency ratio to be 50% or less. The three largest non-interest expense items are normally salary and employee benefits expense, premised expense and data processing expense. But there isn’t one magic pill or solution to making operational efficiency improvements. It requires a thorough review of all facets of a bank's operation. This is where SAMCO helps our client banks.
And I’m not talking about saving money purchases, but the old-fashioned savings account that community banks have always provided. According to a Gallup poll, more people than ever before say they prefer saving to spending! Gallup stated this is a huge change from the pre-2008 period. Over 65 % of the folks surveyed said they preferred saving to spending, even in the young 18 to 29 age group. This trend for saving started in the black days of the latest recession and has continued through today.
A recent article in the Independent Bankers profitability issue pointed to outsourcing for a greater competitive advantage, especially asset-liability management. Cost efficiencies played a large part in their decision as well as greater expertise. To read more details go to https://independentbanker.org/2016/08/outsized-outsourcing/
The ICBA Independent Banker magazine recently reported that the top 24 banks in the U.S. hold $10.7 Trillion in total depository assets, while the remaining 6147 community banks hold $5.4 Trillion depository assets. So basically one-third of U.S. deposits are held by your local community bank. An important part of our country’s economic engine.
What a difference a few years make! 2010 saw 157 bank failures, more than at the height of the savings and loan crisis. A few years later we are down to only five bank failures so far in 2016. That’s progress. This past month state regulators closed down a small bank (Allied Bank) in Mulberry, Arkansas. The Arkansas banking commissioner stated ‘This was the result of poor quality loans and bad business decisions’.
The profitability issue of the Independent Banker had several great articles. Their research has shown that the average efficiency ratio for a community bank is 73%. But there was an article ‘A Great Measuring Stick’ that stated that the goal of a bank should be an efficiency ratio of 50% or less. This is quite a difference. Controlling costs (overhead) is not an easy job, but very profitable when done right. Check out this article for more details. https://independentbanker.org/2016/08/a-great-measuring-stick/
The Federal Reserve Left Short-Term Interest Rates Unchanged for the sixth straight time. This year looks like last year, when Fed representatives, consistently and constantly, told everyone that rates were going higher. Then in the last meeting of the year, they raised the short-term rate a paltry 0.25%. The big difference, this time, is that the vote was 7-3. The Federal Reserve Board isn’t like the Supreme Court with split decisions. The Board generally has a unanimous decision. The last time there was a dissent was in 2005.
At September’s meeting, many Fed reps commented that conditions are very good for a rate change upwards, but they wanted to wait to the last meeting of the year to see more positive economic signs.