Managing performance and recognizing key indicators is important across every facet of life. In sports we use statistics, trends and history to tell us what is working, what isn’t, and what may. When driving your car you may feel sluggish acceleration or problems steering; again these are performance indicators that hint at a problem. While your bank may not provide the tangible feedback like a bad fuel pump, or a left handed batter that can only pull the ball, there are a number of insightful ways to manage performance to optimize profitability and success.
Let’s start at the beginning by addressing why understanding and managing your bank’s performance is important.
- Increases shareholder loyalty.
- Provides a dependable source of new capital.
- Improves the bank’s valuation.
- Achieves the mutual alignment of improved bank valuation and improved regulator contentment.
Obviously these are all important, and obvious, benefits of having a well-managed bank. What makes it easier to understand is the real life examples, engaging storytelling, and student involvement that Joseph “Jody” Hudgins implements in his class at the Graduate School of Banking at LSU, Managing Bank Performance.
Hudgins is the Senior Executive Vice President & Chief Credit Officer at First Florida Integrity Bank in Naples, FL. He eloquently and effectively explained and described the many nuances of bank performance and how its management can dramatically help or hinder an institution. Sharing his experiences by using real world examples complete with hard numbers, actual people and banks, and a concrete “cause and effect” of both good and poor management, resonates with the students. Asking leading questions, spurring the students to think from different angles, considering the possibilities and ramifications of each variable, really cements these principles and drivers into their critical thinking.
One of the main elements of this class is how a bank’s valuation can be measured. Below are the components of bank valuation.
- Quality of earnings.
- Capital & capital makeup.
- Asset quality.
- Core deposits / deposit mix.
- Image of the bank in the community.
- How well bank stock is marketed.
- Possession of several dominant strategies.
- Employee culture.
- Maintain quality employees in the bank.
Each of these factors was personified and exemplified so that each student could assess their banks, based on this criteria. Hudgins also took a deeper dive into the UPBR, or Uniform Performance Bank Report. Specifically he detailed the pages and sections of the report that can provide a “warning light” for your bank. Of course, understanding your bank’s performance provides the insight to understand what is working and what isn’t, and allows for you to mitigate risk. Here are the segments of the UPBR to which you should pay special attention.
- Page 1: Summary Ratios
- Page 3: Non-Interest Income & Expense Yields/Costs
- Page 6: Balance Sheet Percentage Composition
- Page 7: Credit Allowance & Loan Mix
- Page 8: Past Due, Non-Accrual, Restructured Loans
- Page 9: Interest Rate Risk
- Page 10: Liquidity & Funding
- Page 11: Capital Analysis
Overall this course on managing bank performance detailed how you can take a 30,000 foot view of your bank while also focusing on the different moving parts that define its health. Between the essential application of these lessons, and the engaging teachings of Jody Hudgins, the lessons learned in the course make understanding and managing your bank’s performance all the more efficient and effective.