Financial Trends Challenge Banks, Create Opportunities, JMFA Exec Tells IBAT Attendees

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“Alarms should be sounding in community banks across Texas and the nation,” says Wes Baggett, a Regional Executive for John M. Floyd & Associates (JMFA) of Baytown, TX. “The proliferation of ‘nonbank banks,’ as well as revenue enhancement opportunities, are thoroughly testing financial institutions.”

“Alarms should be sounding in community banks across Texas and the nation,” says Wes Baggett, a Regional Executive for John M. Floyd & Associates (JMFA) of Baytown, TX. “The proliferation of ‘nonbank banks,’ as well as revenue enhancement opportunities, are thoroughly testing financial institutions.”

Baggett spoke today on “Bank Overdraft Protection Program: Mature Product, New Profit Opportunities” at the 31st Annual Convention of the Independent Bankers Association of Texas (IBAT). The meeting was held at Gaylord Texan Resort & Convention Center in Grapevine, Texas, Nov. 29-Dec. 1. (Speaker photo & bio: http://www.jmfa.com/representative.aspx?stateid=tx)

“Between 1980 and 2004, U.S. banks’ share of the financial services business shrunk from 58 percent to 18 percent as nonbank institutions expanded within the industry,” noted the performance advisor. In slide after slide, he pointed out how credit unions and savings and loans are outperforming banks in returns on assets and equity.

Baggett, a graduate of Southern Methodist University who began his first job in a Proof Transit Department while still a student, took IBAT members on a “graphic tour” of financial trends, including net operating analysis, costs and assets comparisons, and; employee salaries and benefits.

“If independent banks are going to survive and thrive, it is imperative that management constantly focus on performance criteria. You must know how you stack up in every category against the competition,” he emphasized.

“Increasing non-interest income (NII) is the quickest and most direct route to improving profitability,” Baggett stated. “It is faster than sales and service improvements, expense reduction and even account acquisition. And value-added services, like a well managed overdraft program, will help retain customers as well as attract new ones.”

“More than 3,000 of the 18,000-plus financial institutions in this country now have defined and communicated overdraft or ‘courtesy pay’ programs,” he said. “And in JMFA’s vast experience – more than 1,000 installations – a financial institution can increase its income from nonsufficient funds (NSF) items by 50 percent to 300 percent. Our clients have an average 119 percent improvement in the first six months.”

Overdraft privilege is an organized, automated and structured process that allows a consumer or commercial customer to overdraw his/her transaction account according to a small, preset limit. Unlike some programs raising consumer frustration, a fully regulatory-compliant program is well-communicated to the accountholder and nondiscriminatory. http://www.overdraftprivilege.com/default.aspx

Customer Satisfaction = Customer Retention

The banking veteran posed two crucial questions: “Are your customers satisfied? What have you done to change the way you grow and retain customers?” He estimated the median annual customer attrition rate at 14%, “and it ranges from 12 percent to 30 percent in the banking industry.

“If you are going to grow assets and retain customers simultaneously, you are going to have to offer new products and services, redirect fees that are now going elsewhere and attract new customers,” he insisted.

“The community bank philosophy of focusing on the customer’s well being need not be discarded. Regulatory-compliant and consumer-friendly products and services like overdraft privilege are a win-win-win for the consumer, the merchant and the community banker.” He listed the benefits as:

  • Builds customer loyalty;
  • Maintains a competitive bank posture;
  • Redirects fee income now going to check cashers, payday lenders and credit card firms;
  • Increases fee income without raising accountholder fees and
  • Start-up costs are low.

The primary users of overdraft services are middle-income, employed consumers with $50,000 or more in annual household income who have lived at their current address 4½ years, Baggett noted. “They have an average four years in their present job, and 32 percent own their homes. JMFA studies show that they not only welcome but are demanding such discreet, value-added programs.”

The Carrollton, TX resident joined JMFA in August 2002 and is currently a Regional Director, one of two primarily responsible for Texas. The 33-year-old financial services consulting firm is known nationwide for its creation and implementation of overdraft privilege programs.

More than being 100% guaranteed regulatory-compliant, an overdraft program must be socially responsible and risk acceptable, he said. It must eliminate subjective pay/return decisions, have no hidden fees and offer financial alternatives or choices to nearly all customers. Risk management tools should be in place to protect both the institution and the accountholder.

An effective program will hold charge-offs to a manageable level, typically less than 7% of NSF/overdraft items. Internal collection efforts during the first 35 days of negative balance will include phone calls, letters, account management and, lastly, referral to third party recovery resources.

Beyond Overdraft Privilege

“Bank executives must critically focus on the events shaping their industry,” said Baggett. “If not internally, then with external counsel designed to partner with them in recognizing the broad expanse of potential productivity and profitability, regulatory requirements and best practices.”

He urged the bankers to look carefully at improving operating income and competitive advantage, preventing profit leaks and increasing cross-sell income, market share and retail contribution, as well as enhancing merger and acquisition success. He recommended – as needed – operational, financial and delivery systems re-engineering; training, incentive and earnings enhancement programs, and product, service, pricing and technology improvements.

Baggett, former manager of a Check Processing Department and a Funds Processing operation, went into consulting after more than nine years in banking. He was approved by the Office of the Comptroller of Currency to consult troubled banks, assisting boards of directors in the development of strategic plans and compliance management programs and helping write manuals on compliance management and operational effectiveness. His own firm developed a vault and teller cash software program that is still being used by some of the largest U.S. banks.

For More Information or Interviews:

Steve Swanston, EVP-Sales, John M. Floyd & Associates, Baytown, TX, 800-809-2307     

Steve.Swanston@JMFA.com http://www.JMFA.com

Wes Baggett, Regional Director (Texas), John M. Floyd & Associates, Carrollton, TX, Cell -877-809-9077, Wes.Baggett@JMFA.com

Preston F. Kirk, APR, Kirk Public Relations, Austin TX, 830-693-4447 kirk@281.com

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Preston F. Kirk, APR
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