Pub. 10 2019 Issue 4

www.wvbankers.org 24 West Virginia Banker WHY ADVERTISE IN PRINT? “Digital media is great, but we also need less mediated, more real experiences and I believe print is better at delivering that. Magazines offer the kind of tactile engagement you cannot find anywhere else. It satisfies the senses on many levels – sight, touch, smell. That’s unique to print. Also in a world where everything moves so fast – driven by the dictates of data and the digital world – magazines provide respite from all that: a moment of calm, contemplation, enjoyment.” — Vince Medeiros, Publisher, Think Quarterly, google https://www.thenewslinkgroup.com/publications/Goldfish/index.html — Satya Nadella CEO, Microsoft The true scarce commodity is human attention. Kris Montione (v) 8 . . | . . Kris@thenewslinkgroup.com Get back into the neutral zone. We have long argued that it’s most efficient to run a neutral balance sheet. Bankers should manage spread, not speculate on rates. Asset-sensi- tive institutions can tack back to neutral by adding duration and lockout to their securities portfolios, originating longer duration loans, or shortening funding duration either organi- cally or with plain vanilla derivative strategies. For their part, liability-sensitive institutions can capitalize on wider spreads for floating-rate bonds (CLOs, FFELP — 97% government guarantee, and SBA floaters — 0% risk weight, to name a few) or extend liability duration either organically or synthetically with pay-fixed swaps. Additionally, with rates expected to fall, floors are expensive, but caps are cheap. Remember those floating-rate TruPS you’ve been meaning to cap? Now’s the time. Price loans for late-cycle risk. The Federal Reserve’s senior loan officer opinion surveys show that banks are reluctant to increase loan rates over the cost of funds. Ninety-two percent of respondents to the July 2019 survey said that loan rates over the cost of funds remained unchanged or narrowed over the past three months for commercial and industrial loans or credit lines to large and middle-market firms. Furthermore, 90% of banks that reported loosening credit standards cited more aggressive competition from other banks or nonbank lenders as a reason for doing so. In short, banks are letting other institutions dictate their risk-adjusted return param- eters. This is very dangerous. Loan pricing models need to be recalibrated to the reality that we’re late in the economic cycle. Bank managers must be willing to let irrationally priced loans flow to irrational competitors, not onto their balance sheet. Create “self-help” through expense rationalization. Branch networks remain ripe for review as consumers migrate to digital delivery channels. Once savings are identified, take a hard, honest look at your mobile and online budgets. If you’re light, reallocate a portion of the brick and mortar sav- ings, and let the residual fall to the bottom line. Remember that playing catch-up is always more expensive. Communicate Proactively with All of Your Stakeholders Bankers have to navigate the trade-offs among soundness, profitability, and growth continuously with no margin for error. As you weigh your options, make sure that you can explain how your final decisions reinforce your commitment to these mutually dependent principles.  Continued from page 23 Scott Hildenbrand is a principal and chief balance sheet strategist of Sandler O’Neill + Partners, L.P. He heads the Balance Sheet Analysis and Strategy group, which works with financial institutions on interest rate risk management, investment portfolio strategy, retail and wholesale funding management, derivative strategy, capital planning, budgeting, and stress testing.