Monthly Archives: November 2019

Customers More Satisfied with Banks than CUs, Report Shows

By Anna Cushing

For the first time since the inception of the American Customer Satisfaction Index, banks had a higher customer satisfaction than credit unions. Both, however, dipped in their respective ACSI scores: banks at 80, down 1.2 percent, and credit unions at 79, down 2.5 percent.

The index measured satisfaction among finance, insurance and healthcare based on interviews with more than 30,000 Americans chosen at random.

Among banks, regional and community institutions continue to lead the pack, despite a 1.2 percent drop to 83. National banks are up 1.3 percent to 78, which ties with super regional banks for the first time.

Customer satisfaction with internet investment services rose 2.5 percent to a score of 81, which bested financial advisors for the first time in three years of ACSI measurement.

The national banks, Wells Fargo, Citibank, Bank of America and Chase, are all at or within one point of their record-high satisfaction scores. Wells Fargo surged by 3 percent, despite its tumultuous past few years.

“As technology improves, so does customer satisfaction,” said David VanAmburg, managing director at the ACSI.

“Customers want mobile options, and big banks have the resources to deliver,” VanAmburg said. “The personalized service that’s the hallmark of smaller banks and credit unions may no longer be as critical to customers, especially a younger demographic.”

ACSI has been a national economic indicator for 25 years, and measures and analyzes customer satisfaction with more than 400 companies in 46 industries and 10 economic sectors.

Banks Pull in $57.4 Billion in the Third Quarter

By Mara Gawarecki

The 5,256 commercial banks and savings institutions insured by the FDIC made $57.4 billion in aggregate net income in third quarter 2019, down $4.5 billion or 7.3 percent from a year ago.

That drop was caused by higher noninterest expense and loan-loss provisions and realized securities losses, the FDIC said.

“The banking industry reported positive results this quarter, despite nonrecurring events at three large institutions that affected quarterly net income,” said FDIC Chair Jelena McWilliams.  “Overall, the banking industry reported strong loan growth, and the number of ‘problem banks’ remained low. Community banks also reported another positive quarter. Net income at community banks improved due to higher net operating revenue, and the annual rate of loan growth at community banks exceeded the overall industry.”

The 4,825 institutions the FDIC tags as community banks reported a 7.2 percent increase in net income for the quarter, making $6.9 billion, up $466 million from a year ago. Growth in net interest income (up 4 percent to $19 billion), noninterest income (up 16.4 percent to $5.1 billion), and gains on securities sales (up 675.1 percent to $164.5 million) were responsible.

Revenue growth in those areas offset increases in noninterest expense (up 5.8 percent to $15.2 billion), provision expense (up 24.9 percent to $754 million), and income tax expense (up 12 percent to $1.4 billion).

Pretax return on assets rose 3 basis points to 1.51 percent for those community banks, marking the highest quarterly pretax return on assets reported by community banks since third quarter 2006. Net interest margin was 3.69 percent for the quarter, down from 3.74 percent a year prior.

Overall, national average ROA declined from 1.41 percent in third quarter 2018 to 1.25 percent, and average NIM declined by 10 basis points from a year ago to 3.35 percent.

On the positive side, total loan and lease balances increased by $99.5 billion (1 percent) from the previous quarter, with growth driven by consumer loans, which includes credit cards (up 1.8 percent to $31.3 billion) and residential mortgage loans (up 1 percent to $22 billion).

“The FDIC’s report shows that our nation’s banks remain key drivers of the U.S. economy with nearly $100 billion in new loans generated in the third quarter,” said James Chessen, chief economist for the American Bankers Association. 

Growth in consumer and real estate lending offset slowing business loan demand, although the latter remained strong at over 6 percent, he said. Asset quality and deposit growth also continued to grow, and “nearly all banks – 99.7 percent – are well capitalized, with the industry adding $104 billion to its $2.1 trillion capital base over the year,” Chessen said.

During the third quarter, four new banks opened, 46 institutions were absorbed by mergers and no banks failed. The number of problem banks decreased by one, to 55.

Aging Populace Informs Monetary Policy

By Esther George

Editor’s Note: The following is excerpted from a speech by Esther L. George, president and CEO of the Federal Reserve Bank of Kansas City, delivered at a forum in Helsinki, Finland, on aging and the economy.

Demographic trends are reshaping the U.S. labor force, leading economists and policymakers to rethink the key macroeconomic parameters that drive decision making, and reassess their views about the economy’s longer-run growth potential. Like melting glaciers, changes in global demographics are difficult to see in the near term, but over time they will reshape the landscape. Structural changes of the last 25 years have only gradually reduced the economy’s potential growth rate, its natural rate of interest, and unemployment, but they must be considered in the context of how we respond to business cycle fluctuations. Here are three observations:

First, the share of older individuals (age 55 and up) in the labor force has continued to increase. Twenty-five years ago, older individuals made up roughly 10 percent of the workforce; today, that share has more than doubled. At the same time, the shares of prime-age (age 25 to 54) and young individuals (age 16 to 24) in the labor force have declined. These demographic factors continue to put downward pressure on labor force participation.

Starting in the last recession, we saw labor force participation rates decline steadily. Over the past five years, the participation rate has stabilized as market conditions have improved. One of the important implications of long-term demographic shifts relates to what is known as the trend unemployment rate. Research shows that the changes in the age and skill composition of the labor force have systematically lowered the trend unemployment rate over the past 25 years.

As estimates of the natural rate of unemployment have declined, the scope for monetary policy to foster lower unemployment rates without generating inflationary pressures has increased. Uncertainty about exactly where those natural rates of unemployment might currently lie requires us to be cautious, examine a wide range of information, and continually update the parameters we use as new data arrives.

Second, this shift in labor force composition has coincided with dramatic changes in skills demanded by employers, due to technological advancements, and has resulted in a phenomenon known as job polarization. Job opportunities have shifted away from middle-skill occupations that lead to a middle-class standard of living, and toward high- and low-skill occupations.

Skills demanded in the labor market are rapidly changing, rendering the skills of many less-educated workers obsolete. Equipping workers with new skills in the face of rapid technological advancements continues to be a key issue for labor force participation and policymakers.

Third, is how these demographic forces interact with and influence the outlook for the U.S. economy. In housing, for example, a combination of forces has resulted in high housing prices and rents. These high prices disproportionately impact younger adults as they delay forming households, marriage and having children.

Downsizing by baby boomers could significantly increase demand for new multifamily construction, especially in the suburbs. This downsizing, together with the mortality associated with age, would be expected to free up existing single-family homes. Younger households who move into these homes will free up multifamily units for newly forming households. With housing being a key fulcrum of monetary policy and a sector we know can be prone to boom and bust cycles, these developments will require careful monitoring.

The implications of demographic change and other key structural economic relationships for monetary policy have already played out at the Federal Open Market Committee. According to the Federal Reserve’s Summary of Economic Projections, popularly referred to as the “dot plot,” the median projection for the long-run growth rate of real GDP has come down, the median projection for the long-run unemployment rate has also fallen dramatically, and the median projection for the long-run interest rates has come down notably. Understanding that considerable uncertainty remains around these estimates, policymakers must remain attuned to changes in macroeconomic trends such as aging demographics if we are to achieve our objectives for the economy.

Esther L. George is president and CEO of the Federal Reserve Bank of Kansas City.


Ag bankers consider 2019, look forward to 2020

By Alaina Webster

Between trade tensions with China and natural disasters affecting virtually every part of the country, ag producers in the U.S. faced a challenging 2019. Will 2020 be any better?

In speaking with a handful of bankers from the Southern and Midwestern parts of the country, the answer seems to be a resounding maybe. Due to the USDA’s Market Facilitation Program, most producers who were hit with either production or trade issues have been able to make ends meet, but with weather uncertainties always a factor and trade talks continuing to drag on, most producers aren’t looking forward to more of the same next year.

“Risk management seems to be a topic that gets a lot more conversation nowadays,” said Joseph Beaver, senior vice president, agriculture lending, at First Southern Bank, Florence, Ala. “Marketing, hedging, crop insurance, all those sorts of things — everybody’s having to pay more attention to that and really kind of manage the downside with commodity prices where they are. Those things need to become more prevalent — at least we think they need to be more prevalent. We’re having more conversations around those kinds of things. The producers certainly have an interest in that and probably have to spend more time than they like spending on it.”

Still, bankers revealed the majority of their producers support the ongoing trade discussions, believing long-term gains outweigh short-term discomfort, and farmers and ranchers are thankful the USDA’s MFP is helping them to maintain their livelihoods while the government continues to wrestle with China.

In short, “cautious optimism” might be the best way to describe the sentiments of both ag bankers and producers going into 2020. For a more nuanced, in-depth perspective, read on for quotations from the panelists::

  • Walt Stephens, market executive, president, Greenville/Leland markets, Regions Bank, Greenville, Miss.
  • Joseph Beaver, senior vice president, agriculture lending, First Southern Bank, Florence, Ala. 
  • Leonard R. Wolfe, president, United Bank & Trust, Marysville, Kan. 
  • Ronald “Ronnie” Petree, market president, Home Bank, Lake Charles, La. 
  • Peg Scott, CEO, Union State Bank, Greenfield, Iowa
  • Bill Crutcher, market president, First United Bank, Wichita Falls, Texas

What trends have you seen in 2019?

Labor shortages: “One of the top trends that has been in the forefront of the industry for many years is that of labor due to the fact that the agriculture industry is so heavily dependent on the labor force. This resource is becoming more and more expensive in an industry that is squeezing its margins to the very penny it has.” — Walt Stephens, Mississippi

“You continue to have less and less farmers. You have no new farmers really starting, so I worry that we’re going to lose a way of life and the culture down in the rice industry.” — Ronnie Petree, Louisiana

“When grain prices began to fall … cotton rebounded a little bit. In about ‘15, we saw some people start to come back in, and in ‘18 we saw just about everybody come back in … There’s one big obstacle there, one dilemma for people who want to come back into cotton — it takes about 1,500 acres to justify buying a roller picker, and some people tried to come in less than that, and it’s just very difficult to find the labor that you need to use the old equipment. It’s just about cost prohibitive to have that custom harvested, so either you have to come back in a big way or not at all.” — Joseph Beaver, Alabama

Low commodity prices: “We’ve been fortunate that while commodity prices have been down, yields in our area have been good and it looks like it’s going to be another good year.” — Peg Scott, Iowa

“We’re going to have some really good crops this year — I mean, weather permitting, if we avoid an early frost or hail or something like that — but generally it’s going to be pretty darn good. The prices aren’t great. The prices are very similar to what they were at this time last year, but the new 2019 market facilitation program pays differently this year than it did last year. It paid on what you actually produced last year, which didn’t help those that had issues with weather and had to collect through crop insurance. This year, the program pays on a per acre basis for planted acres.” — Leonard Wolfe, Kansas

“We’re seeing contraction within the industry. We’re not seeing expansion, and I think you’re going to continue to see that for the next couple years until these commodity prices rebound.” — Bill Crutcher, Texas

Certain products harder hit than others: “Due to the weather conditions … our yields are off in regards to rice substantially. There’s predictions between 30 and 35 percent, which is huge. There’s a lot of crawfish production in our area, and a lot of those farmers’ yields are off as well. It’s hard enough to make money on rice, so a lot of people will use the crawfish to supplement their income … I’ve been in banking for 41 years, and every year pretty much a group of farmers will say it’s going to be one of the worst years … and usually I felt pretty confident that things were going to be pretty good in the long run, and I still feel that will happen in this case, but it looks like it’s going to be tighter than normal, than it has been in a number of years.” — Ronnie Petree, Louisiana

“Livestock is always up and down. What we’ve seen is the biggest stress in the ag sector has been on our livestock producers, the cattle producers and our hog producers. Dairy — they’ve had some really good years the last three years, but this year is probably going to be a little low for our dairies, but the row crop is going to be, I think, pretty good. It’s going to be a below average year for our beef and pork and dairy producers in this area.” — Leonard Wolfe, Kansas

“I’m looking at the contraction of livestock … The worst thing that’s happened to the dairy industry is select breeding. We’ve overpopulated our milk herds; therefore, they’re over producing, producing more products on the market, which is going to have an adverse effect on the price. And one thing we’re seeing within that industry, those guys know that, and they’re contracting, they’re liquidating their herds, which is counter cyclical because then we’re putting more beef on the market, therefore it’s pushing prices down.” — Bill Crutcher, Texas

How have weather-related disasters impacted agriculture?

“For natural disasters, you can assume what the normal ones (tornadoes, hurricanes, etc.) would do to the agriculture industry in Mississippi; however, the one that has garnered the most attention was the flooding event that took place in the south Delta back in the first few months of the year. During that time frame, we had approximately 544,000 acres of homes, trees and cropland underwater for several months and as a direct result, this area was not able to continue its normal way of life, most of which was agriculture related. Forty-five of our 82 counties in Mississippi were designated as natural disaster areas to floods.” — Walt Stephens, Mississippi

“You wouldn’t think that you’d have both, both too much water and not enough, but we’ve seen that this year. We also had some areas that did experience some devastating hail this year, too. We’ve had hail storms that come through certain areas … that looks like a herd of buffalo went through … It looks about a mile wide. I heard it’s as far as you can see in both directions.” — Leonard Wolfe, Kansas

“We had biblical floods back in the late winter, early spring, when it was time to start planting. We had the same issues here that you probably have seen many places. We had delayed planting, and once it was planted, we had sidewall compaction, all the issues of trying to plant in fields that were really too wet to plant, and a fair amount of prevented planting. They’ve had to change their crop mix based on what they could get in the ground.” — Joseph Beaver, Alabama

“I hope and I pray to God that we won’t see the weather conditions that we faced this year. There were a lot of things that all fell into place at one time that weren’t good. They’re good producers; they make good yields. But when they’re [historically] making a 45 to 55 yield and they’re down in the 28s to 30s, 35s, that rough.” — Ronnie Petree, Louisiana

Do producers support the ongoing trade war?

“Nobody’s happy that it’s still dragging on. As far as the long term, I think the majority of producers are still in support, that we need a long term solution. That support has started to erode some. I’ve heard more people that are growing unhappy, but the majority are still supportive and think we need to get this. We’ve taken the hit now, so let’s go ahead and get it fixed. That’s kind of the sentiment, I guess.” — Joseph Beaver, Alabama

“Of course, the tariffs have been a concern, but most farmers I talk to are supporting the tariffs. Their comments generally are that we’ve been taken advantage of as a country for a long time and it needs to be done. We need to get this straightened out so that we’re on a level playing with other countries, particularly China. Our ag customers have gotten a subsidy last year and this year to make up for the depressed prices caused by this whole tariff issue. So we feel like our customers are hanging in there, certainly not making a lot of money, but they’re able to hold it together. If the weather hadn’t been as conducive to high yields, then we’d have some serious conversations.” — Peg Scott, Iowa

“I believe that all of the farmers I have spoken to are in support of the tariffs as they as an industry want fair trade; however, as the end of the day, most if not all of them just want to make a living. Most in the agricultural community feel that in response to the tariffs the USDA and the rest of the government are doing what they can to help support the industry in the form of the market facilitation program, but at the end of the day, they all know this program will not last forever.” — Walt Stephens, Mississippi

“In talking directly to my producers, they’re concerned about it; they’d like to see it put behind them. They would rather see the market dictate the prices rather than the tariff issues and the trade issues, but as long as they get those market facilitation program payments that reimburse them for their losses they’re experiencing indirectly from the trade war, my producers seem to be fine with the trade war so far. It’s a battle that needs to be fought, and they’re supportive of it as long as they get these MFP payments that compensate them for the loss of the market.”– Leonard Wolfe, Kansas

“I think the industry as a whole agrees it’s time to finally jerk some things back in line, let us get everybody on equal footing … But it makes people nervous so they don’t know what’s going to happen … that creates uncertainty in the market, and it makes me scared.” — Ronnie Petree, Louisiana

“It is affecting our commodity prices, primarily cotton as well as wheat. These tariffs have really driven down the price. Fortunately the government stepped in with FSA payments, which is helping. It’s just not near enough to help these farmers get to where they need to be … [Half of producers] are supportive because they support a free market system. Your other half are against it because we are hindering trade, but in the long run, it should be beneficial for our producers.” — Bill Crutcher, Texas

Where is the industry headed in 2020?

“The challenges are going to be the substitute meat sources. It seems as though it’s growing in popularity. It’s really being pushed hard by the restaurant industry, and we’re seeing more advertising … Consumer changes — I think that’s going to be our biggest fear going forward, the taste of the consumers and their preferences.” — Bill Crutcher, Texas

“We do need to get consumption inside the United States increased, but we also need to create other markets. I think pricing will still be a challenge, and then of course, who knows? It’s an act of God that we have to rely on.” — Ronnie Petree, Louisiana

“2019 was the fifth year in a row of lower commodity prices, which has caused a lot of borrowers to erode their financial position in order to continue in the ‘family business,’ and as a result, we will start seeing more and more balance sheets with less equity. Borrowers will also be forced to start trying to roll short term debt into long term debt hoping to keep the business afloat — hope is not a strategy. I believe the trade wars will continue to be on the forefront again in 2020, and I do not know what that will continue to mean for the commodity markets. Farming has always been an industry of peaks and valleys so to speak, but 2019 and into 2020 could definitely put us as an industry into uncharted territory.” –Walt Stephens, Mississippi

“The ongoing challenge is going to be commodity prices. Everybody will continue to struggle with that. I think that’s forcing producers to look at things in a different manner. I hear more talk about managing for profit versus managing for yield, but I certainly wouldn’t say that is a prevailing sentiment. It’s something they’re having to look at, and I don’t think that it’s something they like to have to look at … You know, risk management seems to be a topic that gets a lot more conversation nowadays. Marketing, hedging, crop insurance, all those sorts of things. Everybody’s having to pay more attention to that and really kind of manage the downside with commodity prices where they are.” –Joseph Beaver, Alabama

“Our customers have been farming for a long time, so they have quite a bit of equity; they’re not in as fragile a situation as many of them were in the 1980s.” — Peg Scott, Iowa

Database Tech Helps Land New Deposit Accounts

By Justin Dullum

ClickSwitch is a Minneapolis-based fintech with a simple goal: Make it easier for people to switch banks. The company started with a focus on moving automatic payments between banks but soon learned the key was to move direct deposit information. BankBeat spoke with Eric Edwards, chief revenue officer of ClickSwitch, about how it works.

Q: Why did ClickSwitch make payroll deposits its focus?

Eric Edwards: Deposits are a substantial sticking point in the market. I moved a banking relationship recently in Wisconsin. They didn’t offer me a way to move my direct deposit, and all the banks know a customer doesn’t consider it its main financial institution unless you have their payroll. Once you get that, you’re in the prime spot to get loans, mortgages, you name it. This really is the friction point in moving from one bank to another. From a customer’s perspective changing direct deposit can be hard to do.

Q: How does your process work?

E.E.: There are two ways to use our solution. One is basically a desktop program at the branch level. A customer service person at the bank can use it to walk a new customer through the switch. The customer is there to authenticate accounts. For deposits we have a growing database of employers. A request hits that database and pulls up the necessary documentation to identify where they want their deposits to go. We can fulfill those electronically, although some require manual effort because that’s what the employer requires. We notify the employer to switch from this bank to that bank. On the payments side, while they’re engaged, we have the ability to look at auto debits. If you have, say, 12 different payments, we have an aggregation resource to collect them and the customer also verifies which autopayments to move. If we encounter a business or employer not in our database we reach out to them to get the needed documentation on file. So the database is growing over time.

Q: So the customer is not using ClickSwitch?

E.E.: There is the desktop application and there is also an API banks can use to build into their existing new account opening workflow. But no, a customer may interact with our database in the API, but otherwise it’s a banker assisting the customer and they simply sign off on the requested changes as the banker does the work for them. If there are things that can’t be figured out while the customer and banker are sitting together, like a particular payment, it stays in their file as unresolved. And if the customer has to return on their own to complete the switch they can log into our technology and use a code to finish. In that instance a customer is able to interact directly with ClickSwitch. But mostly it is going to be done for them by a banker or through the API.

Q: If a banking giant doesn’t want a service like yours helping its customers leave, could they stop you?

E.E.: I don’t really know how they would get in the way because consumers control where their employer sends a deposit or what companies receive payments. The bank doesn’t really have a stake in that. We use an aggregation service when it comes to payment information, and theoretically a bank or company could do something with the way the aggregation service can authenticate some of that information. But that would be the aggregation service provider’s problem.

Q: I assume the bank absorbs any cost for the customers’ use of ClickSwitch. What’s the pricing like for, say, a $500 million bank?

E.E.: Yep. Banks choose between the desktop or building the API into their website. For your average community bank, the price will differ depending on which solution you choose. A bank that size would be looking at $15,000-$20,000 for the initial setup. It’s sort of hard to calculate the price thereafter; it depends on the bank’s size. There are some monthly minimums based upon what a bank calculates is its rate of new customers, number of employees using it, a few things like that. Monthly fees are based on the bank’s numbers, not on ours. But then it’s mostly priced on a per-use basis, and it breaks down to about $30 per switch.

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