Academic journal article ABA Banking Journal

Headache #1: Deteriorating Efficiency Ratios at Community Banks

Academic journal article ABA Banking Journal

Headache #1: Deteriorating Efficiency Ratios at Community Banks

Article excerpt

Deep in FDIC's latest quarterly performance report was a chart demonstrating a serious degradation in community bank efficiency ratios. At yearend, the average ratio for banks under $1 billion stood at 74%, whereas banks over $1 billion in assets had an average ratio of 53%. Why you think this disparity exists and does it match your bank's experience? And has your bank had any success with a remedial strategy?

Remedy 1

[ILLUSTRATION OMITTED]

Larry Myers, president and CEO, First Savings Bank, FSB, $490. 7 million-assets, Clarksville, Ind.

Expenses and fee income are the drivers for the efficiency ratio. Smaller banks typically do not have the multiple sources of fee income available to the larger banks. There is also efficiency with size, especially with operations and compliance.

In response to this situation, we have increased fees on our depository products and have added bank-owned life insurance as another source of fee income. The expense side is being addressed as we consolidate our merger with another bank, reducing overhead by integrating systems, etc.

Remedy 2

[ILLUSTRATION OMITTED]

Rheo Brouillard, president and CEO, Savings Institute Bank & Trust, $864.6 million-assets, Willimantic, Conn.

SOX 404, in a nutshell. …

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