Magazine article The Journal of Lending & Credit Risk Management

How High-Performing Community Banks Achieve and Sustain Excellence

Magazine article The Journal of Lending & Credit Risk Management

How High-Performing Community Banks Achieve and Sustain Excellence

Article excerpt

Each month, Contributing Editor Kathie Beans brings "Credit Lines" and "Issues in Lending..." or "Community Bank Forum" to the Journal.

This article is an edited transcript of remarks made during an RMA audioconference.

In 1995, KPMG studied 25 top-performing community banks. Project Excellence looked beyond the numbers in a select sample of institutions that had consistently delivered top performance in the numbers. The purpose of the study was to gain a real-world perspective on what institutions were actually doing. In 1998, KPMG updated the study to see what, if anything, had changed in the three-year period.

Survey Participants

The top-performing banks and thrifts selected to participate are not much different from most institutions their size. They represent the community bank market in size--$100 million to $1.5 billion--and a cross-section of the country in location. They are diversified in their market mix. However, these 25 institutions have, over time, been able to sustain superior performance.

Survey Findings

KPMG clearly found that sustained performance reflects the banks' commitment to go beyond doing just one thing well. The CEOs of these institutions believe that sustained performance means being consistently outstanding in a number of key areas, their core processes. The CEOs believe an important part of their institutions' success is due to their ability to adapt to continually changing environments, regardless of geography--be it markets, products and services, or competition. It also is due to a significant appreciation of the human dimension in the business, both from the perspective of their customers and their employees.

The views of these CEOs about what contributes to their sustained performance were consistent from 1995 to 1998. They believe that a key factor is their ability to focus their business around the customer and the community. They believe that the ability of their management team to communicate and reinforce the vision and lead by example is critical. They also believe the processes certainly need to contribute toward their ability to manage the business and measure their ability to do the things that they think are important. And they believe that human resources are a very critical part of the process.

The CEOs believe four key elements account for their consistent high performance:

1. Clearly defining the business. Each of these banks is highly capable of articulating the customer's focus in their key strategies. They know exactly:

* What customers' needs they must satisfy, now and in the future. In the 1998 survey, they also recognized there would be a lot of change in the customers needs.

* What services they would need to offer to meet those needs.

* Who their customers are and what they expect their customers to look like in the next three to five years.

These banks share concerns about three critical aspects of the environment in which they operate:

1. Consolidation. It changes the competitive landscape that each of them faces.

2. Intrusion. Intrusion of the nonbanks, intrusion of the Internet, and intrusion of capital markets can now rifle right into their business customers.

3. Pace of change. Since 1998, that pace has accelerated.

How they compete and win. KPMG observed that this group of high performers has an ability to convert opportunities better than other institutions. They understand that everyone probably has the same suite of opportunities, but it is the ability to convert those opportunities to performance that makes the difference.

The strategies these institutions presented in the survey are simple and straightforward. They are either strong in their geographic presence or they are niche shops with a very specific consumer or small business focus. Their business strategies are not rocket science, they said. …

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