Do Banks Need a New Business Model?

CashFlow Insights recently concluded study shows community and regional bank business models working well. Banks that were profitable every year from 2005 through 2012 have almost returned to their historic Return on Assets level, despite slow economic growth and new regulations. Banks that were unprofitable for one year are returning to their historic ROA levels more slowly. The key to success continues to be the quality of execution.

Unionville, PA, March 09, 2013 --( CashFlow Insights just completed a study to determine if regional and community banks need better execution or a new business model. Concern over the continuing use of industry business models was created by the cost of new regulations, slow economic growth and low interest rates. CashFlow Insights' study shows that a new business model is not needed, just superior execution.

“The key to understanding if a new business model is needed, is examining bank performance on a segmented basis,” said Robert Merkle, CEO of CashFlow Insights, LLC. “When you look at the performance of the best run banks over the past eight years, those that were profitable every year 2005 through 2012, you see banks that have almost completely returned to their historic ROA levels despite a slow growing economy and the impact of new regulations. Given a slightly stronger economic growth rate, they will return to historic ROA levels and probably beat them.”

CashFlow Insights examined bank profitability in three states chosen for their different economic performance levels: Georgia, Pennsylvania and Texas. Texas had a consistently stronger economy than average. The Pennsylvania economy has matched the national performance closely. Georgia had an economy growing faster than average pre-recession and growing slower than average since the recession. This allowed the analysis to focus on the impact of economic growth rates on bank profitability. Segmenting the banks in the three states by the consistency of profit generation allowed the impact of management skill to be evaluated in these different economic conditions.

The three states had a total of 843 community and regional banks, defined as banks with assets less than $10 billion, operating throughout the 2005 through 2012 period. Of the 843, 66% are top performers that were profitable every year and 12% were in the segment that was profitable every year but one. The remaining 22% suffered multiple years of losses. The 2012 ROA of the top performing segment was about 90% of their 2005 ROA, and still increasing. The 2012 ROA of the second segment was about 80% of their 2005 ROA and increasing more rapidly than the top segment banks.

CashFlow Insights specializes in working with banks to improve their management of commercial customer relationships. The result is faster growth and increased profitability through greater customer understanding and loyalty. For more information about CashFlow Insights, please visit
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Robert Merkle