This last year was brutal for NIM compression at most community banks. And yet it was understandable, and it reconciled with some nice PPP fee income that drove up the profits of many banks.

However, bank boards are now more than a little concerned. Since fee income from PPP won’t be there in 2022, they are wondering how you intend to bump NIM back up without sacrificing loan quality or growth.

Why has it been such a struggle for thousands of banks to figure out how to end the “we can do this deal as long as we match the rate” conversation that has been going on for…well… decades?

How many more years can you hang on to that problem before your board gets cranky and starts to recruit for your replacement?

The reality is that you have nearly every trend working against you right now:

• Your competitors have gone stark raving mad—they are offering low-ball rates with long terms. Of course, it is a desperate move that assures their demise. But are you really willing to match such moves?
• Your lenders are lining up with excuses: “Nobody returns my calls.” “Loan payoffs are coming in faster than I can book new business.” “There’s nothing in the funnel so we have to do this deal at this price.”
• Small businesses are being crushed under the competition for workers and the constant set of tax and regulatory surprises coming from Washington, making planning or investing in the future harder and harder.

And the list goes on…

People in Your Financial Institution Must Take More Responsibility Now

If you don’t want to live with those “excuses” getting in the way of your results, you must address every problem you have with Resnick’s Formula: Event plus Response equals Outcome (E + R = O).

You can’t change the events (interest rates, competitor moves, etc.)—those are givens that you cannot control.

You are, however, held to the “outcomes” (boost NIM and ROA as a result). 

So therefore, you must substantially adjust this equation with the only thing you can control: your response (the “R”).So, what will you do to increase your NIM while improving loan growth on an ever-improving quality portfolio?

Let’s face it: You probably have a few team members who are busy telling you that they’re impacted by the “events.”

Thanks for sharing. Life is hard. This is why they call it work instead of calling it a Disney Theme Park. But they don’t pay to get in—in fact, you pay them to create solutions.

So, can we all just agree that we will not give any more energy to the “events?” None of them are under your control, so it is foolish to blame them. All your competitors have the same “events,” yet somebody’s going to pull ahead.

The winners will be the banks in your market that handle the “response” in the best possible ways.

If you want to go around telling people that nobody will pay premium rates, there better be no restaurants in your market that don’t have golden arches in the front. If there are restaurants that charge more, then it’s clear: you have people who will pay more.

Stop the worst lies of all—the ones you tell yourself.

What’s Getting In Your Way of Responding to Assure a Higher NIM?

You have people who belong to the “Match the Rate or Lose the Deal” Society.

They take a stand similar to the Flat Earth Society. 

Amazingly, there really is a Flat Earth Society. Their website says they are “dedicated to unravelling the true mysteries of the universe and demonstrating that the earth is flat and that Round Earth doctrine is little more than an elaborate hoax.”

Well then.

They won’t “buy in” to the round earth because they believe they have no conclusive evidence. They say they “follow the science.”

It is likely that you have a few “Flat Earth Society” members in your bank if you’re like most executives—but not as it applies to the flat earth. 

They believe they hold “the truth” that premium pricing can’t happen without more risk. They are sure that they must match rates. They say things like this: “We can do this deal as long as we match the rate—and if we don’t, we may as well say bye-bye to this relationship.”

Well, they’re right, but only because they got you into that jam by not following a sales process that leads to the client telling you that your value exceeds your additional pricing by a factor of at least 20.

They didn’t do their job.

Maybe it isn’t their fault. Maybe nobody showed them how. Maybe your bank doesn’t have a Level 4 Unique Selling Proposition that commands that level of premium pricing. They’re still giving lame “we have great people” pitches that sound ridiculous even to themselves. 

Those “pitches” don’t work.

And as a result, they now have their own “science” to believe. They can’t do deals at premium pricing—they have already proven it.

Can you even imagine how your renewals will go next year on your best customers, who are getting solicited mercilessly by undercutting competitors?

Your version of the Flat Earth Society must be overcome with the right skills and tools to command premium pricing, or you had better get comfortable losing some of your best customers.

If your people don’t know how to apply a process to command premium pricing, there should be no surprise when they bring that deal to you in a state of “no profit will be had on this one.” You have no Unique Selling Propositions that prove why your process will save or create hundreds of thousands or even millions of dollars for your prospect.

Sure, you have people who already know they can’t get paid more, so they’re not trying very hard. But, those who are trying often don’t have the plethora of USPs that will command premium pricing. Without that differentiation, they’re doomed. If they ask for 100 basis points more, they’ll be sent packing.

The Master of Sales Prevention Hijacked Your Financial Institution

In many banks, there is that one person who stops all progress on what needs to happen. 

In some banks, it is the CFO or the CLO who, for ego reasons, pounds their chest and insists, “I can do it myself.”

Of course, if they could, then why isn’t the NIM above 4.5 or 5 by now? And why is loan growth slower than needed and filled with “iffy” credits that get accepted when “the funnel is slim”?

If you want to predict the future, look to the past.

It’s not their fault. They just don’t know how to do it. But it’s embarrassing for many to admit, so they pound their chests even harder and try all the “old school” approaches that haven’t worked in decades.

We Can Help You Clarify Your Bank’s Competitive Advantage

Ready to get started? Or at least have an exploratory conversation about Profitable Bank Differentiation? 

The good news is that you don’t need extreme action to get there…  

Schedule a call with us at TalkWithEmmerich.com.

About the Author

Shaun Heuerman is a Leadership Consultant at The Emmerich Group, coaching community bank sales teams to target A+ quality credits and develop Level 4 USPs to win them at extreme premium pricing. Shaun can be reached at: [email protected]. 

This article was originally published in Extraordinary Banker^® magazine. Click here to subscribe and get your digital copy free.