Community Bank grows loan business after adding CMG to it's asset-liability committee.
When a veteran St. Louis-area banker took the helm as president of a local community bank in 2010, he knew he faced an uphill battle.
“The economy was in a recession, and the bank was undercapitalized,” he recalls. The bank’s internal asset-liability committee (ALCO) struggled with decisions on how to price loans and fund the bank, which focuses primarily on commercial lending.
“Our ALCO members wear many hats,” the bank president explained. “Our committee needed a third-party partner who not only knows the subject inside and out, but also knows how to explain it in a meaningful way to community bankers who don’t live and breathe this stuff every day.”
The asset-liability management (ALM) consultant initially selected to fill this role did an adequate job, but the committee needed to get to the next level, he said. That’s when the bank president thought of Commerce Bank, which was already supporting his bank’s bond business and where he himself had worked decades earlier.
“I asked Commerce’s Capital Markets Group about their ALCO process and what they could offer a community bank like ours,” he recalled. “The rest, as they say, is history.”
In 2017, the bank began using the ALM consulting service offered by Commerce Bank’s Capital Market Group (CMG). Based on CMG’s detailed assessment of the bank’s overall ALM risk profile, the CMG representative not only presents key findings, but leads ALM strategy-related discussions and other timely issues at the bank’s quarterly ALCO meetings.
“After his first ALCO meeting, our board members were hooked,” he continued. “Our Commerce Bank CMG representative presents complex information using clear laymen’s language. His insights about our bank and the marketplace are invaluable.”
These assessments help fuel ALCO discussions on loan terms and pricing, as well as bank funding. “For example, we always review our sources of liquidity and look at strategies that help us lower our cost of funds,” the bank president explained.
Likewise, the CMG assessment also compares maturity rates/duration of the bank’s various liabilities to determine the loan term it should offer. “With our rep’s insight and feedback, we don’t have the interest rate risk that other community banks might have,” the bank president said.
“These discussions are extraordinarily helpful to us,” he added. “Now we’re positioned to offer products that some of our competing banks might not be able or want to match for loan rates and terms. We’re much better positioned in the marketplace than we were five years ago.”
The changes have made a significant impact on their business, enabling them to write loans they otherwise would not have considered, he said. “We’re up $5 million in commercial loans because we can offer pricing and terms that are aggressive in the marketplace,” he said. “We’ve also addressed concerns formerly raised by regulators.”
“Our CMG rep in ALCO has been a great partner in our ALCO process,” he said. “He is a great asset to our bank.”