Ever had the experience of money coming into your life that you had not counted on from a source you did not anticipate? Some call it “found money” and others might describe it as a windfall. Whatever word is used to describe it, there is one question that always arises after such good fortune happens to someone: What should be done with the money? A shopping spree? Deposit it to savings? Maybe give it to a less fortunate person or a charity that is active in the community?
As a rule of thumb, SRM delivers roughly $3 million in savings for every $1 billion in assets held by a bank or credit union at or below the $10 billion mark. Due to the economy of scale enjoyed by larger institutions, the ratio becomes closer to $2.5 million per billion for banks and credit unions above the $10 billion line.
This is truly “found money” for our clients, giving them the opportunity to consider what to do with this meaningful amount of available funds. The answer varies depending on the institution’s needs and commitments. If you work at a bank or credit union, what would you do? What about paying it forward?
Doing Well By Doing Good, or Vice Versa
Many of our clients have established nonprofit foundations to carry out their philanthropic work, or have at least identified a few key area charities for regular support. Often money invested in these efforts delivers a return that has a value considerably beyond the investments made in other areas. Imagine the difference a five-figure gift to a charitable organization – or an equivalent addition to existing contributions – could make in achieving their mission, and in cementing the bank’s reputation as a committed sustainer of the community.
Sometimes a misperception exists regarding banks and credit unions when it comes to this type of initiative. Because credit unions are not-for-profit organizations, it is thought that they may be more active than banks in these types of activities. Today, however, no financial institution can afford to forego being materially active in organizations and programs that address needs in the community. Millennials, in particular, consider cause-based efforts to address issues such as the environment, poverty, hunger, literacy and other similar areas to be key in how they evaluate brand preferences as well as employers.
Acting on Community Reinvestment
Of course, there are many other equally appropriate routes to consider. FIs can elect to return any surplus to its shareholders (in the case of banks) or members (at credit unions) in the form of dividends. In situations where the institution’s ownership is local (which is likely the case with most community institutions), it’s reasonable to assume that some of these proceeds will be spent within the community, creating a lift to economic activity and fueling a virtuous cycle. Some of those dollars may even wind up being donated by individuals to the same charitable organizations described above.
Of course, banks or credit unions that come into six figures to invest (not part of their existing financial plan) may want to use part of this money to modernize their digital banking offerings, core system or other critical areas that make them competitive in the marketplace. There are even virtuous circles fed by investments of this type, as they help institutions grow not only their assets, but also their employee count.
SRM considers philanthropy important to our brand as well. We at SRM have been involved for many years with St. Jude Children’s Hospital, headquartered here in our Memphis hometown. Our CEO Brad Downs also serves on the board of the Dorothy Day House, a nonprofit offering temporary housing services with a mission of keeping homeless families together. We are honored to make these contributions and others to our community in an effort to put our words into action.
We know many bankers who feel the same way about their organizations and the places where they do business. It is one of the main reasons we enjoy helping banks and credit unions discover certain “windfalls” that exist in their operations specifically as concerns their vendor relationships.
