Are we Growing the Right Business?

Why community banks need to look beyond loan and deposit growth to understand the relationships they’re building. 

 

I was recently talking with a community bank CEO whose institution was experiencing exceptional growth. Loan production was strong, the bank had reached an important milestone, and by most traditional measures, things were going very well. But what interested me most about our conversation wasn’t the growth he was describing. It was what he was worried might be happening beneath the surface. 

He wanted to better understand the bank’s existing customers, particularly those who had been with the institution for years. Were those relationships continuing to grow alongside the balance sheet? Were customers bringing more of their financial business to the bank, or was some of that activity gradually shifting elsewhere? He recognized that strong overall growth could make it difficult to see changes occurring within individual customer relationships. 

That conversation has stayed with me because it reflects something I’ve been hearing more frequently from community bank executives. Growth remains a priority, of course, but increasingly, bankers want to understand the quality of that growth and whether the business they’re bringing in today is creating the kind of institution they want to operate tomorrow. 

As banks work through their strategic plans for 2027, I think that’s an important conversation to have. 

Growth doesn’t always tell the whole story 

Community banks have traditionally measured growth through relatively familiar indicators: loan production, deposit balances, new accounts and market share. These remain important measures of performance, but they don’t always tell the complete story of what’s happening within the institution. 

Consider deposit growth. A bank may celebrate opening hundreds of new checking accounts, but how many of those customers have established meaningful relationships? Are they directing their paychecks or business receipts into those accounts? Are they using the bank for everyday transactions? And what does the institution know about the other financial relationships those customers maintain? 

In one conversation, a banking executive described the importance of looking beyond new checking account production to understand whether customers were actually using their accounts. That distinction is significant. Opening an account is an important first step, but attracting a customer’s primary banking relationship creates a different kind of value for the institution. 

The same principle applies to commercial relationships. A bank may be producing attractive loan growth while capturing only a small portion of the borrower’s overall financial activity. The customer may have a commercial loan at the bank but maintain its operating deposits, treasury management services and other borrowing relationships elsewhere. 

From a balance-sheet perspective, the bank has successfully originated a loan. From a relationship perspective, there may still be considerable opportunity. 

And there may be risk. If the institution doesn’t understand where its customers are conducting business or how their behavior is changing, it may not recognize signs of weakening relationships until those changes begin affecting balances or revenue. 

This is especially relevant in today’s competitive environment. Customers have more choices than ever about where to keep their money, how to move it and which providers to use for different financial services. Community banks don’t necessarily need to prevent customers from using multiple providers, but they should have a much better understanding of their position within those relationships. 

The economics of growth matter 

Another theme that surfaces regularly in my conversations with bank executives is the desire to understand what different types of growth actually contribute to the institution. 

A lender can generate significant production and still be building a portfolio that falls short of the bank’s broader financial objectives. A branch may deliver impressive deposit growth, but the cost of attracting and maintaining those balances matters. And a customer relationship that appears attractive when viewed through a single product may look very different when all of the relationship’s loans, deposits, fees and associated costs are considered together. 

None of this means that the largest or most profitable relationships should always receive the greatest attention. Community banks serve customers with a wide range of needs, and there are good business reasons to pursue opportunities that may not generate an immediate financial return. But those decisions are better made with an understanding of the economics involved. 

I’m particularly interested in how this changes conversations between finance and the people responsible for developing customer relationships. A CFO may be focused on margin, funding costs and overall profitability, while commercial and retail leaders are concentrating on production, customer acquisition and growth. Those priorities are connected, yet the   each group uses to evaluate success isn’t always connected in the same way. 

When a https://klarivis.com/insight/article/why-daily-deposit-insights-matter/, the conversation becomes much more meaningful. A loan pricing decision can take into account the broader value of the customer. A relationship manager can better understand why bringing in an operating account matters. And executives can evaluate whether growth in a particular market, product or business line is contributing to the institution’s financial performance in the way they expected. 

This is where the quality of the information matters as much as its availability. Banks need confidence that customer relationships are properly identified, that balances and activity are attributed consistently, and that the measures being used mean the same thing across departments. 

Otherwise, even well-intentioned decisions can be based on an incomplete picture. 

Are we encouraging the right behaviors? 

The quality-of-growth conversation also has implications for how banks manage and measure the performance of their people. 

Several executives I’ve spoken with are reconsidering the goals and scorecards used across their institutions. Some are working to create more measurable expectations for bankers and branch managers. Others are questioning whether existing performance measures are encouraging the outcomes leadership actually wants. 

This becomes particularly important when an institution is trying to shift from a transactional approach to a relationship-focused banking model. 

One banking leader described wanting her team to have fewer, more meaningful customer conversations rather than simply rewarding a high volume of outreach activity. Her objective was to help bankers better understand customer needs and identify opportunities to strengthen relationships, rather than treating every call or product sale as an equal measure of success. 

That perspective makes sense to me. If a bank’s strategic priority is to grow valuable customer relationships, it needs to consider whether its performance measures reflect that objective. Counting accounts opened, calls made or loans originated may provide useful information, but those measures alone don’t necessarily indicate whether bankers are accomplishing what leadership has asked them to do. 

Of course, designing better metrics is easier said than done. Banks need to account for differences among markets, customer segments and business lines. They also need to ensure bankers have visibility into their own performance and understand how their activities contribute to the institution’s goals. 

But the effort is worthwhile. When people have a clear understanding of what matters, how they’re being measured and where they stand, leaders can have more productive conversations about performance, coaching and opportunities for improvement. 

A more complete view of the business 

What strikes me about all of these conversations is that the information bank leaders want often already exists somewhere within their institutions. The challenge is bringing it together in a way that allows them to understand what’s happening and make decisions with confidence. 

A CFO may have a strong handle on the bank’s financial performance but limited visibility into the customer relationships driving changes in deposits or loan yields. A chief banking officer may know the institution’s production goals but struggle to determine whether relationship managers are expanding the right business. A marketing team may have access to customer account information without understanding how those customers are actually using the bank. 

Each department has a piece of the picture. The greater opportunity comes from connecting those perspectives. 

This is why I believe enterprise data intelligence has become increasingly relevant to the conversations bank executives are having about growth. The objective isn’t simply to produce more reports or make existing information look better. It’s to give decision-makers across the institution a consistent understanding of the business, while making it easier for them to explore the questions that matter within their areas of responsibility. 

For a CEO, that might mean understanding whether deposit growth is coming from new relationships, deeper existing relationships or higher-cost products. For a commercial banking executive, it could mean identifying customers whose loan relationships have grown but whose operating deposits haven’t followed. For a market leader, it may mean understanding whether the team’s activity is producing the kind of relationships the bank has identified as strategically important. 

Those are different questions, but they should be answered from the same underlying understanding of the institution. 

And when that information is readily available, the conversation can shift from explaining what happened last month to deciding what the bank should do next. 

A question worth asking as we plan for 2027 

I don’t think community banks need to rethink the importance of growth. Maintaining and strengthening customer relationships, attracting deposits and generating quality loan opportunities will continue to be essential to their success. 

What I do think deserves more attention is how institutions define the growth they’re pursuing and how well they understand the business behind the numbers. 

As leadership teams finalize their priorities for 2027, there’s value in examining whether the measures they rely on provide enough insight into the health of their customer relationships, the economics of their growth and the performance of their teams. It’s also worth considering where better information could help different departments work toward those priorities with greater consistency. 

Some of the most productive conversations I’ve had with bankers this year have started with what appears to be a straightforward reporting need. But as we talk through what they’re actually trying to accomplish, the discussion almost always becomes much broader. It moves toward how they want to manage their business, where they see opportunities for growth and what information would help their people make better decisions. 

That’s the conversation I would encourage more bank executives to have. 

Because growing the balance sheet is important, but understanding the business you’re building along the way is what allows you to make that growth meaningful and sustainable.