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Lee Murray
All right. Hey, Ryan, how's it going?
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Ryan James
Hey, great to see you.
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Lee Murray
So, you know, we're doing a series of the HBS online course and going through the modules, and the first module is about finance. It's more specific, talking about how we track financial success in organizations. And I couldn't think of a better person to bring on to talk about that then our bank CEO. So I appreciate you coming on and talking.
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Ryan James
Glad to help.
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Lee Murray
So let's just jump into the questions. We have just two or three questions here. We want to kind of get answered. And just from your perspective, running a bank. You know, I know, you know, bank financials are a little bit different than other businesses. Just based on the way your capital is deployed, how equity is made or tracked.
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Lee Murray
You know, the financials are a little bit different, but so try to translate them to us, you know, as much as we can. But let's let's talk about from your world. What financial measures does your organization use to track success?
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Ryan James
So I mean, I look at it actually different than a lot of my banking counterparts. I look at return on equity. So how much money do we make for our shareholders? You know, their money that they have put in and return on assets? Those two parameters, which more importantly, I kind of look at return on equity because, you know, what do we make compared to what our capital is?
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Ryan James
And I think that is one of the best barometers because, you know, shareholders that they've invested their money in to you as a corporation. You know, we're bank corporation just like any other business. We happen to be a subchapter S, but we're no different than another businesses way. That structure, we may have different liquidity. When you take on deposits, that's going to be different, but when it turns out to it, we look at how much we made throughout the year in relationship to our capital.
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Ryan James
So that's what I look at the most. And then, you know, we have a lot of assets. So we look at income and relationship to assets. So that's kind of measures, how far off they are. Where does that fall line spectrum where it appears or data? But you know, we don't really look as much at peers as you know.
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Ryan James
Is that a good return just like any other business?
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Lee Murray
Sure. Yeah. One of the metrics that they highlight is return on invested capital. And I think in your world, that's return on equity. And I'll just.
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Ryan James
Call almost one in the same. But yeah, go. Yeah.
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Lee Murray
I mean I'll just cover for a second just to highlight it. Talking about return on invested capital and they use the formula. Net operating profit after tax or nopat divided by invested capital gives you a return on invested capital. And they make the point to say one metric that's used to measure success is this that measures how efficiently a company employs its capital to generate profit.
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Lee Murray
So it's really about.
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Ryan James
Sounds exactly right. Return on equity. Yeah.
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Lee Murray
In your world is return on equity. Yeah and and then you know, diving deeper into that looking at what is invested capital I think that's where it really starts to get interesting in your world because of how how capital is used or leveraged.
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Ryan James
I mean, that was money raised to start a business or money invested. Whether you got new shareholders or for a sole proprietorship, you know, you you know how much capital you put in to buy the equipment, the facility, the location, the software. How much money do you have at stake? You know, if you've got you know, $100,000 at stake and you're making that 10% and 10% or good return.
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Ryan James
Yes. No, you know, 10% is a good return. If then, you know, you know, if you weren't an active participant. No. Making $10,000 a year and that's your full time job is a horrible return. But, you know, if you were to just passively give $100,000 to someone else and you get a 10% return, by all means, yes. You'd be happy with that.
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Lee Murray
Yeah, exactly. You know, in large part during this module, I actually just finished it up talking about creating value. And what does that look like and how how how do you determine what value is to a customer or to a supplier? And they said they kind of gave this phrase or sentence to say the values created when return on investment capital percentage is higher than the cost of capital.
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Lee Murray
And the cost of capital comes in two forms as a cost of debt and cost of equity. And, you know, one from the investor, one from the the interest rate on the debt. So, you know, value for the buyer is is a difference between their willingness to pay, which was a lot of what we studied and and the price and then the value for the investors difference between the the return on invested capital and the cost of the capital.
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Lee Murray
So with that, the next question I want to ask you is, do you use any non-financial metrics to measure success?
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Ryan James
Yeah, I do. Now return on equity, return on assets. You know that how you know, that's historical, that's what you're doing either currently. So, you know, how do you know what's going to be happening in the future? Are you going to continue or continually hit the return on it? If you're happy with your return, then what are some of the barometers to dissipate or do you need to change that?
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Ryan James
So let's think about that for us is we're a bank. It would be retention of customers, you know, so if you've got a decay rate of customers, more so than you're putting on, that would be a bad factor. Then you would see, okay, your return on equity may be eroded the future. So look at that efficiencies within your products.
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Ryan James
How are you doing? You know, as you're growing, you know, in my mind you should be incrementally netting more as you're growing. You know, if you have more capital, you have more assets, then hopefully as you scale, you incrementally should be widening that profit margin, you know. So I kind of like it that but employee retention I think would be huge.
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Ryan James
And then too, if you've got some known expenditures that you know are hanging out there that your capital do that, you know, or bank we have you know everything or on accrual status so we know our return on equity is based in you know our expenses are already in there and, you know, future expenses or payables, you know, we've already got that factored into it.
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Ryan James
But, you know, a lot of small businesses, you know, they may be doing well this year, but are you doing well enough to afford that new equipment that you have to have next year or that new roof or that, you know, you know, all that those maybe capital expenditure is, you know, are you truly making enough to cover your future cost that you know now?
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Lee Murray
Yeah. Like advancing, you know, building out your team, adding that new next team member that's going to take you to the next level, you know, investing in the things that can help you expand your current accounts. When you talk about retention, you know, you have current keep, maybe sometimes key accounts. How can they be expanded? What are the services?
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Lee Murray
Can you offer them that they're not currently, you know, taking taking in, you know.
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Ryan James
And establish a business and you've passed that, you know, marker of okay, we were we weren't making any money because we had to hire new employees. We had to get to a level of new customers to benefit. After that, as you're expanding, you know, I just see businesses always think like, oh, we're investing in our future. That's why we're not making any money.
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Ryan James
Okay, well, I mean, doing that for so long. Maybe you're investing in the wrong places. You know, there shouldn't. Yeah, you should have a continual down stream of income. You shouldn't have. Oh, I'm investing so much that I have negative income. You know, you better have a strong plan in there.
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Lee Murray
Better be a better be very innovative.
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Ryan James
Yes, you know, it better be. But you know, I get to see the insides over the years of financing businesses and, you know, seeing that and I can tell you a lot of times when we loan interviews, the business owners, oh, well, you know, we invested in our business. You know, that's why we're negative. Okay. What did you invest in?
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Ryan James
And we're that go out of expenses, you know, did you buy things that are going to make you produce faster? You know, if you buy things to help reduce future employee cost, you know, to you know so yeah it's but on really that that's what also helped me running the bank is also being a commercial lender prior to being CEO of bank is seeing how everybody else has been running their business and and what they deem was important to them and which ones truly were financially stable and profitable.
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Lee Murray
Yeah. You can't help but pick up all kinds of knowledge and wisdom talking to business owners and seeing them make mistakes and seeing them do good things. To not take that back and make your bank better. I mean, that's you know, and I see you do that, too. I mean, to to that point, not to be missed. I'm glad I remembered.
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Ryan James
I remember the things I would preach to them and also, I was a commercial lender, you know, really early on. So, I mean, I may have told them something and like give you like, okay, you young kid, you don't know what they're talking about. So, you know, then, yes, when I'm in charge, you know, you need to put your money where your mouth is.
00:10:07:11 - 00:10:12:07
Ryan James
Mm. They need to do sales. I'm actually doing you know. And that's.
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Lee Murray
Right. Yeah. Well I wanted to mention to before you hang up is that, you know, it's, it's awesome to have this conversation with you about return on equity because the last two quarters straight you were number one in return on equity for all the banks in Florida. So that's pretty that's pretty amazing. So talk we're we're talking to somebody who actually is doing to your point like you probably had a aha moment back when you were younger.
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Lee Murray
So again, I actually have to do this in my business and not just tell people, you know.
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Ryan James
Over the last five years, you know, we're number one in Florida. There's been ones that and it's been agency like we've been progressing due to and we're getting better and better and the banks that have you know, performed higher on metrics throughout the years, at one time, boom, they had like one hit throughout that year. They did well the next year they can replicate next year they can replicate.
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Ryan James
So they weren't like building on the same thing. So it's been nice to see like what we've put in the place, the markets we've gone into, we've been able to continually build on and get efficiencies and retain customers and build from those customers and expand with our customers. And so yeah, yeah.
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Lee Murray
Building these little profit centers.
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Ryan James
Yeah. ABS Absolutely. You know, I mean, there's a lot of things that we can do as a bank products, the metrics and, you know, the you know, it's funny out there you fintech fintech world is funding banks or fintech we're always financial technology it's you know, so yeah, we're part of that ecosystem and yeah, we're enjoying it and on the best side is our customers are going to benefit and good things to say.
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Ryan James
And you know, we keep expanding in there and in our niche businesses. I mean, very rarely do we lose a customer so that, you know, a lot of times that we've seen where we've lost customers because they sort of business are retired. And so that's been really great to see. Yeah.
00:12:26:07 - 00:12:48:07
Lee Murray
Yeah, that's awesome. Well, thanks for taking the time to have this conversation and I'm excited about having the series go live here in a few weeks through the mom and anybody who wants to keep talking to Ryan, reach out to him and talk more about return on equity. You know how to build your business. It's great resource to go to all all his information below.
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Ryan James
TRUMP Thanks for having me.
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Lee Murray
All right. Thanks a lot, Ryan.
