Business Finance
Towson University Rivals in the Market of Howard Bank Discussion

Towson University

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Business Case Analysis Company Background Headquartered in Baltimore, Maryland, Howard Bank operates the region’s largest independently owned banking business with approximately $2.2 billion consolidated assets through its 15 branches located throughout the Greater Baltimore Metropolitan Area. Howard Bank’s mission is to help build enduring legacies for its customers, employees, and community. It will achieve this by combining expertise with experience, staying committed to its values, and dedicating to building lasting relationships with the people it serves. Howard is a commercial bank aimed at supporting the community’s small to medium size businesses, business owners and their families, and the next generation of business owners/entrepreneurs. At the same time, Howard bank resonates with a “community bank”. It is agile enough, unlike other regional and national competitors, to be extremely invested in the local communities that it serves. Since the bank is founded mostly on serving businesses, it has divided its commercial targets into three categories based on servicing needs relative to the size and loan requirements of the businesses (see the table below). Channel Branch Business Banking Small Business Banking Commercial Business Banking Revenue Size Revenues up to $1,000,000 Revenues between $1,000,000 - $5,000,000 Revenues in excess of $3,000,000 Loan Size Loan commitments up to $250,000 Loan commitments between $250,000 - $1,000,000 Loan commitments in excess of $1,000,000 Howard Bank provides the following list of products and services: • Consumer Products & Services o Checking Accounts o Savings Accounts ▪ Money Markets ▪ Certificate of Deposits (CDs) ▪ Health Savings Accounts (HSA) o Credit Cards o Personal Loans & Lines of Credit ▪ Home Equity Line of Credit ▪ Boat Loans ▪ Auto Loans ▪ Overdraft Protection ▪ CD Secured Loans ▪ Signature Line of Credit o Online Banking ▪ Bill Pay ▪ eStatements o Mobile Banking ▪ Mobile Deposit ▪ Mobile Payments • Apple Pay • Google Pay • Samsung Pay ▪ Manage My Cards ▪ Real-Time Account Alerts ▪ Zelle (Coming in May 2020) Additional Information about these products and services can be found at www.HowardBank.com Additional details on Howard Bank’s background are provided on its website https://www.howardbank.com/banking-with-us/about Instructions: 1. Read the case description 2. Answer the questions below in 1-page essay (double spaced; 12 point Times New Roman font; 1 inch margins on top, bottom, and sides). If you need more space, it is fine. All exhibits and references should be at the end. 3. Please make sure to provide references to support your statements. Questions: 1. What is Howard Bank’s competitive advantage or disadvantage over rivals in the marketplace? - Note: Value, Rare, Imitability, Substitutability (VRISO) framework should be helpful. Rubric for evaluating the assignment: Outstanding (9-10) Key competitive advantages are described and thoroughly explained. Value chain activities and interrelationships are accurately described and the explanations are provided. The target market is defined and a thorough, logical explanation is provided. More than 50 potential clients have been contacted and interviewed. Sufficient information was collected from them. Assignment conforms to specifications. Acceptable(6-8) Key competitive advantages are described and explained Value chain activities and interrelationships are accurately described. Unacceptable (5 & below) Key competitive advantages are described, but not explained Value chain activities and interrelationships are not accurately described. The target market is defined and an explanation is provided. The target market is not provided or provided but poorly supported. At least 50 potential clients have been contacted and interviewed. Sufficient information was collected from them. Assignment conforms to specifications with minor discrepancies. Less than 50 potential clients have been contacted. Assignment does not conform to specifications. Banking Industry The primary market for Howard Bank is the Greater Baltimore Metropolitan Area, but to gain market share over national level competitors it is important to have some understanding of the Industry and the customers at all levels. At the national level the banking industry is looking strong and predicted to steadily increase through 2023. The U.S financial market is still the largest in the world and is profiting from a strong global economy (Schlumbohm 2020). The total revenue for U.S. banking and finance in 2019 was $2,070.7 billion, growing 2.2% from 2018 (Schlumbohm 2020). In 2012 the total number of financial firms has steadily increased from 101,516 to 103,336 in 2016 (Schlumbohm 2020). Barring any major fallout from the Corona virus or some other major financial crisis, the banking industry is predicted to grow 1.7% annually from 2018 to 2023 (Schlumbohm 2020). In the state of Maryland for 2019, Howard Bancorp had $1,722.4 million in total deposits, or about 1.15% of market share, increasing almost 10% from 2018 total deposits of $1,568 million (Howard Bank 2020). The major competitors that are also based in Maryland are Sandy Spring Bancorp, which has 49 branches in Maryland and in 2019 had $7.161 billion in total deposits in market, and Eagle Bancorp, which has 6 branches in Maryland and in 2019 had $3.407 billion in total deposits in market (Howard Bank 2020). Main Competitors According to S&P Global,(S&P 2020) Howard bank is ranked 6th among banks in deposit market share in Howard county while being the 2nd largest Maryland-based bank in that group. Some of their larger competitors are banks such as Bank of America , M&T bank, and PNC Bank. In Howard county There are 71 bank branches and only 3 of those belong to Howard bank. Bank of America, for example, has 9 branches while M&T has 7. This is evidence of a highly fragmented industry with many competitors chasing after the same customer. Based on these findings we see Sandy Spring Bank and Fulton Bank are the top 2 competitors. The reason for this conclusion is that the banking industry has 2 types of banks. One being a national bank and the other, a bank with local roots. For example, Bank of America has almost 5,000 (Via their website) and only 9 of those are in Howard banks market. With their headquarters in North Carolina and less than half a percent of their branches Howard County, their growth and relationships are clearly not front and center for this large corporation. However local banks such as Sandy Spring and Fulton, have local roots and important relationships in those markets. Therefore, those two local banks are Howard Banks top competitors. When analyzing the competitive landscape in the banking industry in the United States, and more specifically in the state of Maryland, and even more specifically the counties in which Harris Bank operates, it is important to acknowledge Porter’s five forces that affect pricing, and ultimately profitability. Over the years the products in the banking industry have become somewhat commoditized, driven by ease of access, technology and interest rates, and less about relationships and value-added products. This has also moved the pricing power away from the banks and onto the end-user customer. While there may be some pricing power at the banks when it comes to technology vendors due to fierce competition, or real estate leasing costs for branches and offices due to supply of office space and a reduced number of tenants, the banks seem to be at the whim of their borrowers and depositors when it comes to pricing those products. Rivalry among competitors in the banking industry is rational, but fierce. There are numerous banks that operate in Howard Bank’s markets, many of them with either deep pockets or strong customer relationships. Many of their competitors have been listed here already, but it is important to note that each of them have certain advantages that could pose Howard Bank with serious threats in the future. Threats of substitution for Howard Bank’s products and services is real and gaining traction. Technology has made it easy to switch banks and find the best priced products, lowest rate loans and highest rate deposits, not only in Howard's markets but nationwide. Their competitors have been using technology to attract and retain customers from banks that do not have the wherewithal to keep up with the latest technology trends. Payments is another area that is threatening Howard bank, as services like Zelle, Venmo and Paypal take market share away from banks that historically had been using paper methods for transactions, such as cash and checks. In addition, crypto currencies are threatening the very foundation on which Howard Bank operates; money. When analyzing the buying power of the Banks’ buyers, it is important to take all of these things into account. The banks’ buyers, whether borrowers or depositors, have many competitors to choose from and given generally favorable current regulatory environment, and technology, can bargain their banks down to the lowest possible price. Yes, they are still constrained by general interest rates (which are market driven) but many competitors reduce terms and conditions and other such restrictions to capture market share. This puts Howard Bank in a difficult position and must keep up with the costly technological advances and efficiencies. On the other side the banks suppliers for technology and real estate, their two largest costs, are competing fiercely for market share as well. So, while Howard bank must spend to keep up with rapidly changing technology landscape, they do maintain some pricing power. And specifically with real estate, given the reduction in bank branches which has been happening for some time and should continue, we expect the banks ability to negotiate lower pricing for leases to increase. When looking across the landscape, it appears on the surface that the number of traditional banks is consolidating, and no new entrants are on the horizon, the new entrants on the technology side are many and spreading. Companies with deep pockets such as Facebook and Amazon have indicated their interest in participating in the payments industry and maybe even banking. While non-traditional banks such as Schwab and Morgan Stanley continue to make inroads on the markets to which Howard Bank had been the only game in town. For instance, deposits and CDs are now widely available through non banks online, and the ease at which customers can switch has only gotten easier. In the past, the paperwork and time would keep people in with their local banks, but more recently a click of the mouse, or a swipe of the phone could lead a customer to higher yields on their deposits, lower fees on the checking accounts or better terms on their loans. The landscape is changing very rapidly, and in order for Howard to address these important issues (all while their spreads and profitability is being pressured) it is imperative to be strategically thinking about how Howard will operate in the next ten years. There are many competitors of Howard bank in Maryland. The Banking industry goes bigger and they try to offer better services and products to people than other banks. So, now knowing competitors is really important to be competitive in the banking industry. This is an example of the five forces comparing a local competition. Local Competition: First United Bank & Trust is the one of the main competitors of Howard Bank. They have 15 branches in Maryland which is almost the same number as Howard Bank. The revenue of Howard bank is $89.1M, and First United Bank & Trust record $62.4M. They also have almost the same number of employees. However, Howard bank founded in 2004 and First United Bank & Trust founded in 1933. It means Howard bank shows a rapid growth than First United Bank & Trust. Threat of new entrants Both banks have been founded over 15 years, so they don’t have many threats of new entrants. However, these two banks are not number 1 or 2 banks in the United States. They still have some threats of new entrants. People usually don’t change their bank. So, these two banks need to make people choose their bank as a first bank. Bargaining Power of Buyers According to review sites, First United Bank & Trust has an easier customer service program. Customers can use all-day support and also have more options to get customer service. Also First United Bank & Trust have easier access to get information from their websites. I typed student loans on the websites, and First United Bank & Trust linked me to the student loan page, however, I couldn’t find any direct links to the student loan page of Howard bank. Both banks have many options of checking and saving accounts. First United Bank & Trust uploaded a chart to compare each different product. But Howard bank doesn’t have any chart. It means customers can get information easier than Howard bank. Bargaining Power of Suppliers: First United Bank & Trust manages $6 billion in assets and deposits totaling $5 billion in 2019. It is almost 6 times more than Howard bank. It means First United Bank & Trust has bigger economic structure and more stability. They have almost the same branches in Maryland, however, First United Bank & Trust have more strength in assets they can use. Threat of substitutes products or services: Banks do not have many substitutes. All banks have similar products, however, other banks may provide better and cheaper services to customers, like online banks. This is how, in some ways, other institutions can be a threat of substitutes. Barriers to Entry There are many barriers to entry when it relates to the new entry of a banking institution. Those barriers for financial service markets include licensure laws, capital requirements, access to financing, security, and regulatory compliances. Given that a financial institution such as Howard Bank is developing a unique but complicated relationship with their competitors, the perception of the bank and other financial entities are the driving force behind economic stability, and the competition among financial services is harmful to the efficiency of the sector. According to Saviotti & Pyka (2011), “that if a relaxation of the barriers concerning competition were to be present, then the financial products and capital structure would begin declining in loan costs while the interest rates would begin rising on accounts” (p. 42). It is also widely accepted that globalization and technology can alter the competition field with any financial sector, but an agreement to how that occurs isn’t agreed upon (Cetorelli & Strahan, 2006). Given that Howard Bank focuses more on the surrounding economy and helping small to medium businesses alike, the economies of scale could be another barrier of entry into the market. There are significant economies of scale already existing in the area. Then this could deter the new entrants of a smallscale financial institution. Also, if there is already a strong network of users on the value of the products being sold or distributed, then there could be limitations on the chances of the new facility gaining enough users for their products or services (Saviotti & Pyka, 2011). Barriers are generally the operations of principles, whereas the various firms in the industry utilize different strategies, assets, capabilities, access, and so forth. The barriers that Howard Bank faces could become dysfunctional if there is a higher incumbent that is virtually keeping them from competition or giving rise to monopoly or oligopoly. General Environmental Factors For the general environmental factors that may impact the success of the new project, I have broken the term “general environmental factors” into four subcategories: Economic factors, legal factors, political factors, and social circumstances. Additionally, I will be discussing how we will define success in regards to this project When researching economic factors that may impact our project for Howard Bank, the main point that I repeatedly saw was how much the financial crisis of 2008 affected the economy, and thus the banking industry. “Recessions can do real damage to banks via credit losses, declines in the value of other investments, reductions in new business revenue. Even worse, damage to banks cuts into credit availability“ (Elliott 2019). Secondly, I’d like to discuss the legal factors affecting this project. The focus of this project is to increase the number of freshmen at Towson University to open accounts at Howard Bank. This will increase the number of deposits in the bank, as well as aid in bringing down the average age of a Howard Bank customer. It is possible for a freshmen born in December to be 17 for the first few months of their time on Towson’s campus, and currently, people under the age of 18 may open joint accounts with a parent or guardian. However, if a law was to change, and you must be 18 years old to open a checking account, then acquiring new freshmen customers may be more difficult for the first few months of the school year. Additionally, ever changing labor laws in the state of Maryland may impact the success of our project. Wages paid to employees may increase, increasing overhead costs. Continuing on, there is one rather large political factor that may affect the success of our project, the upcoming presidential election occuring on Tuesday, November 3rd 2020. While current President Trump may be reelected, there is also a possibility that he is not elected, and we have a new President. While current President Trump has had some mixed reviews in regards to his time in office, his stance has always been pro business, specifically pro American business. A new, less pro-business President may usher in changes regarding specific banking laws, and increase internal operating costs. The increase in these costs may lower the profits of Howard Bank. The last environmental factor I would like to discuss are the social circumstances. In 2014, around two-thirds of high school graduates enroll in college within one year of graduation, and 84% of high income High School students enroll in college(EducationalData.com 2020). The median Maryland household income is $83,242, and the average household income for the whole United States was $61,937 in 2018(EducationalData.com 2020), meaning the average Maryland household is more wealthy than the average United States household. These households are considered high income, so one can assume around 84% of Maryland High School graduates attend college. In the fall of 2019, 2,313 of the 2,798 freshmen who enrolled in Towson lived in Maryland, or 82.6% (Towson.edu 2020). I present all these numbers to rationalize that going to college after High School is the norm in the State of Maryland, and a high volume of Towson’s incoming freshmen live in Maryland. If these numbers were to lower for any number of reasons, from Trade Schools becoming a more popular career path, to High School graduates choosing to open an online business due to the low barrier to entry rather to attend a four year school, you would have a smaller population of Towson freshman to potentially open accounts. The smaller number of accounts open would decrease the volume of deposits, which is the main problem of the case study we are trying to solve. Additionally, any unforeseen circumstances, such as a military draft during a potential World War Three lowering the incoming Freshmen class, or any unpredictable changes must be considered when planning for the future. Finally, I want to define the phrase “Success of the New Project”, mainly the term success. While in an ideal world, my group will come up with an amazing proposal that will increase the number of Fre ...
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Final Answer

here you go hun, if no revisions are needed have a blessed day and goodbye

Running head: RIVALS IN THE MARKET

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Rivals in the Market
Instructor
Class
Date
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RIVALS IN THE MARKET

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Rivals in the Market

Howard Bank’s main competitive advantage is based on products and service
differentiation. This is the provision of offering unique and valuable products to serve in the
banking industry that is beyond that of the simple lower pricing scheme that other competitors
enact. Howard Bank enhances performances while ...

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