Plan for the Coming Good Times: What Will Your Bank Look Like in 10 Years?

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Plan for the Coming Good Times: What Will Your Bank Look Like in 10 Years?

By John Ginovsky

Whether you believe the economic recession has bottomed out already or it has a way to go, the simple fact is that sooner or later, an economic recovery will come. Bank boards of directors should start now to plan strategically for the future.

"Our staunch belief is that now is the time to plan for the recovery. It's time to start thinking, planning and acting like the bank you want to be on the other side of this recession," said Michelle Gula, CEO, m.rae resources inc., a financial services advisory firm based in Bethlehem, Pa. "Have you planned accordingly to ensure you have not made the same mistakes of the past? Can you repeat your successes in the future? It's always imperative to plan for the next cycle in the midst of the current one," she said.

Gula and Jay Brew, chief bank strategist at the firm, outlined steps community banks can take now to set up strategic plans that extend at least 10 years into the future. They spoke during a recent ABA telephone briefing, "Boards and Strategic Planning in a Challenging Environment," co-sponsored by America's Community Bankers Council and ABA Bank Directors Briefing. Click here for more information about the telephone briefing.

Steps boards should do now include:

• Quarterly back-testing. "This is when you go back and review how your projected results compare with your actual results," Gula said.
  
  Things to look for include: Proper assessment of credit, capital and liquidity risks; sensitivity to changing market values; threats to earnings; surprises; adequacy of whatever industry standards or sources that were used; true independence of third-party advice; and input from regulators.
  
• Modeling. "Modeling is a way to move from intuitive thinking to a strategic way of thinking. You can have all sorts of great ideas during your strategic planning but it is crucial to be able to take those ideas and model their impact on your bank and the value that will be created," Brew said.
  
  For example, a modeling exercise of a given scenario should produce a 10-year forward balance sheet and income statement, and estimates of the results of a growth strategy and what impact that would have on capital. In fact, Brew said, "we all believe that capital requirements are going to be going up and capital adequacy is going to become a big issue in strategic planning."
  
• Risk assessment. "Ask yourself, what have we learned about our risk profile during these turbulent times?" Brew said. "Have the regulators raised any issues? How can you transition your risk profile to a level that all the board members are comfortable with?"
  
• Review and renew policies. Too many banks just maintain "legacy policies" that are modified slightly from time to time, Brew said. "This is an opportunity to start from scratch and develop policies that are in tune with the times and with risk parameters that are dynamic," he said.
  
• Uncover opportunities. "Long-term planning enables you to transition to a risk profile that clarifies how to evaluate and take advantage of new opportunities as they present themselves," Gula said. Over a 10-year period, for example, boards may consider strategies to expand their branches, acquire new customers who are dissatisfied with their current banks, or find ways to expand account relationships with current customers, she said.
  
• Assess tools and structure. For that bank of the future, do you or will you have adequate systems for training, technology, communications and core-relationship building? Gula asked.
  
• Assess management. "Questions to ask include: Is the CEO capable of carrying out the strategic plan? Do you perceive the need to increase the depth of the management team? What senior management team positions should be created over the life of the plan? … The management team will make your strategic plan happen," Brew said.

While it may be daunting for a board to plan 10 years in the future when it doesn't know what will happen next quarter, it is extremely important to do so, Best said.

"It is imperative as leaders of your bank and the communities you serve that you show your commitment to the future," he said. "While so many people are worried and fearful, long-term strategic thought displays your leadership."

Added Gula: "One risk that is not [usually] discussed is the risk of not being ready. Are you ready for the new business that will come your way?"

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Supplement Staff:
John Ginovsky,
Managing Editor; 
Deborah Powell,
Designer

Contributors:
Pat Dalton, Keith Leggett, Laura Fisher