I sincerely believe that every bank could improve performance with an effective strategic plan. But, the cost to smaller banks makes it very difficult to engage a professional facilitator.
Young & Associates, Inc. has solved this problem.
We have developed a planning process for under $100 million banks that significantly reduces our cost, which we can then pass on to the client. This reduces the professional fee to approximately $5,450, and also significantly reduces or nearly eliminates out-of-pocket expenses. With this approach, the smallest bank can afford to have the leaders in strategic planning assistance, Young & Associates, Inc., assist in developing an effective strategic plan that will meet the needs of the bank and regulators.
While we will use a methodology that focuses on the unique needs of your bank, the process will include the following steps:
- The lead facilitator will have a discussion with the president to develop a detailed situational analysis.
- We will request current balance sheet, income statement, budget, and other pertinent data from the bank.
- Our bank analysts will analyze bank data and pertinent peer data from the Uniform Bank Performance Report and other material from our database.
- The analysts will then develop a Peer Analysis with historical graphs. In addition, a five-year projection will be made that reflects future net profit, capital, ratios, and most importantly, shareholder value. This program also provides the ability to project the impact of expansion, stock repurchase, debt, or new stock issues.
- After a thorough review, your facilitator will develop an outline of primary talking points.
- These talking points will then be discussed with the bank president or a small planning committee from the bank. This could be done at the bank or via telephone conference. If done by telephone, out-of-pocket expenses can be nearly eliminated.
- The facilitator will then write the plan as a draft, which will be E-mailed to the bank. After bank input, corrections or changes will be made, and a second draft will be E-mailed. This process will continue until the finished project is approved.
- The strategic plan is then bound and sent to the bank.
We are very excited about this new program and pleased that we can offer professional strategic planning assistance to smaller banks in a cost-effective manner.
If you would like to discuss this service, please contact me at 1.800.525.9775 or click here to send an Email. |
I have had the pleasure of working with numerous community banks across the country in developing a strategic plan. In almost every case, I have found that bankers have established goals that (1) realize a reasonable return for their shareholders, (2) serve the banking needs of customers in a friendly and efficient manner, and (3) provide employees with a comfortable and rewarding place to work. While the objectives, strategies, and/or tactics are often different, the three points mentioned above, in varying degrees, are always present.
It has become clear that there are certain principles that often determine the success of the strategic plan, and more importantly, the bank.
The 10 principles of strategic planning are:
1. There is no value in a strategic plan. Value is achieved when the plan is implemented to the benefit of the bank. Therefore, value is in the implementation not in the plan itself. Too many planning retreats focus on the wish list of what the bank would like to accomplish. However, without a clear plan regarding who is going to do each item, with what resources, and when it will be accomplished, most items on the list won’t be completed. You will have a good strategic plan that has no value. Furthermore, participants lose confidence in the process, which of course is a negative. By focusing on implementation, you will develop a plan that adds to profit and shareholder value (see point 2).
2. Shareholder value is king. I sincerely believe this. I know that taking care of customers, employees, and the community is important. But in many, if not most, situations, without shareholder value, it is a matter of time until the bank is sold. If shareholders are well cared for, you have the opportunity to continue the good work of serving customers, employees, and community. I have yet to see a bank sell because it couldn’t meet the needs of customers. When planning, examine the impact of decisions on value. Remember that an increase of $100,000 in net income improves shareholder value by $1,300,000 assuming a 13 price-earnings multiple; that core deposits have more shareholder value than Federal Home Loan Bank borrowing; that a diversified loan portfolio has more value than a heavy concentration in the portfolio; that branches provide value in addition to the net income generated, etc.
3. A strategic plan is not about predicting the future, but making the future. If you believe that you must be able to predict the future to complete an effective strategic plan, forget it. It can’t be done, at least not effectively. A strategic plan assists you in making the future. That’s why I like to ask plan participants, “If you could plan the perfect future for your bank, what would it look like or be like in five years?” The goal is to then build strategies and tactics to deliver the consensus of that perfect future. Of course, there will be deviations from which a change in course will be made. We call that good management, and it is why the plan needs to be a living document, and a plan that is reviewed regularly.
4. There is no one best plan for every bank. I have seen successful banks run in an extremely conservative manner and in an extremely aggressive manner. There is never one best way. Whatever the strategy, I can give you an example of a successful bank that took a different position. The key is to have a consensus in strategy that exists between the board of directors and senior management. I don’t mean that there needs to always be agreement on issues, but there should be agreement on the basic core values that lead to direction. If you read in a banking publication something that infers that all good banks are doing this, but it is opposed to your core values, don’t do it.
5. Goals must match infrastructure. This seems very basic, but it is often overlooked. Simply stated, do you have the operating systems, physical space, capital, and people to achieve your goals without adding an inordinate amount of risk? If not, you should add to the infrastructure prior to focusing on the goal.
6. Corporate culture is a powerful thing. I know that during a planning retreat it is helpful to remove the blinders and think creatively. Occasionally, everyone must adapt to change. However, be mindful of the bank’s culture. It is a powerful thing. I can give you numerous examples of a new president, chief lending officer, operations officer, etc., who brought good ideas that didn’t fit the culture of the bank. The disastrous results are not because the idea was bad, nor because people would not change, but because there was a clash of culture. I often see this when banks decide to buy a related business, or recently when a bank and thrift completed a merger-of-equals. It seems so similar, but cultures are very different. And, the results are so predictable and bad. Do not avoid these ventures, but understand the difficulty and plan accordingly.
7. Don’t overlook the easy options. We spend so much time on ventures that can add to profit and shareholder value. This time is needed because these ventures add a significant amount of risk. But, we often overlook the easy choices that add to profit and shareholder value without adding significantly to risk. As an example, for many banks that have more capital than needed, a stock repurchase plan can provide a significant increase in shareholder value without a significant increase in risk. Plus, shareholders that want or need to sell at a fair value have a ready buyer. Take advantage of this type of activity.
8. Be cautious about this year’s “thing that every good bank should be doing.” Since the late
60s, I have seen periods in which the consensus was that only in-store branches made sense, and that in-store branches made no sense. I read a banking article in a Chicago publication stating that regional banks have found a new approach to growth – branching. I’m sorry, but community banks have been using that concept for – well forever. Finally, wasn’t it in the late 90s that we read that the majority of banking would be completed on the home computer? Obviously, it is important to stay current. But, consider products in terms of the above, especially that shareholder value is king. If the new product will add to shareholder value, that product has value. If it doesn’t add to shareholder value, postpone the product.
9. Asset quality can kill you. Discussing asset quality is not as exciting as many other issues. But, nothing will derail a bank’s plans more quickly and more completely than asset quality problems. Even though loan growth drives asset growth, which is a key component of bank success, we must remember to aggressively seek and conservatively underwrite. If you lower underwriting standards to achieve the desired growth, it is a matter of time until you get hurt.
10. It is not imperative for a good bank to have a strategic plan. I was once asked by a regulator, “Don’t you think to be a good bank, a bank must have a strategic plan?” To that I answered, “No.” I have seen many well-run banks without a strategic plan. I’m sure that you have to. However, I do believe that every bank could improve even further with a strategic plan. That is the key – to continue to improve for the benefit of shareholders, customers, and employees.
In Conclusion
And with that, we have come full circle. The strategic plan should assist the bank in reaching the goals of: (1) realizing a reasonable return for their shareholders, (2) serving the banking needs of customers in a friendly and efficient manner, and (3) providing employees with a comfortable and rewarding place to work. I hope that you will consider these concepts as you complete your next strategic plan. Also, if you are considering a facilitator, I hope you consider Young & Associates. If you would like to discuss this article or the strategic planning process, please call Gary Young or Jim Kleinfelter at 1.800.525.9775.
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