Management & Planning Archives - Page 2 of 5

Succession Planning Strategies for Developing Your Leadership Legacy

Written by admin on October 19, 2023. Posted in Advice, Consultation, Management & Planning, Succession Planning.

By: Clarissa Sinchak, PHR, Director of Human Resources

An aging workforce is an increasing concern for many financial institutions, but with thoughtful planning and a solid road map in place, it is possible to leverage the strengths of these invaluable, loyal, and tenured employees while concurrently planning for the future and growth of your organization.

Understanding Workforce Age Trends and the Road Ahead

According to recent studies, the baby boomer generation, comprising individuals aged 57 and older, reflects nearly 20% of the overall U.S. workforce population. However, according to the Bureau of Labor Statistics, this same group of workers represent an even higher percentage in the financial services and banking industries – nearly 24% of the overall workforce. As such, it is important for business leaders to address this demographic shift proactively to ensure continued success of their organizations.

While the expertise of older employees is incredibly vital, there are some key challenges that an ageing workforce presents as it relates to sustaining the future of the company. Naturally, as senior employees retire, financial institutions may inevitably face a skills gap if there are not enough younger employees with the necessary skills and experience to fill these roles. This can have a negative impact on the overall morale and ultimate retention of these younger workers, not to mention an adverse effect on the continued growth and stability of the company. So, what can executive management do to help mitigate this issue?

Proactively Managing the Challenges of an Aging Workforce

To address the challenges of an aging workforce, financial institutions must adopt proactive strategies. First and foremost, focus on upskilling by providing training and development opportunities to help newer employees acquire new skills and adapt to evolving job requirements. Secondly, transfer knowledge! The natural attrition of experienced employees that all financial institutions are facing can result in a loss of institutional expertise, so it is crucial to facilitate knowledge transfer from retiring workers to younger ones.

This can be accomplished through structured training, ensuring that this valuable expertise remains within your institution. Seasoned employees bring decades of wisdom as well as unique perspectives and ideas to the workplace. They can serve as mentors and advisors to their younger counterparts, contributing to their development. Additionally, older workers also have a clearer understanding of the needs and preferences of your valued and loyal long-term clients, which can provide a competitive advantage when training their successors.

Where to Begin: The Foundation of Succession Planning

The question then becomes, “Where do we start, and how?”. Planning for leadership transition via succession planning is the answer to ensure long-term success and stability of an organization. But what exactly is succession planning? Simply put, it is the process of developing a program to identify and prepare younger employees to take on leadership roles as their more senior counterparts retire.

Effective succession planning in financial and banking institutions reduces the harsh risks associated with leadership turnover, helps maintain overall institutional knowledge, and ensures an ongoing pipeline of qualified leaders who can navigate the ever-changing and highly regulated world of banking. In other words, succession planning ultimately contributes to the long-term stability and success of the industry and is crucial for guaranteeing a smooth transition of leadership while maintaining continuity in key positions.

Most organizations believe in the practice of succession planning, but many lack a standardized process for executing it. Or, if such a process does exist, typically too much time is spent on this traditionally time-consuming process. On the flip side, it’s not as simple as identifying, training, and placing employees.

Therefore, to begin the process of developing your financial institution’s future leaders, we recommend incorporating succession planning into your current performance management process. This strategic approach allows you to identify and develop your potential future leaders and create a talent pipeline that ensures a smooth transition of leadership and key positions. By aligning your company’s core competencies and the outcomes of your employee evaluations with your succession plan, you can ensure that you have a pool of qualified workers to fill key roles when transition time comes. This results in a methodical and proactive approach to leadership development.

Implementing Succession Planning in Your Financial Institution

To help you begin this process, we have outlined ten key steps for developing an effective succession plan for your financial institution:

1. Align the Succession Plan with Your Financial Institution’s Goals

Begin by aligning your succession plan with your institution’s strategic goals. Identify the key positions throughout the entire organization that are critical to achieving those goals and prioritize them for succession planning. Typically, these are C-suite roles (CEO, COO, CFO) and other key executive positions, but remember to consider leadership roles at lower levels that are critical to your bank or credit union’s success.

2. Hold Succession Planning Meetings with Leadership

Hold planning meetings with the key stakeholders of your financial institution as part of your talent review process. During these meetings, discuss the progress of high-potential employees, review their career development plan, and identify potential successors for critical positions.

3. Define Key Positions

Start by identifying critical roles within the organization that require succession planning. These are typically leadership, management, or specialized positions that are essential for the institution’s success. Clearly outline the criteria, competencies, and qualifications required for individuals to step into these leadership roles. Develop contingency plans for unexpected leadership openings. Identify interim leaders or backup candidates who can step in temporarily while a permanent replacement is identified and groomed.

4. Communicate and Ensure Transparency

It is crucial that you ensure employees are aware of the succession planning process and its importance within the institution. Make sure to incorporate this discussion into your performance evaluation meetings with your team. Transparent communication can motivate employees to actively participate in their own development. It also fosters engagement which is critical in retention.

5. Conduct Ongoing Performance Discussions

Conduct regular performance meetings, not just as an annual evaluation tool, but also as a forum for discussing an employee’s progress toward their development goals. Use their reviews to provide feedback and adjust their career development plan as needed. Managers should provide guidance on how employees can prepare for future roles.

6. Identify High-Potential and High-Performing Employees

Within your performance evaluation process, assess and identify high-potential and high-performing employees who have the skill sets, competencies, and interest to fill the previously determined key positions in the future. This can be done through performance reviews, ongoing feedback, and in-depth goals discussions.

7. Create Individual Career Development Plans

Work with the high-potential, high-performing employees you identified to create Individual Career Development Plans. These plans should outline their career goals, areas for development and improvement needed, and the training and experiences needed to prepare them for future roles. Also, set clear performance goals that are directly related to the competencies needed for succession in key positions. These goals should be specific, measurable, achievable, relevant, and time-bound (SMART).

8. Assign Senior Mentors

Assign mentors or coaches to the employees identified as future leaders. Seasoned mentors can provide guidance, share their knowledge, and help employees develop the skills necessary for future roles. This can be done through workshops, seminars, and on-the-job training. Also, encourage cross-training and job rotations to expose high-potential employees to different areas of the organization and broaden their skill sets.

9. Regularly Monitor Progress

Continually monitor the progress of your succession plan and adjust as necessary. Succession planning is an ongoing process that should evolve with changing organizational needs.

10. Ensure Consistency and Ease of Use

Having an uncomplicated, consistent process makes it possible to maintain objectivity across all departments. To develop a comprehensive succession strategy that will benefit your financial institution, executive management must recognize that each institution needs to develop a process that fits its own specific strategic goals and objectives.

Ultimately, it is important to remember that a successful succession plan should be flexible and adaptable to changing circumstances. It’s an ongoing process that should evolve as your community bank or credit union does. By investing in developing your leadership legacy, you can build a strong and capable leadership team that can direct your financial institution into the future.

Partnering with Young & Associates for Succession Planning

At Young & Associates, we understand the unique challenges and opportunities faced by financial institutions in managing an aging workforce and preparing for leadership transitions. Our team of seasoned experts specializes in providing comprehensive consulting services tailored to the specific needs of banks, credit unions, and other financial institutions.

Don’t wait until the challenges of an ageing workforce create disruptions in your institutions. Partner with the Y&A team to develop a robust succession plan that guarantees a smooth transition of leadership, maintains continuity in key positions, and contributes to the long-term stability and success of your institution. Get in touch with us today to discuss your specific needs and challenges.

Embracing New Technology ̶ “Lead, Follow, or Get Out of the Way”

Written by admin on July 27, 2022. Posted in Information Technology, Management & Planning.

By: Bill Elliott, CRCM, Director of Compliance Education

I have been teaching for Young and Associates for over 20 years. Twenty years ago, when I asked about “the percentage of customers that enter your lobby in any given month,” the answers I got from attendees were usually around 80%. Twenty years later, the answers are almost always under 25%. Just recently a banker in a seminar told me that they have a branch that has almost no foot traffic.

The reason for this change is obvious ̶ why go to the bank or credit union when you can do it electronically? And the generations of customers coming up are more than willing to figure out how to do it on their smartphone. Since banking via your smartphone is readily available to anyone who has a decent cell signal, it is hard to argue with that position.

The problem for financial institutions is the constant struggle with technology and finding ways to leverage it better and faster. And the last two years of COVID have exacerbated the problem greatly, as customers were either reluctant to leave their homes, or institutions were unable to service customers except through perhaps the drive-through window. The result of all this is that some financial institutions have lost customers due to the lack of technology, while others have done very well because they had the technology available and could enable it to serve their customers.

Another question I ask in seminars is, “How many of you believe that you will get to retirement before your institution is opening accounts online?” If I have a 60-something person in the crowd, maybe I will get a hand raised. For everyone else, they can see it is either here or coming soon.

Embracing Change
Management sometimes is reluctant to embrace change, which is understandable, as few enjoy it. But not changing may come at a cost that your organization is not willing to pay. To remain independent, financial institutions must step out of the comfort zone of, “We have always done it this way” and embrace the technology necessary for their survival and for their consumers’ needs. Pretending that it simply isn’t going to happen will not work ̶ it has already happened.

One of our clients is situated in an area where cows outnumber people three to one. Around 90% of their mortgage applications come in electronically and the bank encourages applicants to do it electronically, as that speeds the process up. A loan that closes faster means that the organization makes more money earlier, certainly a worthwhile goal.

On the deposit side, watch any football game, and major financial institutions tout the abilities that are available to the customer using their smartphone. One bank indicates that you can open a checking account online in five minutes. I’ve never tried it, but since the average customer takes more than five minutes to choose their check style, I’m not sure it is 100% accurate. But it is the wave of the future, or perhaps I should say the wave of the present.

Tips to Consider
After you decide why your organization wants to invest and leverage new technology (gain more customer insight, improve customer experience, penetrate new markets, etc.), here are some basics that you need to consider:

First, what systems are available that interface easily with your core processing system? If you cannot interface, you probably ought not be interested. The goal is to make everything flow from space to space to space with a minimum of human intervention, with high-quality information at each step to support why you are making this investment. While admittedly that means your staff must pay attention to get everything correct early in the process, once you do that, completing the transaction should be fairly simple. If your core processing system supports very little that would be useful to you in this new electronic banking world, it is possible that you may need to consider replacing it with something a little more flexible.
Second, you need to have the ability internally to manage the new processes and technologies. And you need to ensure that you have the training available to your staff so that they understand their role and responsibilities necessary to support your customer base.

There is no question that all this costs money ̶ but not doing anything also carries costs. Some of the cost of new technology may be offset by closing branches that are not necessary as these new delivery systems grow and mature. Closing a branch has its own real dollar costs, and management must assure that the closure will not impact the organization’s Community Reinvestment Act or fair lending positions. All this needs to be considered – and maybe discussed with regulators – before closing a branch. And even if you do not close a branch, some savings is possible with a reduction in your overall staffing levels.

I personally have a checking account that I really don’t need anymore, but I have several bills paid out of that checking account directly. Since the account is free, I’ve never bothered to do anything other than adequately fund the account, because moving all those transactions to my “main” checking account seems just too cumbersome. So, the technology keeps me a customer.

Once customers begin to intertwine bill pay, budget models and other products, they may think long and hard before unpacking all these services to move the account and business somewhere else. The digital experience is just as impactful to the overall customer experience as face-to-face contacts. And an integrated digital platform may help retain customers that may not be thrilled with your organization; however, the digital experience becomes so difficult to “unpack” that they accept their pain points and continue to remain customers. This retention provides you the time to address their pain points and transform them into advocate customers speaking highly of your quality of services to others.

“Lead, Follow, or Get Out of the Way”
Years ago, I heard the phrase, “Lead, follow, or get out of the way.” That certainly is our world today. Your best possible position is to be a leader. If you choose to follow, you may do just fine. But if you try to simply get out of the way, you may find yourself in a difficult position. So, you must consider your options here, and frankly do it very quickly.

Many in the industry are talking about Banking as a Platform (BaaP), Digital Transformation, and Banking as a Service (BaaS). These are all different concepts, yet all very relevant and available. It is our hope you make the choice to “lead” or “follow” closely and have your customers or new markets choose you for banking services. Please do not “get out of the way,” as it will be more challenging for you and your organization in the long run. Given how quickly technology and related issues advance, the “long run” is now measured in shorter and shorter time frames.

For more information on this article and how Young & Associates can assist your organization to position your organization to leverage technology to better serve your customers, contact us at mgerbick@younginc.com or 330.422.3482.

ADA Website Compliance, 5 Key Tips

Written by admin on November 10, 2021. Posted in Information Technology, Management & Planning.

By: Mike Lehr, Human Resources and Sales Consultant

Banks must make their websites accessible to individuals with disabilities. That is how federal courts have interpreted the Americans with Disabilities Act (ADA). We have found five key tips go a long way to doing that. Ironically, software scans measuring accessibility don’t do this successfully.

That’s a key, key lesson: do not rely on scanning software to determine whether your site is accessible. Again, do not rely on this software for determining accessibility. In our audits and discussions with attorneys who have defended clients in lawsuits, these results are almost useless. What holds up best is the testimony and tests of sight-impaired users (SIUs) who have used the website. Nothing compares to observing a SIU running through a site. That’s because the WCAG 2.1 and Section 508 guidelines – used as the basis for compliance – have many interpretive elements to them. Yes, some we can quantify and code. About half we can’t. Images make the simplest examples. Scans state whether an alt-text exists. They can’t tell though whether the alt-text is necessary or even useful.

This doesn’t mean scans don’t help. They do. They look at the entire site. A human audit is just that, an audit, meaning it looks at a sample. Scans give one input to developing the site’s audit plan.

The Five Tips

We can summarize the five tips that go a long way to ensuring a site’s accessibility as easy navigation, useful alt-tags, and proper coding practices. The tips focus on SIUs rather than other disabilities because not seeing the site – or seeing it well – is the most difficult challenge to overcome even with good hardware.

1. Navigation Menu – Only One

Websites have many ways to navigate them. In addition to the traditional horizontal menu, mobile menus (hamburger menus) also exist. Sites also employ vertical menus on the left and right sides of the page. They also use fly-in menus that come in on certain pages. The tip refers to silencing all but the most comprehensive or dominant menu.

That means the site should be coded to do this when it detects a screen reader (SRs ̶ software that allows a SIU to read a site). It should be the most comprehensive and dominant menu. Remember, SIUs can’t see the screen well. They only hear it. Most times they won’t even know how big the window is on the screen.

Yet, SIUs often program SRs to prioritize links. That means SRs will read all menus. For the SIU, that becomes confusing as to which link to click. They hear too many duplicates. Imagine now going to a site where you see double of everything.

2. Alt-tags as Signposts

As mentioned above, SRs often prioritize links. That includes non-menu links such as those imbedded in text, images, and other elements. Links tend to take users to one of four places: another page, another place on the same page, another site, or a file such as a PDF. In doing so, one of two things happen: the user remains in the same window or opens a new one.

This tip refers to using alt-tags as signposts. Two sides of this exist. The first involves telling SIUs where they are going. Otherwise, they primarily think they go to another page. The site needs to tell them even if the image’s caption or surrounding text clearly states this. That’s because SIUs can program the SR to read only the links on a page, meaning the SR won’t read context clues.

The other side of this involves making each link distinct. For instance, “click here” often appears after descriptive text such as, “To go to our checking account page click here.” It tells SIUs nothing when they program the SR to read links only. This compounds if many links say “click here.” So, choose to make the whole phrase a link or add more description to the alt-tag.

3. Alt-tags as Additional Descriptors

Many misread the guidelines when they come to alt-tags for non-links such as images. They think it says – and scanning software reinforces this – that alt-tags can’t be blank. So, sites duplicate the caption in the alt-tag or add text to a purely aesthetic design element such as a color block, shape, or filler that communicates nothing.

Imagine a great, beautiful well-designed home. However, when you enter there’s clutter everywhere. You have to move things around. You even trip over some. This is “death by a thousand cuts.” Sites do the same to SIUs when they have duplicate, nonsensical, and useless alt-tags.

In such cases, code the alt-tag with the left double quotes followed by the right double quotes (“”). This tells the SR to skip the alt-tag and tells the scanning software an alt-tag exists (so it won’t flag it as an issue).

4. H-tags and TITLE Attributes

SRs assume sites use generally accepted coding practices. That means SRs will have problems with sites that don’t. Two of the more common ones that sites overlook are the h-tag and the TITLE attribute. The first identifies headers. The second identifies the page.

Sites can prioritize headers. Headers using an h1 tag is the most important. H2 tags are second, h3 third and so on. Most web managers know these headers as ways to change the look of a header. Their use can automatically enlarge, bold, italicize, color, or underline headers.

While h-tags allow designers to quickly add design enhancements to headers, they also serve to prioritize content. In this role, they help SIUs much. Just as SIUs can program SRs to read only the links on a page, they can also have them read just the headers. Some even allow them to program what level header to read, such as “read h1 – h3 headers” only. This means that headers must accurately reflect the relative importance of the website page’s content.

Unfortunately, content managers often only look at h-tags as design elements. So, rather than code a header using an h-tag, it might be quicker and easier just to bold and color text. After all, it will just look the same. However, this just relegates a header to common text. SRs will miss it.

TITLE attributes serve no real purpose for non-SIUs. Since they appear at the top of a page’s code, they can serve to further describe the page and reassure SIUs that they arrived on the page they wanted. Again, many sites just throw something similar to the page’s visible title in this or something abbreviated. More description often helps SIUs.

5. Help Desk Phone Number

Companies increasingly employ more automated forms of problem resolution. So, they aren’t likely to list a phone number prominently on their sites. Yet, such a number can go a long way to helping SIUs work through a site. Including the phone number near the top in the page’s coding will make it invisible to non-SIUs but accessible to SIUs with their SRs.

For instance, the site could include the number (along with times of availability) in the alt-text of the company’s logo in the upper left which often includes a link to the home page. Sites often include this number before or after input elements such as account logins.

Of course, this does necessitate that the bank supports the number. That might mean changing voicemail prompts and other protocols if the number has other uses. It also means training staff to handle such calls with sensitivity and patience.

Going a Long Way

Except for the first tip regarding menus, a reasonably experienced website content manager can perform these tasks. Even then, with less than an hour’s training, others can learn. Time and discipline remain the real challenge. It can begin though with ensuring that any new content incorporates these tips.

As for policy decisions, we recommend that banks purchase scanning and screen reading software. They make a world of difference. Also, and finally, we encourage banks to contact their local society for the sight impaired and ask for their help. Most members already have SRs. See if you can observe them using your site. It’s not only good community outreach, but I guarantee you will find it an eye-opening experience. We did.

For more information on this article and how Young & Associates can assist your bank in this area, contact Dave Reno, Director – Lending and Business Development at dreno@younginc.com and 330.422.3445.

Off-Site Reviews, Virtual/Teleconference Training, and Management Consulting Support

Written by admin on October 5, 2020. Posted in Compliance & Regulations, Information Technology, Lending & Loan Review, Management & Planning.

Young & Associates, Inc. remains committed to keeping our employees, clients, and partners safe and healthy during the COVID-19 pandemic. During this difficult and unprecedented time, we have continued to successfully leverage technology to fulfill our commitments to our clients and partners through secure remote access for reviews, virtual/teleconference training, and other management consulting support.

Young &Associates’ commitment to virtual/teleconference training and remote access reviews date back well over five years. We see this ability as a win-win for everyone – the review and training get completed in a timely manner and the bank avoids paying any travel expenses. Concerned about security, please be assured that we use the latest secure technology.

We remain committed to helping our clients with all areas of their operations through off-site reviews and providing the most current regulatory updates through our virtual/teleconferencing training.

Contact one of our consultants today for more information about our off-site reviews or virtual/teleconferencing training:

Bill Elliott, Director of Compliance Education:
bille@younginc.com or 330.422.3450

Karen Clower, Director of Compliance:
kclower@younginc.com or 330.422.3444

Martina Dowidchuk, Director of Management Services:
mdowidchuk@younginc.com or 330.422.3449

Bob Viering, Director of Lending:
bviering@younginc.com or 330.422.3476

Kyle Curtis, Director of Lending Services:
kcurtis@younginc.com or 330.422.3445

Aaron Lewis, Director of Lending Education:
alewis@younginc.com or 330.422.3466

Dave Reno, Director – Lending and Business Development:
dreno@younginc.com or 330.422.3455

Ollie Sutherin, Manager of Secondary Market QC Services:
osutherin@younginc.com or 330.422.3453

Jeanette McKeever, Director of Internal Audit:
jmckeever@younginc.com or 330.422.3468

Mike Detrow: Director of Information Technology Audit/Information Technology:
mdetrow@younginc.com or 330.422.3447

Young & Associates, Inc.’s consultants provide a level of expertise gathered over 42 years. In our consulting engagements, we closely monitor the regulatory environment and best practices in the industry, develop customized solutions for our clients’ needs, and prepare detailed and timely audit reports to ease implementation moving forward. With backgrounds and experience in virtually all areas of the financial services industry, our consultants bring a broad knowledge base to each client relationship. Many of our consultants and trainers have come to the company directly from positions in financial institutions or regulatory agencies where they worked to resolve many of the issues that our clients face daily.

We look forward to working with you as you work to obtain your goals in 2021 and beyond.

Strategic Planning for 2021

Written by admin on October 5, 2020. Posted in Management & Planning.

By: Bob Viering, Senior Consultant and Director of Lending

Young & Associates, Inc. is a leader in assisting financial institutions to move successfully through the strategic planning process. We remain flexible to your bank’s specific needs, and work with you to create a vision with a focus on both your short- and long-term future.

Pre-Planning – Where are We Today?

At Young & Associates, Inc., our approach to strategic planning is individualized for your bank. Prior to your planning session, we feel it is important to get to know your bank. We do this by sitting down with your management team, discussing the biggest issues facing your organization, and reviewing your results and progress from your prior strategic plan. Next we send out a confidential questionnaire to both directors and senior officers to determine if there are specific issues of importance that need to be addressed. Based on your assessment of your bank’s direction and the results of the questionnaire, we will work with you to craft an agenda that is specific to your bank. The pre-planning session and analysis is geared to answering the question: where are we now?

Planning Session – Where do We Want to Be?

On the day of your planning session, we spend time discussing what is going on in the banking world and the analysis of the pre-planning work so everyone is on the same page about where we are today. This may include updating your SWOT analysis. We focus on a critical piece of the planning session, which is to answer: where do we want to be? Young & Associates will facilitate the discussion and use our years of real-world experience to help you craft a plan that reflects your vision. The goal is to have a vision of where you want your organization to be next year, in five years, or ten years down the road, and determine what it will take to get there. Strategy is about making choices about who you want to serve, how you plan to serve them, and often just as important, who you are not going to serve.

Plan Execution – How will We Get There?

The goal at the end of the day is to have an agreed direction for your bank and the strategies/goals you will use to get there. Finally, we discuss the most important item of all planning: execution. The best plan in the world won’t get you anywhere without a plan for how you will execute your plan, who is responsible for each goal you set, a timeline for completion, and periodic updates on the progress of your plan.

Written Strategic Plan

After the planning session, we will take the information about your goals and strategies and, with the assistance of your CFO, craft a financial plan that reflects your future direction. Our financial modeling tools allow us to show the impact of various “what-if” business scenarios, whether it is an alternative/stressed budget, impact of alternative strategies on the bottom line, capital, shareholder value, liquidity etc. All of the above are then included in your written strategic plan that we complete for you.

Why Young & Associates, Inc.?

Our consultants working on strategic planning are former CEOs and senior executives that were responsible for planning in their own banks so we know the realities of running your bank every day, along with the need to balance your time with executing your plan.

For more information, contact Bob Viering:

Email: bviering@younginc.com

Phone: 330.422.3476.

Testing Your Balance Sheet’s Capacity to Weather the Pandemic and Embrace New Opportunities

Written by admin on October 5, 2020. Posted in Management & Planning, Uncategorized.

By: Martina Dowidchuk, Senior Consultant and Director of Management Services

As we adjust to the new reality and navigate through the immediate operational challenges, long-term planning comes back into focus. What is the bank’s balance sheet capacity to weather the economic downturn, absorb the potential losses, and leverage the existing resources to support households and businesses affected by the pandemic?

Community banks, with their relationship-based business models, are uniquely positioned to support their markets by using their in-depth knowledge of the local economies and the borrowers’ unique situations to provide timely and individualized assistance for impacted customers. This is an opportunity to facilitate a return to economic stability and be the source of information and communication, but also to enhance customer relationships and trust over the long term.

Unlike during the 2008 financial crisis, most banks have stronger risk infrastructure, larger capital buffers, and higher liquidity reserves. How long the existing safeguards will last depends on the length and severity of the downturn. As we continue to work surrounded by an array of unknowns, there are planning steps that can be taken now to get in front of problems and position the bank to leverage its strengths to support the local communities and shareholders.

Capital Plan Review – How much capital can be deployed into new credits? How much stress can we absorb?

Considering the abrupt economic changes, the bank’s risk-specific minimum capital level requirements should be revised to reflect the likely changes in the levels and direction of credit risk, interest rate risk, liquidity risk, and others. The recently issued regulatory statement relaxing capital requirements includes modifications related to the amount of retained income available for distribution, allowing banking organizations to dip into their capital buffers and to continue lending without facing abrupt regulatory restrictions. Institution-specific capital adequacy calculations can also provide a basis for the decision whether or not to opt in to using the community bank leverage ratio, which has been temporarily reduced from 9 percent to an 8 percent minimum threshold.

Stress testing the capital against credit losses, adverse interest rate environment, and other earnings challenges can help identify potential vulnerabilities and allow management to proactively prepare and protect the bank from losing its well-capitalized status should the simulated stress scenarios unfold. The sooner the problems are identified, the more flexibility you have in developing a solution. Every bank should have an up-to-date capital contingency plan to be implemented if the capital levels approach the minimums needed for a well-capitalized bank designation.

The review of the minimum capital requirements and the stress tests can provide valuable insights regarding not only the bank’s ability to survive a recession, but also to estimate the amount of “excess” capital that can be used to support additional lending. Many banks can justify lower capital requirements once they customize the capital adequacy calculations to their specific risk profiles. If additional asset growth can be supported from the capital perspective, the plan should be further evaluated from the liquidity standpoint.

Liquidity Plan Review – Are the existing liquidity reserves sufficient to support additional loan growth and the potential funding pressures?

Liquidity plan review needs to go hand in hand with capital planning. While most community banks have strong liquidity positions, the scale and speed of the coronavirus shock have raised concerns that credit drawdowns, sudden declines in revenues, and a higher potential for credit issues will strain bank balance sheets. Funding pressures may be building because of uncertainty about the amount of damage that the coronavirus might cause. Banks may be experiencing deposit drains from customers experiencing financial hardship or seeing withdrawals driven by fear. On the other hand, the volatility of the stock market and the uncertainty may drive the “flight to safety” and increases in bank deposits.

Changes in the business strategies and the results of the capital stress tests should be incorporated in the liquidity plan and the projected cash flows should be stress tested. Banks need to plan for ways to meet their funding needs under stressed conditions. The simulations should cover both short-term and prolonged stress events using a combination of stress constraints that are severe enough to highlight potential vulnerabilities of the bank from the liquidity perspective. The analysis should show the impact on both the on-balance sheet liquidity and the contingent liquidity, while taking into consideration changes in the available collateral, collateral requirements, limitations on access to unsecured funds or brokered deposits, policy limits on the use of wholesale funding, and other relevant stress factors.

Credit Risk Assessments – What is the loan loss potential?

Credit risk has the highest weight among the risk factors affecting capital and it is the biggest unknown in today’s environment. The assessments will need to shift to be more forward looking rather than solely relying on past performance. The stress tests will be most useful when customized to reflect the characteristics particular to the institution and its market area. Banks need to understand which segments of their portfolio will be the most affected and perform targeted assessments of the potential fallout, along with the review of other segments that may have had weaker risk profiles before the pandemic, higher concentrations of credit, or those segments that are significant to the overall business strategy. The estimates might be a moving target in the foreseeable future; however, once the framework is set up, the analyses can be regularly repeated to determine the current impact. The results of these credit risk assessments will provide a valuable input for fine-tuning the capital plan and assessing adequacy of liquidity reserves, as well as for formulating strategies for working with the affected borrowers and extending new credit.

Measuring Impact of Plans

As we face abrupt changes in the strategic focus, taking the time to diagnose strengths and weaknesses, to understand the range of possible outcomes of the new business strategies, and to line up contingency plans ready to be invoked as the picture get clearer is a worthwhile exercise. Young & Associates, Inc. remains committed to assist you in every step of the planning process. Our modeling and stress testing tools will allow you to generate valuable support information for your decision making, ensure regulatory compliance, and be proactive in addressing potential problems and positioning for new opportunities. For more information, contact Martina Dowidchuk at mdowidchuk@younginc.com or 330.422.3449.

Job Grades . . . For You?

Written by admin on March 6, 2020. Posted in Management & Planning.

By: Mike Lehr, Human Resources Consultant

Are job grades for you? “Yes,” is the short answer. The challenge is coming up with ones that fit your bank and don’t break the bank.

First, as a Federal contractor, banks must abide by the Pay Transparency Nondiscrimination Provision. This means employees can discuss their pay with other employees. Moreover, banks must post notifications stating as such. Employees will compare and assess positions accordingly.

Second, what to pay an employee is a tough question. Competitive pressures and meeting managers’ needs make this very subjective and inconsistent when hiring and promoting. Is the pay increase in line with the increase in responsibility? Are managers seeing this the same way? How well do officer titles relate to positions?

Third, what are the career paths in your bank? How do different jobs rank? Is the move upward, lateral, or downward? When is a finance officer on par with a commercial lender? Should an increase in title come with a different job? In all banks, positions come with different statuses. Employees’ and managements’ views don’t always sync on this.

Finally, community banks differ from regional and national ones. They differ from other federal contractors who are typically much larger. At those places, jobs have very specific descriptions. At community banks, a job could contain the responsibilities of three different jobs as those places. Moreover, they change. It’s not unusual for employees to trade job duties.

Yes, job grades can solve these problems and answer these questions. The problem is that the job grading industry is armed with fancy calculations and formulas to create them. Here, think cost. They follow a recipe, the same one no matter the size of the project.

Of course, they “customize” in the end after they burn hours running through the numbers. It’s like applying a six-sigma process to a two-sigma project, using that preverbal sledge hammer to kill a flea, or buying a Ferrari to arrive quicker when the road is rough and breaking fifty safely isn’t possible.

Also, speaking of rough roads, finely tuned calculations and formulas work best on clearly defined jobs. When it comes to community banking, defining jobs is like driving an all-terrain vehicle. It depends on the needs and talent on hand. It’s highly variable compared to the big guys.

So, that brings us to the point about job grades. You can do it. Yes, training helps. You might even have it now. Remember, the process they teach is a recipe, not a concept. Following it blindly will waste time and yield bad results. Do the parts that only make sense and return high value. Improvise, too – it’s all right.

Lastly, these guides apply too if you hire out for part or all of the effort. Pay for value. People modify recipes all the time. That’s why the phrase “to taste” is in them.

Regardless, think all-terrain vehicle. Job grades can solve a variety of compensation, career-pathing, employee engagement, and officer-titling problems. It’s also insurance against pay discrimination.

For more insights and guidance on how to get your employees to make better decisions, you can reach Mike Lehr at mlehr@younginc.com.

IRR and Liquidity Risk Review – Model Back-Testing / Validation of Measurements

Written by admin on March 6, 2020. Posted in Lending & Loan Review, Management & Planning.

Effective risk control requires conducting periodic independent reviews of the risk management process and validation of the risk measurement systems to ensure their integrity, accuracy, and reasonableness. To meet the requirements of the Joint Policy Statement on Interest Rate Risk (IRR), as well as the Interagency Guidance on Funding and Liquidity Risk Management and the subsequent regulatory guidance, Young & Associates, Inc. can assist you in assessing the following:

The adequacy of the bank’s internal control system
Personnel’s compliance with the bank’s internal control system
The appropriateness of the bank’s risk measurement system
The accuracy and completeness of the data inputs
The reasonableness and validity of scenarios used in the risk measurement system
The reasonableness and validity of assumptions
The validity of the risk measurement calculations within the risk measurement system, including back-testing of the actual results versus forecasted results and an analysis of various variance sources

Our detailed interest rate risk review reports and liquidity risk review reports assess each of the above, describe the findings, provide suggestions for any corrective actions, and include recommendations for improving the quality of the bank’s risk management systems, and their compliance with the regulatory guidance. We are happy to customize the review scope to your bank’s specific needs.

For more information, contact Martina Dowidchuk at mdowidchuk@younginc.com or 330-422-3449.

Liquidity Risk Management

Written by admin on March 6, 2020. Posted in Compliance & Regulations, Management & Planning.

By: Martina Dowidchuk, Director of Management Services and Senior Consultant

Does your liquidity management meet the standards of increased regulatory scrutiny?
What was once deemed acceptable is gradually coming under a more rigid review, and financial institutions need to be prepared to show that their liquidity risk oversight complies with both supervisory guidance and sound industry practices.

The liquidity risk may not be among the areas of community banks’ immediate concern given the abundance of liquidity in the banking industry today. However, the history shows that liquidity reserves can change quickly and the changes may occur outside of management’s control. A bank’s liquidity position may be adequate under certain operating environments, yet be insufficient under adverse environments. Adequate liquidity governance is considered as important as the bank’s liquidity position. While the sophistication of the liquidity measurement tools varies with the bank’s complexity and risk profiles, all institutions are expected to have a formal liquidity policy and contingency funding plan that are supported by liquidity cash flow forecast, projected liquidity position analysis, stress testing, and dynamic liquidity metrics customized to match the bank’s balance sheets.

Some of the common liquidity risk management pitfalls found during annual independent reviews include:

Cash Flow Plan:

Lack of projected cash flow analysis
Inconsistencies between liquidity cash flow assumptions and the strategic plan/budget
Lack of documentation supporting liquidity plan assumptions
Overdependence on outdated, static liquidity ratios and lack of forward-looking metrics
Lack of back-testing of the model

Stress Scenarios:

Stress-testing of projected cash flows not performed
Stress tests focusing on a single stress event rather than a combination of stress factors
Stress tests lacking the assessment of a liquidity crisis impact on contingent funding sources
Insufficient severity of stress tests

Contingency Funding Plan Document:

Contingency funding plan failing to address certain key components, such as the identification of early warning indicators, alternative funding sources, crisis management team, and action plan details
Lack of metrics defined to assess the adequacy of primary and contingent funding sources in the baseline and stressed scenarios

Liquidity Policy:

Inadequate risk limits or lack of acceptable levels of funding concentrations defined in the liquidity policy
Liquidity policy failing to address responsibilities for maintenance of the cash flow model, model documentation, periodic assumption review, and model validation

Management Oversight:

ALCO discussions related to liquidity management not containing sufficient detail and not reflected appropriately in the ALCO meeting minutes
Lack of periodic testing of the stand-by funding lines
Lack of liquidity model assumption review or documentation of such review
Lack of periodic independent reviews of the liquidity risk management process

If you are interested in an independent review of your existing liquidity program and a model validation, or are looking for an assistance with developing a contingency funding plan, liquidity cash flow plan, and liquidity stress testing, please contact me at 330.422.3449 or mdowidchuk@younginc.com. Young & Associates, Inc. offers an array of liquidity products and services that can help you to ensure compliance with the latest regulatory expectations.

CRE Portfolio Stress Testing

Written by admin on March 6, 2020. Posted in Lending & Loan Review, Management & Planning.

CRE Stress Testing is widely viewed by bankers and bank regulators as a valuable risk management tool that will assist management and the board of directors with its efforts to effectively identify, measure, monitor, and control risk. The information provided by this exercise should be considered in the bank’s strategic and capital planning efforts, concentration risk monitoring and limit setting, and in decisions about the bank’s loan product design and underwriting standards.

Young & Associates, Inc. offers CRE Portfolio Stress Testing that provides an insightful and efficient stress testing solution that doesn’t just simply arrive at an estimate of potential credit losses under stressed scenarios, but provides a multiple page report with a discussion and summary of the bank’s level and direction of credit risk, to be used for strategic and capital planning exercises and credit risk management activities.
Our CRE Stress Testing service is performed remotely with your data, allowing for management to remain free to work on the many other initiatives that require attention, while we make use of our existing systems and expertise.

For more information, contact Kyle Curtis, Director of Lending Services, at kcurtis@younginc.com or 330.422.3445.

Banks as Federal Contractors, A Brief History

Written by admin on November 27, 2019. Posted in Compliance & Regulations, Management & Planning.

By: Mike Lehr, HR Consultant

Unless legal counsel says otherwise, if FDIC covers a bank’s deposits, it’s best to assume it’s a federal contractor. That not only means the bank likely needs an affirmative action plan if it issues fifty or more different W2s in a year, but the federal government holds the bank to higher employment standards.

Still, as human resources professionals know, bank CEOs, presidents, and other senior executives often want to know, “What law says so?” After all, when we think of a “federal contractor,” we often think huge employers with thousands of employees.

For banks with only a few hundred (if that) employees, this all seems very unnecessary. Yet, the short answer is that a reinterpretation of existing law after the 2008 financial crisis made most banks federal contractors if they obtained federal deposit insurance.

Reviewing the way our government works and the history of banks as federal contractors can clarify this answer. After all, the law is not clear. It hasn’t changed much in over twenty years.

This review begins by reminding others that federal laws change in three main ways:

1. Congress passes or revises laws.

2. Executive branch reinterprets existing laws.

3. Courts rule on and clarify regulations causing disagreements among parties.

While Congress neither passed nor revised any law specifically stating banks are federal contractors, the Department of Labor (DOL) reinterpreted the law. Until the 2008 financial crisis, the Office of Federal Contract Compliance Programs (OFCCP), an agency of the DOL, mainly interpreted the law to say FDIC made banks contractors. The DOL, its boss so to speak, never accepted this however.

So, until 2008, unless a bank clearly acted as “an issuing and paying agent for U.S. savings bonds and notes” or “a federal fund depository,” in a substantial manner, the DOL likely didn’t consider it a federal contractor.

Until 2008, FDIC payouts to banks were rare, almost non-existent. This crisis though saw many sizeable payouts. As a result, the DOL accepted OFCCP’s interpretation of the law. The crisis forced the DOL to see FDIC coverage as doing business with the federal government. So now, by its “boss” agreeing, the OFCCP has more authority to enforce its regulations such as affirmative action plans on banks.

Again, a reinterpretation of existing law after the 2008 financial crisis increased dramatically the likelihood that a bank is a federal contractor. This brief history has helped human resources professionals answer questions related to “what law says so?”

For more guidance and support on complying as a federal contractor, you can reach Mike Lehr at mlehr@younginc.com. Mike Lehr is not an attorney. As such, the content in this article should not be construed as providing legal advice. For specific decisions on compliance with OFCCP regulations, readers should consult with their legal counsel.

Interest Rate Risk Reporting

Written by admin on November 27, 2019. Posted in Lending & Loan Review, Management & Planning.

By: Bryan Fetty, Senior Consultant

There are a few common findings that we note when conducting Interest Rate Risk Reviews for clients that are easily remedied and require very little work on the part of the financial institution. One supervisory requirement is to provide a sufficiently detailed reporting process to inform senior management and the board of the level of IRR exposure. Financial institutions are providing the reports to the board, but in the world of regulators, if it isn’t documented in the minutes, you didn’t do it.
Financial institutions should ensure that their committee and board minutes are detailed enough to show the level of discussion about their reports that takes place at the meeting. There doesn’t need to be extensive narrative on the issues, but the minutes should reflect:

For more information on how Young &Associates, Inc. can assist your financial institution with the annual IRR review and model back-testing process, please email Bryan Fetty at bfetty@younginc.com or give him a call at 330.422.3452.