Western Independent Banker - March/April 2008 - (Page 10)

By Curtis Carpenter The Forest Through the Trees The Value of Making Smart, Long-Term Decisions A BANK EXECUTIVE works hard for years, seemingly competent and effective … Profitability is good, and the institution is a pillar in its community. And yet shareholders are frustrated. The return on their investments falls well short of their expectations, souring their views of long-term independence. At the same time, the bank isn’t so attractive to prospective buyers. It can’t realistically gain share in the slow-growth markets it dominates. And it doesn’t have a presence in faster-growing markets. On top of that, it struggles to attract young talent. The scenario isn’t every bank’s scenario, of course. But it is common enough to raise a question about what really counts as boards and management teams chart their courses. Sometimes the choices facing bank CEOs are bewildering: Should a bank add new service fees? Should it build new branches? Cut staffing? Increase cash dividends? Buy another bank? Perhaps sell? It’s no wonder that bankers say they have trouble deciding what to tackle next. Sophisticated modeling can estimate the impact that different moves will have on earnings and share price. Before that, however, a few guidelines can help determine which among the many possibilities will pay off the best. First of all, it’s important to step back from the trees to see the forest. In the thick of daily challenges, many bankers will say that boosting profitability is their top job. Squeezing incremental revenue from existing businesses and keeping a lid on expenses look awfully important to these bankers. And they are. The view from a few steps back, however, should be a bit different. Most of all, it should be clearer that business leadership really is about building shareholder value. And that suggests different priorities. Sure, boosting fee income is important at a time when margin pressure is relentless. But the incremental gain of additional revenue is nothing compared to the benefits that flow from improving use of a bank’s capital, positioning an institution in growing markets and focusing on the The surest way for many banks to boost shareholder value is to find ways to leverage their capital toward a goal equity-toassets ratio of around seven percent. Increasing the size of the bank can often provide a larger lift to return on equity than simply squeezing out a few more basis points of ROA. 10 www.wib.org Western Independent Banker http://www.wib.org

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Western Independent Banker - March/April 2008 Contents A Message from the President & CEO The Forest Through the Trees Differentiating Your Bank Through the Five Senses 51st Annual Conference for Bank Presidents, Senior Officers and Directors Building Franchise Value Deposit Gathering Steps to Determine ROI on a Successful Brand Want to Improve Customer Loyalty? Managing the Change Your Bank Needs to Grow Ten No-Fail Strategies to Create Profit-Rich Growth Niche Banking Rethinking ROI Using The Reserve’s On-Balance-Sheet Sweep to Their Advantage WIB Calendar Welcome New Members Index to Advertisers Advertiser.com

Western Independent Banker - March/April 2008

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