Western Independent Banker - May/June 2009 - (Page 23)

By Geri Forehand Best Practices in Lender Incentive Programs Table 1: Bankwide Measures for Lender Incentive Packages Net Interest Income Maintain annual average loan volume Maintain spread over cost of allocated funds Maintain aggregate deposit average in assigned accounts Provision for Loan Loss Maintain loan loss reserve equal to a percent of projected year-end loans Provision for loan loss not to exceed Net charge-offs not to exceed Non-interest Income Achieve fee income of Non-interest Expense Hold non-interest expense to less than Credit Risk On a scale of one to five, weighted average risk rating should not exceed: Delinquency as a percent of outstandings should not exceed Watchlist Loans should not exceed Classified loans to total loans should not exceed Technical exceptions to total loans should not exceed $ % $ $ $ $ $ $ $ % $ $ IT WAS NOVEMBER 2006 when I wrote an article for Western Independent Bankers on planning for succession in the lending function: “The only ‘fix’ for the lack of experienced lenders who have worked through a downturn in the economic cycle is unfortunately an actual economic downturn.” And here we are, just over 24 months later, in the midst of one of the most dramatic downturns our industry has seen in more than 20 years. Like it or not, our lenders are gaining that experience that they needed most. In this cycle, though, some banks are still doing well – managing the shrinking margin, retaining their key employees, and maximizing profitability. One of the significant trends in those banks who are managing high performance is their recognizing that growing the bank’s human resources, particularly in the lending side of the bank, is as important as protection of the balance sheet. The success of pay-for-performance is well documented. Employees will perform according to established standards of incentive, whether the incentive is in the form of cash, stock, benefits, or simply recognition. But have we as an industry incented the right behaviors? Working Past the Lending Spree Given the public perception of banks, and specifically lenders, a new term is being floated around the mainstream press. Bankers apparently spent too much time on a “lending spree” – and some of them were incented to do just that. There is some truth to that statement. When bankers realized that their lenders would perform better with incentives, both incentive pay and loans went up. Liquidity Maintain a pool of loans that can be sold or participated Interest Sensitivity Ensure duration GAP meets ALCO guidelines Economic Risk Concentrations should not exceed the following amounts (as determined from the Credit Concentration Report) Construction Loans Finance, Insurance and Real Estate Companies with leverage exceeding industry averages Business Development Increase commercial loans to Increase commercial deposits to Training and Development Ensure annual employee turnover does not exceed Ensure all lenders are tested through RMA Annual training budget of $ $ $ $ $ $ % $ One of the significant trends in those banks who are managing high performance is their recognizing that growing the bank’s human resources, particularly in the lending side of the bank, is as important as protection of the balance sheet. Western Independent Banker May/June 2009 23

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Western Independent Banker - May/June 2009 Contents A Message from the Chairman How to Keep Employees Happy … On a Shoestring Budget Keeping Good Employees in Today’s Marketplace Asset Appreciation: Front Line Employees Hold the Secret to Balancing Customer Loyalty and Profitability Great Places to Work – WIB Member Banks Why Real, Live Bankers Still Matter Getting the Best Results from an Executive Search Best Practices in Lender Incentive Programs The Enlightened Control Freak: How to Lead So Your Team Will Love, Follow and Work Like Crazy for You Even in These Wild and Tough Economic Times The Frightened Leader Don’t Train – Educate! WIB Service Corporation Report WIB Calendar New Members Advertiser.com Index of Advertisers

Western Independent Banker - May/June 2009

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