Western Independent Banker - November/December 2008 - (Page 29)

By John M. Floyd The Real Performance Metric: It Takes a Balance of Profitability and Growth to Be Successful AS FINANCIAL INSTITUTIONS continue to struggle with the current economic situation—losses on mortgage loans, shrinking net interest margin and low consumer confidence—many banks are looking for the perfect metric for success to get them to the other side of this challenging period. Bank management in both large and small institutions needs to take a hard look at their operations to understand where they are now and determine the best plan for achieving long-term strength. In a normal economic environment, a bank should be focusing both on profitability and growth. But we all know that the field we’re playing on now is unlike anything we’ve seen since the downturn of the 1980s. Establish a position of strength during the current downturn. In today’s market, most banks would be wise to focus on enhancing revenue. If your bank is strong while others around you are mired by mounting loan losses, you will avoid negative scrutiny by regulators and be in a better position to acquire struggling institutions when the right opportunity comes along. In addition, you will be able to retain and reward quality employees, and instill confidence in existing and potential customers. While the specific elements of maintaining profitability will vary based on every bank’s current situation, the following actions should be considered: • Manage your net interest margin to the best of your abilities, avoiding the temptation to take credit and/or interest rate risks to increase margin. • Stick with basic conservative lending policies; the industry is in its current state because banks got away from these policies. • Control non-interest expenses; an outside professional can provide an objective review of these expenses. • Maintain the right loan portfolio diversification to minimize overexposure to any one class or industry. • Use well-established methods for attracting DDA accounts; avoid “smoke and mirror” tactics that may promise unachievable results. • Utilize technology such as remote capture to provide convenience to your customers and increase your market area without having to add facilities. Develop a strategic plan for growth when the time is right. The answer to the question of whether to expand is simple. If your bank is not growing, it’s dying. A stagnate business can’t provide its employees with salary increases or growth opportunities and it can’t remain competitive in today’s ever-changing marketplace. However, it is important to use a strategic eye when planning to increase your organization’s capacity. Leadership should carefully examine the bank’s current focus and determine how it plays into growth plans. Do you want to be a broad-based commercial bank or a niche institution? Are there specific markets where you would like to focus all or part of your resources? It is important to make this distinction and realize that trying to be all things for all customers can dilute your ability to handle large projects and adversely affect your capital. Once you have decided your service parameters, take time to self-examine and review your organizational structure as well as your strengths and weaknesses. As you look at growth opportunities, make sure you have implemented best practices and streamlined your operation to optimize your resources. If adding specialized expertise is required, this is a great market in which to do so when failing institutions are dismissing talented staff. It is also imperative to develop a sales and service culture within your organization to retain and expand existing business relationships while adding new customers. Keep in mind that your basic day-to-day operation must be able to support this culture and may need to be re-engineered. Sound leadership drives profitability and growth. By providing sound leadership regarding prudent loan policies and continued support through new business introductions, bank directors are strategic partners who help their financial institutions remain profitable during difficult times and champion strategic growth opportunities for the long-term success of the bank. It is important to realize that it isn’t a matter of being profitable or growing—both are essential for long-term survival. John M. Floyd is chairman and CEO of John M. Floyd & Associates (JMFA) in Baytown, Tex. He can be reached at 800-809-2307 or www.JMFA.com. The answer to the question of whether to expand is simple. If your bank is not growing, it’s dying. A stagnate business can’t provide its employees with salary increases or growth opportunities and it can’t remain competitive in today’s ever-changing marketplace. Western Independent Banker November/December 2008 29 http://www.JMFA.com

Table of Contents Feed for the Digital Edition of Western Independent Banker - November/December 2008

Western Independent Banker - November/December 2008 Contents A Message from the President & CEO A Practical Approach to Director Evaluations Director Assessment: New Standards for a High Performing Director The Best of the West: Traits of High Performing Banks Best Practices Checklist for the Audit Committee The Real Performance Metric: It Takes a Balance of Profitability and Growth to Be Successful The Role of the Board in a Credit Crisis A Bank Director's Obligation to Be Aware of Regulatory Change Benefits Tied to Performance Receive Higher Approval Rating by�Board Members Increasing Shareholder Value: Key Profitability Drivers Board Portals Streamline Efficiency for 21st Century WIB Service Corporation Report WIB Calendar Welcome New Members Index to Advertisers advertiser.com

Western Independent Banker - November/December 2008

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.