ABA Banking Journal - March 2010 - (Page 14)
Community Banking of the process, a results-based approach is beneficial. In our first example, the regulators were very pleased to see that the board and management had collectively identified the issues that had risen to the top of their credit challenges. Further, their documentation of what results were expected to achieve success and how they have gone about gaining that success through assessment, communication, and action spoke volumes on how the bank would work their way out of the greater problem at hand. What should you “plan” to talk about? Planned strategic communication should choose issues that promote thought and active participation by all those involved. The discussions should be designed to put “meat on the bone” and provide the opportunity to create actionable items to improve the viability of the bank. Consider the following topics: 1. Capital. Whether your bank has too little or too much, regulators want every bank to have a capital plan. Adding this to the fact that most bankers believe that increased capital requirements are on their way, capital adequacy is an excellent issue to explore as a group. Management should prepare long-term models of the bank’s balance sheet and income statement to exemplify the ramifications of different scenarios for the directors. The group can then delve into and examine future dividend plans, growth implications, and the correct mix of deposits and loans to sustain this growth. 2. Credit risk. Right now, as we see the end of the credit cycle approaching, is the best time to assess the credit risk you have taken. This should not be a witch hunt, but should be designed to allow the management team and the board to review what went right and what went wrong. Further, conversations on how credit risk can be better managed in the future should include the changing mix of loans, loan policy adjustments, and a time line of any changes. 3. Liquidity. Many banks have seen significant changes in their deposits and borrowings due to the financial crisis. There are numerous opportunities for community banks in this post-financialcrisis environment. The mistakes made by the competition still yield dissatisfied customers that can be attracted to your institution. With core deposits at an elevated level, what actions are being taken to understand and capitalize on the liquidity implications in retaining these relationships as the financial environment shifts? 4. Value creation. With the decline in stock values that have plagued most banks, everyone is wondering whether or not true value will ever come back. Even private, not publicly traded banks are reputationally hurt with the same value disintegration assumption. This pessimism is a source of angst and should be discussed openly. What will be the bank’s value in the future? What will drive that value? What can we do today to promote the value of the bank? In tandem with the suggested topics above, there should be regular reporting of how the actions taken have actually worked. This will then promote continuing discussion on issues and determine whether renewed focus is warranted. BJ resident Obama recently proposed transforming $30 billion in TARP funds into a separate, new “Small Business Lending Fund.” How would your bank respond if this proposal were passed by Congress? Laurie Stewart, president and CEO, Sound Community Bank, Seattle, Wash., $337.1 million-assets Like most banks, we are conserving capital in reaction to the recessionary environment and the regulators’ pressure to retain higher-than-required statutory minimums to be considered well capitalized. That means, given the difficult earning environment, that we have been forced to hold growth to a modest level in 2010. Meanwhile we are experiencing steady– albeit not robust–loan demand. Some of this demand is the result of other commu14 MARCH 2010/ABA BANKING JOURNAL P Headache 1: Small business loan funding and subject to “after the fact” adjustments to terms and conditions, as TARP was. Rheo Brouillard, president and CEO, Savings Institute Bank and Trust Co., Willimantic, Conn., $864.6 million-assets The problem, at least in our market area, is not one where the banks are unable or unwilling to lend. We have plenty of money available and would like nothing more than to put it to good use. The problem is more that businesses are not looking to borrow. They have little or no reason to do so, since they are generally dealing with lower sales and a need to reduce expenses in response to the slower economy. As a result, they are not building inventory, buying new equipment, or expanding their operations. If the government is interested in helping, then it would likely be better off (1) providing more guarantees so that we can Subscribe at www.ababj.com Remedy 2 Remedy 1 Pass the Aspirin nity banks in our area being forced to shrink their balance sheets. They are not renewing credits. We would grow our small business, multifamily, and mortgage portfolios if we had access to additional capital. This would continue to support the recovery and could produce a win for borrowers; a win for the bank; and a win for the government. And, if you consider the likelihood that taxpayers would be the ultimate beneficiaries of a self-sustaining program that pays dividends, you have a genuine home run. However, we would be unlikely to participate if this program was labeled “TARP”
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