George Allen Still Lives On
The famous football coach George Allen, when he took over the Washington Redskins back in the day, was quoted as saying, “the future is now.” At the risk of dating myself, George followed the philosophy of signing veteran free agents, many of whom had previously played for him with the then Los Angeles Rams, to win now. He surrounded the likes of QB’s Sonny Jorgenson and Billy Kilmer, who were on the downside of their careers, with these veterans in an attempt to capture an NFL championship.
What does football have to do with banking?
With the financial crisis behind us and recent encouraging economic reports, NOW is the time for all good community banks to do their thing. The reality is, despite historically low interest rates and skinny margins, things have vastly improved for those community banks that survived the recession and chose to remain independent. Assuming enhanced loan growth and rising interest rates in the next year, earnings should continue to rise as credit costs remain historically low. With new charters still challenging and a ways off, the value of a healthy bank charter seems to be escalating.
So, where are we headed?
With all this positive movement, I believe one nevertheless must look into the future. Some of the challenges facing community banks will be dynamic technology, cybersecurity, the continued proliferation of nontraditional financial service providers, such as Walmart and a host of others invading your space, and the issue of the fading value of brick and mortar as customer bases evolve.
What should I do?
There is no single or easy answer. If I knew for sure, I would be peddling the elixir. However, being cognizant of all these moving forces and implementing a flexible strategy to be proactive in your business model is essential. I would ask myself a series of questions including:
- What will my customers want / demand in the way of future type and delivery of services?
- Do I really need multiple branches? Can they be smaller and more efficient?
- Should I get into lines of business that produce noninterest income, like SBA Lending, Trust Services, Mortgage Services, Leasing, etc.?
- How do I protect my bank and customers from growing cybersecurity threats?
- Should I grow my franchise through an acquisition or strategic alliance to build economies of scale and long term value?
- Am I adding value for a potential acquirer if I eventually decide to sell?
Strategic planning is an art as well as a science
Strategic planning is very underrated. Every bank should undertake this exercise at least annually. I suggest beginning with a philosophical discussion with your board which is fleshed out by your management team as more than a glorified budget. Once developed it should be hashed out at a strategic board retreat, preferably with an outside facilitator (one who is not out to just sell your bank). Getting management and the board on the same page is critical.
Management should then review the progress on the strategic plan with the board at least quarterly, in addition to tracking budget performance monthly. I think it would also serve the board well to have a 30-minute “think strategically” session every quarter to focus on one or two longer-term strategic initiatives, rather than just routine matters.
Have fun and enjoy the ride
Now that almost all community banks are out of the woods, hopefully boards can start having fun again and enjoy the unique experience of being a director. The future is truly now, but it is up to all banks to capitalize on the opportunities before them and add long-term value for shareholders, while reasonably controlling the risks inherent in the business.
Happy Holidays and a healthy and prosperous New Year to all of our loyal clients and friends from Graham & Dunn, soon to be Miller Nash Graham & Dunn, on January 1, 2015. We look forward to visiting personally with all of you during the coming year.