Strategic Planning in uncertain times is the most difficult way to start a New Year. What are you going to do to prepare for 2023? “Fight, fight, fight. No Matter What!” That was the response from a NASCAR Truck driver after ending the race in second place. Community Banks and Credit Unions can embrace that same attitude as they prepare budgets and strategic plans during one of the most uncertain times of this generation.

The current uncertainty touches several risk categories such as Interest Rate Risk (IRR), capital, liquidity, human capital, credit, and technology. Because all risk categories are interrelated, the impact on one risk category affects others simultaneously. Many community banks and credit unions are in the process of finalizing their budgets and strategic plans for 2023. Below are some strategies to help your leadership team through this difficult season in banking:

Take care of your people first.

You can have all the capital in the world and without your employees, you’re not going anywhere. Therefore, make retention of your top talent a priority in your strategic planning. It is true that many employees leave because of higher salaries elsewhere. But people leave mostly because of a toxic culture or work environment. To address turnover due to higher salaries, ensure your bank’s compensation and benefits are competitive and introduce new and creative benefits. Communicate to your staff that you surveyed other institutions of similar size in your area, so they know you did your homework. To address the culture problem, conduct periodic surveys, interviews, and truly listen to what your employees tell you.

Cybersecurity is still a top risk.

The investment in technology to safeguard your customers’ sensitive data should not be considered a burdensome expense. It is rather an investment to allow you to retain your existing customers and potentially attract larger businesses that need more sophisticated services such as Treasury Management.

In addition to the investment in hardware and software technology, you need to invest in the right talent to run the technology. This includes the consideration to outsource the expertise to third-party IT managed services. Additionally, ensure you have a strong Vendor Management Program which is crucial to a successful Cybersecurity Program.

Watch Your Balance Sheet and Income Statement closely.

As an ex-CFO, I typically found budgeting for expenses easier than estimating income—especially during uncertain interest rate environments. This year bankers have the additional challenge of low liquidity with their bond portfolio tied up due to unrealized losses. As you know, borrowing to fund your loan demand increases your cost of funds and decreases your Net Interest Margin. Therefore, you need to focus on increasing other sources of income and Treasury Management should be at the top of your list. If you can make your Treasury Management services a competitive advantage, you will attract larger businesses who in turn will bring additional core deposits and additional/new non-interest fee income!

Continue the strategic conversations in your Asset/Liability Committee (ALCO) meetings. Watch your financials closely and stay in constant communication with the Board of Directors. Regulators expect Directors and senior leadership to have a full understanding of your Balance Sheet and the effect of Interest Rate Risk on your Income Statement and bottom line.

Fight, fight, fight. No matter what!

Community banks and credit unions—especially under $1 billion asset size—must continue to fight no matter what. The fight is in several areas: The fight to attract and retain talent as mentioned above continues. The fight to compete against larger financial institutions and Fintechs also continues to be a challenge. And the fight against increased regulation must continue as well. Lastly, you can never rest on the fight against cybercrime.

So as the NASCAR truck race driver said, “Fight, fight, fight. No matter what!” Ending a race on second place is not bad. But everyone wants to win the race and be first. These days, staying in the race and not giving up is what truly matters. You cannot win every race, but you can enjoy small wins by retaining your best talent, ensuring your customers’ data is secure, and knowing your institution is safe and sound during these uncertain times.

Strategic Planning in uncertain times presents many challenges. I hope these strategies help you finalize your budgets and your strategic plan for 2023. We’re here if you need help!

As you set out to look for Board successors, consider these 7 best practices for an ideal community bank board of directors. As we conduct strategic planning sessions with community banks around the nation, we often hear the need for succession planning at the Board level. This need is so urgent that it becomes one of the institution’s top objectives for their strategic plan. But whether that’s your situation or not, these 7 best practices for an ideal community bank board of directors may help you:

Differentiate between “independent/outside director” and an “insider.”

The first step is to understand the difference between an “independent/outside director” and an “insider.” Outside directors are those who are not employed by the institution nor are a large shareholder. They can be a customer and can (and should) receive compensation for their Board service. An insider, on the other hand, is employed by the institution for their regular job or is a family member and part of the ownership. Ideally, in a community bank board of seven Directors (which is the minimum we recommend), you should have four outside directors and three insiders. With three insiders you can have the majority shareholder/owner, one family member, and the CEO of the bank.

Be open to inviting “independent/outside directors.”

Be willing to invite “independent/outside directors” to join your board who are not family members, nor owners, nor customers. These candidates are hard to find but they are the best suited for the Audit Committee Chair role. They bring a true objective perspective and have zero conflicts of interest. They will tell you the truth!

Avoid the risk of having other executives as directors.

It is common for small community banks to have more than one executive as Board directors. I strongly caution you against this practice as it puts the bank at risk in two ways: First, if you lose the executive, you will also lose a director. Secondly, if the executive has performance issues, you cannot discuss it with other directors without excluding that one director and that, at the least, can be awkward. At the worst, your bank keeps a bad performer which puts you at risk.

As a best practice, the President/CEO should be the only executive that is a director. If your bank has a separate CEO and President then, ideally, only the CEO should be on the Board. The President can also be on the Board but keep in mind he/she occupies an additional insider seat.

Pay your Directors well.

Directors of a bank have an enormous responsibility and risk. For this reason, you don’t necessarily compensate them only for the time they spend on meetings. Some institutions hold monthly meetings in addition to quarterly committee meetings. The Board package ranges from 100 to 300 pages, and it takes time to read and come prepared to the meetings. Most Board directors still run their own businesses or hold high positions of leadership. Therefore, it is fair to compensate them for their time, in addition to their fiduciary liability. If you want to attract the best board directors, you must compensate them fairly based on your asset size and complexity of your institution.

There are out outside organizations such as Bank Director that conducts in-depth Board compensation surveys that you may check out. You could also ask your peer bank colleagues if you need to review your Board compensation.

Clarify Directors’ roles and expectations.

The primary roles of directors are their fiduciary duty to enhance the shareholders’ value, provide strategic direction for the bank, and to protect the customers’ data and deposits by ensuring the bank is safe and sound. Board Directors can refer business to the bank but that is not their primary responsibility. Business development is a management responsibility and that is the primary function of business development officers.

Invest in Director training.

It is crucially important that you invest in director training and budget for it annually. There are conferences, webinars, and onsite training you need to provide to your directors to stay on top of regulation, cybersecurity, and risk management. There are also special certifications such as the Certified Community Banking Director offered by the SW Graduate School of Banking Foundation in partnership with the Southern Methodist University.

Consider establishing an age limit.

While it’s important to consider establishing an age limit, I am personally more interested in director engagement. If a director is actively engaged in the meetings and provides valuable insight, it doesn’t matter how old they are. Having said that, it is important to bring fresh blood and new perspectives to your Board of Directors as well as diversity of skills.

I hope these 7 best practices for an ideal community bank board of directors helps you in your quest for your directors’ successors. Struggling with your directors? As always, we’re here to help.