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!