Bank Directors Seminar, Coeur d'Alene, ID, September 15-17, 2019

Financial Management Processes in Community Banks

1. Have good, useable reports and analytic tools that are appropriate for the size and complexity of our institution.., and available on a timely basis. Have confidence in the inputs, methodologies, assumptions and outputs of our models.

2. Use these tools in developing and documenting our financial strategies including capital planning, noncore funding, asset allocation, investment portfolio management, and more.

3. Have confidence that we are measuring and managing what's really important to our institution's success.

4. Spend sufficient time identifying and focusing on our "impact areas" ...don't be distracted by minutiae.

5. Periodically back away from the day-to day stuff and ask "what creates risk in my business?" Are my risks changing due to external factors or internal factors or both? Have we looked at trends in our risk positions? Have we established clear risk limits in our policies that effectively address all significant risks we face and do we report policy compliance in timely, clear reports? Do we have a good understanding of key concepts such as effective duration, convexity, value at risk, etc.

6. Ask "are we in compliance with our policies?" But don't stop there. Also ask "Do we like how we're positioned today?"

7. Ask "What are our current strategies? Are they working? Have they been documented? What can we do now to improve our risk position and our long term performance?"

8. Run simulations to model the impact of alternate strategies and large transactions — understand our risks and quantify our downside. In our simulations and stress tests have we examined possible "black swan" worst case scenarios that could impact our risk profile, capital and performance?

9. Don't let our Committees become stale. Develop a "call to action" mindset in our committees.

10. Don't ALCO turn into a "profit prevention committee." Make balance sheet management an active process in our institution. If necessary, reconstitute or rename our ALCO (eg "Strategic Financial Management Committee") to remove any stigma. Make sure our ALCO composition is sufficiently broad to engage all key areas of the organization that are involved in designing and implementing strategies (real estate lending, consumer lending, branch management, marketing). Let's take time to educate our committee members and our Board.

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