June 2, 2020

By Jennifer Theimer, CPA, CRCM

We know many of you are concerned about how the strained economy will impact your customers and overall financial performance. Your board of directors (board) and senior management (management) will want to keep the following in mind as you plan for the future:

  • Discuss risk tolerance. What level of loss, if any, is the board willing to take related to loan workouts?  How aggressive does the board want management to be related to addressing nonperforming loans and managing special assets like other real estate (ORE)?
  • Discuss the metrics that will be used to monitor bank performance. What levels of ROA, ROE and classified assets, to name a few, will now be acceptable to the board?  What changes to policy, procedures and manpower are needed to achieve those results?
  • Determine if you have the talent and expertise in-house to work through problem loans and managing ORE.
  • Assess current procedures related to ORE management and determine if changes are needed to handle increased volume.
  • Review your liquidity contingency plan and determine if changes are needed. Take into consideration the possibility that some of those liquidity sources may no longer be available or reduced if your financial performance suffers a decline.  If some liquidity sources are collateralized by certain assets like mortgages, determine the impact if that portfolio suffers higher delinquencies or losses.
  • Review your capital plan to determine if efforts, like a capital raise, should be made to buffer the impact of lower earnings.

This economic situation can also present opportunities for you.  Below are a couple for you to consider:

  • Now might be the time to lock in pricing for products you want to offer your customers. Third parties that offer these products have likely been negatively impacted as demand from institutions has dropped.  This means your negotiating power is stronger.  Negotiate terms that fit your situation, including but not limited to fees, time period covered and implementation deadlines.  Request an implementation deadline that makes you comfortable, not one accelerated by the third party.
  • Consider how some of your workforce can be repurposed. Your needs will likely be different for a while.  You have talented employees who might be a great fit in a different area of the institution.  They might fill a gap or make a critical area stronger.  Sometimes all it takes is an opportunity to discover hidden talent.

Keeping the board and management on the same page is essential to the overall success of the institution.  If you need help facilitating these discussions and/or assistance preparing operational plans to plan for your future, please let us know.

The material and information provided above is for general information purposes only. You should not rely solely upon the material or information above as a basis for making any business, legal or any other decisions.