Pub. 1 2013 Issue 2

www.uba.org 20 For other products and services, if there ever was a time to consider a full scale assessment of your product and service offerings both in terms of design and pricing it is now. Cus- tomer behavior patterns have changed radically over the last 20 years yet amazingly the design of bank prod- ucts and pricing strategies have changed very little. These behavioral changes coupled with new regula- tions inhibiting the banking industry’s ability to collect certain fee income, creates an opportunity to rethink design and pricing. 4. Lastly, make certain diversifying operating revenue beyond net interest revenue is a strategic priority of your bank. Is your senior team focused on identifying and leveraging customer niches, bank specialties or other op- portunities that have the ability to provide meaningful additional “pil- lars” of revenue? Larger banks have done a much better job of diversifying operating revenue.. Consideration should be given first to a leveraging a current specialty or niche of the bank possibly related to an existing product line, financial expertise, particular customer segment that offers opportu- nity for sustainable, profitable growth. Right-sizing Operational Efficiency and Productivity All banks have experienced firsthand the increased cost of doing business associated with more regulations, a heightened focus by regulators on processes to ensure checks and bal- ances, technology enhancements and delivery channel offerings. It would seem the banking industry has done an adequate job of managing expenses when evaluating non-interest expense to average assets, however, efficiency (the cost to generate a dollar of revenue) has not shown sustainable improvement for over a decade. Much of this is due to the industry’s decline in operating revenue as percentage of average assets. In short, generally, banks’ expense structure is much too expensive for revenue produced. As customers continue to transact and interact with their bank through self-service channels, the old brick and mortar distribution network must transform as well. This method of dis- tribution is expensive when evaluated from revenue perspective and such levels of expense are not sustainable in the new era of banking. As you embark upon a plan to optimize your branch network, a word of caution is necessary: do not only evaluate your branch channel, but rather holistically evaluate all your delivery channels across geographic markets giving con- sideration to how they are interrelated and integrated in meeting the needs of your target customer segments. As you consider your strategic plan for future growth and profitability, consider these questions? • Does your bank have a track record of sustainable improved operational efficiencies? • Do you have a culture of process and service innovation and efficiency? • Do you continuously evaluate your bank’s processes, policies, technol- ogy, delivery to ensure it is: o Easy for the customer to do busi- ness with your bank o Easy for your team to recognize opportunities and deliver on their promises to customers. • Do you have company-wide mecha- nisms to encourage employees to be on “high alert” for greater efficiency, and process and service innovation? • Have you performed a comprehen- sive evaluation of your branch and self-service delivery system giving consideration to customer behavior trends, market opportunity and profitability? Keen Risk Management Lastly and most importantly, through- out the crisis of recent years many lessons have been learned with regard to prudent risk management. Risk governance has been elevated from a systematic approach to routinely identify, assess, and address risks and their impacts, to a well-defined process for incorporating key risk information in strategic decision making and capital planning. This will necessitate that banks provide structure to evaluate, monitor, and document the enterprise’s risks, and importantly, provide thought- ful, sustainable consideration of risk into key decision-making processes, treating risk management as an integral part of managing strategy and opera- tions. Risk governance practices will need to be evaluated in light of this new environment both in terms of Board oversight and management practices. The banking industry has been through very challenging times the last few years and, it is expected the years ahead will be equally as challenging. However, challenging environments create opportunities for the well-positioned, adaptable bank. That is why it is imperative you create a strategic plan with well- thought out strategies that will generate sustain- able earnings growth in bad and good cycles, and you are focused, disciplined and precise in your execution. n  Change — continued from page 19 Anita Gentle Newcomb is president and managing director of A.G. New- comb & Co. in Columbia, Md. She is also a member of the Board of the Federal Reserve Bank of Richmond— Baltimore Branch. Her firm works with community banks on strategic plan- ning, capital planning, management and board assessments and corporate governance best practices. She can be reached at anita@AGNew- comb.com, 301.596.0182.