As we begin the new year, I encourage you to embrace whatever changes may come our way. I hope there are more ups than downs, but I know that we as community bankers will always rise to the occasion. A good way to start the new year is by having a good strategic plan that includes managing your bank’s risks.

Strategic Planning

Strategic planning for banks serves as a tool to align goals, optimize resources and stay competitive in an industry that is ever-changing and evolving. The process is multipurpose, addressing both short-term objectives and long-term goals.

Whether using an external third-party facilitator or an in-house process, the foundation of any strategic plan has a clear set of goals. They should be specific, measurable, achievable, relevant and time‑bound (SMART).

The market environment and external and internal factors — including economic cycles, regulatory changes, technological advancements and customer preferences — are all variables. The planning process includes identifying and mitigating potential risks, whether credit, market, operational, regulatory or reputational. Continuously updating risk management frameworks ensures compliance with evolving regulations to protect our assets while maintaining customer trust. The process and resulting objectives provide common goals and a roadmap for success. 

It is important to remember that strategic plans are not static; they must be flexible and adaptable to changes in the industry and our markets. Regular monitoring and reviewing of progress toward objectives are necessary to ensure the plan remains relevant. Tracking key performance indicators (KPIs) is beneficial to adjusting strategies in changing market conditions with regulatory changes or technological disruptions. A sound strategic plan is key to maintaining profitability, improving customer relationships and ensuring long-term sustainability in the competitive banking landscape.

The process to reach a sound strategic plan varies, whether it is an offsite, third-party facilitated process or an afternoon in the board room led by the CEO. Regardless of the “how,” the creation of the plan is most important.

Managing the Risks

The purpose of a bank’s investment portfolio varies greatly depending on the bank, their individual policies and their needs. Risk management, capital efficiency and liquidity management are all areas that can affect policy and needs. This is true whether your bank has a high loan-to-deposit ratio or uses the bond portfolio for more than just pledging and liquidity. The past 33 months of the four-letter word, AOCI, have impacted our banks negatively with liquidity and tangible equity capital concerns. Fortunately, credit risk in most bond portfolios was not impacted the way market, liquidity and interest rate risks were. 

Regulation restricts and limits the make-up of a community bank portfolio with the typical portfolio holding government agencies, mortgage back securities and municipals. Depending on a bank’s complexity and needs, some portfolios will vary in makeup and mix. Managing the risks within the investment portfolio through diversification, active monitoring and adherence to regulatory frameworks mitigates the impact of adverse market conditions. The increasing complexity of financial products and evolving market dynamics require constant vigilance and innovation in risk management strategies.