What are two things at a minimum you need to know before pulling out of your driveway to go on vacation?
- Where are you starting?
- Where do you want to go?
Aren’t those the same two basic things you need to know when you begin to develop a plan for your bank?
Next, what do we consider? SWOT. Strengths, weaknesses, opportunities, and threats facing our bank. These things address how your bank interacts within its market. While this seems basic, sometimes we overlook the obvious as we go about our daily business.
Some businesses have operated for years without a written strategic plan. I have heard business owners say their plan is in their head, or it can be summed up to make money. While that seems to work for some people, I have found that involving your team in a formal planning process makes it easier to achieve success.
If you have a good written strategic plan, many decisions throughout the year become easy. A written strategic plan shared with the entire team also helps get everyone pulling in the same direction.
Going through the process improves communications among team members and can generate some incredible discussions. Over time the value of a planning process will bear fruit.
Going through the process improves communications among team members and can generate some incredible discussions. Over time the value of a planning process will bear fruit.
The rising importance of the bond portfolio
Many bankers grew up in the business giving little thought to the bond portfolio. It was there to provide liquidity and pledging for public funds.
Boy, has that changed. Liquidity in recent years has led to significant increases in our bond portfolios. We are now looking at the portfolio to contribute to earnings in a meaningful way. Average maturities have creeped out to reach for yield.
Collaborating with a broker who can help you develop a strategy for your bond portfolio is critical. The days of buying whatever the salesperson called to sell you are long gone if you rely on your portfolio to generate earnings while also worried about asset-liability issues.
We are potentially facing the perfect storm this year. Many of us have grown our bond portfolio during the last few years during low-interest rates. With interest rates expected to rise this year, losses may be common on our balance sheets, reflecting bond price decreases.
No one said this was an easy business.
