strategic planning Issues



As you and your team identify and assess key issues, think of these issues not just in terms of "strategic" but also "long range" - actions that you need to take over the next five years or so. An example of a long range issue may be what investments are needed for computer applications over the next five years and how do you prioritize and align with your overall strategic objectives.

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Discussion: Through October 2019, economic cycle is 124 months of age and breaks the record as the longest U.S. economic recovery. And by the end of the 2020 planning year, the economic expansion will be 148 months - longest in modern history.

Is it sustainable? Will economic growth continue recent slow down? What sectors will drive next phase of economic growth?

When will current U.S. economic expansion end?

What will happen to economy in 2020 and beyond?

Economy – Positive Factors

  1. Solid GDP growth

  2. Continued job growth and low unemployment

  3. Strong consumer spending

  4. Low interest rate levels

Economy – Risks & Uncertainties

  1. Weak business investment

  2. Global economic outlook and trade uncertainties

  3. Rising federal deficit spending and debt

  4. Inverted interest rate yield curve

Discussion: The yield curve has flattened substantially and fallen from year ago and two years ago. We have not managed in such an interest rate environment for over 12 years. The 10-year / 2-year US Treasury slope has not been this narrow or negative since 2007.

For your strategic plan assessment, what if this flat yield curve stays for an extended period of time? How will net interest margins hold up? Margins deteriorated 10 - 15 bps during the last period of flat yield curve.

How will net interest margins hold up with this flat or inverted yield curve?

What if the yield curve remains flat or inverted for extended timeframe?

2020 Planning Scenario

Bank 2020 Planning Checklist

  • Community Bank Leverage Ratio framework opt-in decision by Q1 2020 Call Report filing.

  • Loan growth: slower than 2019.

  • Deposit growth: with low interest rate environment, moderating growth.

  • Loan quality: remains solid, except for agriculture.

  • NIM and spreads: with continued flat yield curve, margins will be under modest pressures again.

COMMUNITY Bank Regulatory Relief

  1. See commentary and links in Bank & Short-term Debt Market page

  2. FDIC commentary in Supervisory Insights (Winter 2018)

  3. SOFR Primer (SIFMA)

  4. S.E.C. comments on LIBOR Transition (S.E.C.)

  5. Alternative Reference Rate Committee (FRB)

Are you preparing for the upcoming LIBOR transition to a new reference rate?

Are any of the drivers of your local and regional economy undergoing any stress? Growth?

Is this a short-run issue - or is this the long term direction?

  • Agriculture

  • Energy

  • Manufacturing

  • Construction

  • Commercial real estate

  • Housing and residential real estate

  • Retail industry

  • Population growth or decline

  • Demographic changes

  • Tariffs

At the June 2019 FOMC meetings, the Fed did not change the fed funds rate target. Since that meeting, the Fed lowered fed funds targets by 25 bps on three occasions. Monitor the upcoming Fed meetings to see if there are further reductions?

Has the Fed paused its interest rate normalization program for the remainder of 2019?

Or is weak and uncertain economic conditions positioning the Fed to continue to lower interest rates?

And, if yes, how are these weak and uncertain economic conditions going to impact your local market?

How will your strategic plan address key risks identified over your planning horizon?

The following are several key areas of risk that the OCC and FDIC have identified for banks:

  • Increased merger and acquisition activity

  • Competition from non-financial and fintech companies

  • Loosening credit underwriting standards and practices

  • CECL implementation

  • Commercial real estate lending and concentrations

  • Operational risk due to cyber threats

  • Reliance on third-party service providers

  • Bank Secrecy Act compliance

  • Compliance with multiple new or amended regulations

  • Agricultural lending

  • Interest rate risk with changes in interest rates and the yield curve

  • Effective change management practices when implementing new regulations, products and services and emerging technologies

  • Potential LIBOR discontinuation and replacement

How will continued developments in technology impact your customers, your competitors and your bank?

Technology has always been a key driver of change - and success - in banking. And change in technology continues at a rapid pace.

  • The world that you operate in today is digital, mobile and real time - is your bank positioned for this?

  • How do you keep up with such continuous change?

  • Are you or your vendor partner investing adequately in your IT systems and future technology?

  • How are new fintech companies impacting you today - and what are you hearing about the future?

  • Most importantly, what are your customers telling you regarding their preferences for product delivery, convenience, mobility and information?

  • Financially what can you afford to invest in technology? Can you afford not to make these investments? How can you partner to share in technology costs and investments?

  • Have you developed and documented a 5-year IT plan and "road map"?

Are there areas of significant investment and capital expenditures that need to occur over your planning horizon?

  • IT systems and applications

  • Outsourcing contracts

  • New facilities or facilities re-branding / signage