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Best Practices for Bank Boards – Part 2

February 1, 2012

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Over the past several years I have attended dozens of meetings of boards of directors of banks in troubled condition.  The vast majority of these boards were well functioning and had dedicated and hard working directors.  Geographic location has been the predominant factor in determining winners and losers among banks in this challenging economy.  However, there have been several situations in which it appeared to me that the composition of a board, and the interpersonal dynamics among its members, had magnified the impact of the economic downturn.  A bank board is like any other working group in that the direction and decisions of a board can be heavily influenced by members who dominate the conversation, or by members who actively discourage discussion or dissent.

This is the second in a series of articles on best practices for bank boards.  (Part 1 can be found here.) During the past several decades, my partners and I have worked with hundreds of bank boards, for institutions ranging in size from under $100 million in assets to well over $10 billion in assets.  Regardless of the size of the entity, we have noticed a number of common characteristics and practices of the most effective boards of directors.  This series of articles describes ten of those best practices.  In the first article in the series, I focused on two fundamental best practices—selecting good board members and adopting a meaningful agenda for the board meetings.  In this article I will discuss three additional best practices—providing the board with meaningful information, encouraging board member participation and making the committees work.

Best Practice No. 3 – Provide the Board with Information, Not Data

Change the monthly financial report to something meaningful.  Most boards need to know only about 20 to 30 key data points and ratios and how those numbers compare to budget, peer banks and prior year results to have a good handle on the condition of the bank.  By contrast, the typical financial report at a bank board meeting is encompassed in a 25 to 30 page document that blurs into a very detailed, and often meaningless, recitation of data that is difficult to follow.

Providing meaningful information in an understandable format is essential for the board members to identify and manage risk.  Less is often more in effective board presentations.

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Best Practices for Bank Boards – Part 1

December 5, 2011

Authored by:


Today’s banking industry is constantly being buffeted by waves of financial, regulatory and operational challenges. The increased regulatory burden and related costs impact every financial institution in both the approach to doing business and the expense of doing business. The industry is in transition, with no clear path forward. As a result, there has never been a greater need for well functioning, informed and courageous boards of directors of banks and bank holding companies. There has also never been a more important time for board members to keep in mind that their responsibilities can be boiled down into one simple goal: the creation of sustainable long-term value for shareholders.

Achieving long-term value for shareholders may seem an elusive goal in the current environment. On more than one occasion, bank board members have commented to me that they feel they are now working for the benefit of the regulators. However, as with any time of turmoil and change, the challenges we now face will pass. As bank boards look for ways to strengthen their institutions, they should not overlook the opportunity to strengthen themselves as a group. One way of doing that is to adopt the practices of the most effective boards of directors.

Over the past several decades my partners and I have attended hundreds of bank board meetings, for institutions ranging in size from under $100 million in assets to well over $10 billion. Regardless of the size of the entity, we have noticed a number of common characteristics and practices of the most effective boards of directors. This is the first in a series of articles which will describe the 10 best practices we have observed among highly effective boards of directors. In this article I focus on two fundamental best practices — selecting good board members and adopting a meaningful agenda for the board meetings. 

Best Practice No. 1―Selecting Good Board Members

Some of the most challenging and distracting issues a board can face are those related to its own members. These issues typically arise in connection with conflicts of interest between board members and the banks they serve, or when board members experience financial stress. They can also arise when there are personality clashes in the boardroom, or when one or more board members seek to dominate the conversation. The best time to avoid such issues is during the selection process for new directors. Compromise and wishful thinking in the selection of directors will almost always dilute the effectiveness of the board as a whole. Key characteristics of good directors include:

  • Independence―being free of conflicts.
  • Time to devote to the job — including time to gain a knowledge of the industry, to prepare for board meetings, and to participate in committees
  • Attention — being fully engaged and proactive as a board member.
  • Courage―having a willingness to deal with tough issues.
  • Curiosity — possessing an intellectual curiosity about the bank, the financial services industry and the trends impacting both.

A group of good, solid and dependable board members is, in my experience, preferable to a big-hitter, all-star line-up of directors. A board is most effective when it acts as a group, with a culture in which all members can voice their opinions, and in which probing, and sometimes difficult questions can be asked. Dominant personalities and board cultures in which constructive debate never occurs have contributed to the demise of many banks in the current downturn. Careful selection of new board members, keeping in mind the strengths and weaknesses of the other members of the board, is well worth the time and effort involved.

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The Path to Full Profitability by 2013

February 16, 2011


A Letter to our Clients and Friends in the Financial Institutions Industry

Walt Moeling and Jim McAlpin spoke at the recent Acquire or Be Acquired Conference sponsored by Bank Director Magazine. Their topic was “The Path to Full Profitability by 2013.” In advance of their talk at the conference, Walt and Jim sought input from a group of industry observers on what they foresee as likely developments over the next few years. (A printer-friendly version of the Letter to Clients is also available.)

We thought you would be interested in what we heard in response to these questions, and the following is an excerpt from Walt and Jim’s presentation at the AOBA Conference:


  • There are more than 6500 commercial banks in the U.S. Only 500 of these banks have assets of more than $1 billion, and only 110 have assets of more than $10 billion. In other words, over 90% of U.S. banks have assets of less than $1 billion. Also of significance to this discussion, one third of U.S. banks have less than $100 million in assets.
  • In connection with this presentation we sent a survey to a number of our contacts at investment banking firms and also to a group of bank consultants. We asked them to look forward over the next few years and project what the landscape will look like in community banking. We received responses from over 30 industry observers from across the country, and our respondents have allowed us to share their comments either with attribution or anonymously.

“What will the ideal community bank look like by year end 2013?”

  • Adam Aspes of Sterne Agee provided an answer that sums up most of what we heard in response to this question: “The ideal community bank will either: (i) have a dominant market share in a rural slow growth market, or (ii) if located in an urban market, have enough scale and product offering to compete for deposits with the larger banks.”
  • Jennifer Demba of SunTrust Robinson Humphrey responded: “Investors will value concentrated market share community banks, not fragmented networks.”
  • One community bank consultant wrote in response “$1 billion in asset size will not be a large bank by 2013.” We consistently heard in response to this question that, in all but rural markets, a minimum necessary asset size will be $500 million.
  • Chris Marinac of FIG Partners wrote: “While not universally applicable, in general we think the regulatory costs of operating a bank have increased such that it is difficult to produce adequate long-term returns for a bank below $500 million in assets. There are exceptions, and some private bank investors find a single-digit Return on Equity to be acceptable. However, we think the demands for 11% to 14% ROEs create a $ billion+ size threshold for surviving banks.
  • Another investment banker told us that his firm has modeled the impact of increased compliance costs on smaller community banks: “If you assume an increase of [direct and indirect] compliance costs of $100,000, and then factor in growth of only 5% to 8% per year, it is hard for a smaller bank to get to 1% ROA, much less double digit ROE.”
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