Bank Board Letter May 2014 : Page 2

Once the nominating committee is formed, the chairperson should request that the board chair provide the committee with the institution’s procedure for nominating new board members and the criteria for being a board member. (no rubber stamps), and can express their own thoughts and ideas. In addition, the board profile should reflect and rep-resent the major stakeholders of the institution with respect to gender, race and age. A FIRM GRASP OF THE INSTITUTION’S STRATEGIC DIRECTION The nominating committee needs a clear understanding of the institution’s strengths, weaknesses and opportunities. For example, if the institution wants to move into a new market, it may be helpful to find a candidate familiar with that market — someone with a good reputation who can provide insight an outsider may not possess. And if the institution wants to introduce a mobile banking app, a social media presence and so on, it may be important for the candidate to have a strong technology background. A firm sense of the institution’s strategic direction helps the nominating committee look for specific candidates to help lead the organization and reach its goals. TIMING There’s never a perfect time for board transition, and each organization will have particular facts and circumstances that will impact transition timing. To help mitigate timing challenges, a board should include a succession planning dis-cussion on its regular agenda at least once a year. A well-timed transition would be planned in advance and allow an incoming board member time to shadow the existing member. Some organizations can accomplish this through a direc-tor emeritus policy. A director emeritus is a former board member who has completed his or her service as a direc-tor but continues to work with the board as an advisor. Transitioning directors to emeritus status provides an orga-nization with a way to make room for new board members while retaining the benefit of the former directors’ experi-ence and knowledge. SKILL ASSESSMENT One of the best tools to help evaluate board changes or additions is a self-assessment program. This can be a very detailed document or process, or it can be very informal. Either way a self-assessment of some sort can help the board identify the gaps in its skill set, expertise, networking abilities, geographical coverage, and ability to drive change. Once complete, the assessment will make the board more aware of specific areas of need, which can help focus the recruiting process for new board members. The most desirable attributes for board candidates include industry expertise, financial and operational expertise, and risk man-agement and technology experience. SUMMARY A well-governed and cohesive, contributing board can be one of an institution’s greatest assets. The next time board transition comes up at one of your meetings, consider these five factors so that when the time comes you can add a director who best suits your organization’s strategic goals. Jeff Green has been in public accounting since 1988. He specializes in accounting, auditing, and strategic issues for financial institutions. He can be reached at 425-303-3017 or jeff.green@mossadams.com. Dustin Birashk has been in public accounting since 1999 and specializes in audits and agreed-upon procedures for financial in-stitutions. He can be reached at 425-303-3023 or dustin.birashk@ mossadams.com. ATTRIBUTES AND PROFILE Now, more than ever, it’s important that all board mem-bers have high ethical standards, personal integrity, an in-dependent approach to problem solving and decision making A FDIC FINDS PLUSES AMID COMMUNITY BANK CONSOLIDATION research study on long-term consolidation in banking and the implications of this trend for community banks was released by the FDIC. Drawing from data over the last 30 years, the paper finds that community banks have re-mained highly resilient amid the long-term trend of banking industry consolidation. A key finding of the study is that institutions with assets be-tween $100 million and $10 billion — most of which can be considered community banks — have increased in both number and in total assets since 1985. The number of banks with assets between $100 million and $1 billion increased by 7 percent be-tween 1985 and 2013, while the number of banks with assets between $1 billion and $10 billion increased by 5 percent. These groups of institutions also experienced growth in terms of total assets. The assets of banks between $100 million and $1 billion increased by 27 percent between 1985 and 2013, while the assets of banks between $1 billion and $10 billion grew by 4 percent. “The FDIC study clearly demonstrates the strength and resilience of the community bank sector and supports the NEXT MONTH: Relationship Banking: Five Ways to Get Back in the Game

FDIC FINDS PLUSES AMID COMMUNITY BANK CONSOLIDATION

A research study on long-term consolidation in banking and the implications of this trend for community banks was released by the FDIC. Drawing from data over the last 30 years, the paper finds that community banks have remained highly resilient amid the long-term trend of banking industry consolidation.

A key finding of the study is that institutions with assets between $100 million and $10 billion — most of which can be considered community banks — have increased in both number and in total assets since 1985. The number of banks with assets between $100 million and $1 billion increased by 7 percent between 1985 and 2013, while the number of banks with assets between $1 billion and $10 billion increased by 5 percent. These groups of institutions also experienced growth in terms of total assets. The assets of banks between $100 million and $1 billion increased by 27 percent between 1985 and 2013, while the assets of banks between $1 billion and $10 billion grew by 4 percent.

“The FDIC study clearly demonstrates the strength and resilience of the community bank sector and supports the conclusion that community banks will continue to play a vital role in the financial system of the United States for the foreseeable future,” said FDIC Chairman Martin J. Gruenberg.

Other findings from the study:
-Consolidation has had its biggest net effect on the smallest and largest banks. The number of institutions with assets less than $100 million declined by 85 percent between 1985 and 2013. Meanwhile, institutions with assets greater than $10 billion have seen their number almost triple, while their total assets have increased more than ten-fold.
-More than 90 percent of FDIC-insured institutions operate as community banks, a share that has steadily increased since the mid-1980s. Moreover, the rate of total attrition through failure or merger has been far lower among community banks than among non-community banks since 1985 — a disparity that has become even more pronounced over the past decade. When community banks do fail or close voluntarily, almost two-thirds of the time the acquirer is another community bank. So while today’s community banks may be somewhat larger, on average, than those of 30 years ago, they continue to meet the definition of institutions providing traditional banking services to their local markets.
-These conclusions are somewhat at odds with the often expressed view that the post-crisis period will be characterized by heightened consolidation, which will increasingly marginalize the community banking sector. The analysis shows that the projected decline of the community banking sector has been significantly overstated. Community banks have, in fact, remained highly resilient amid the long-term trend of banking industry consolidation. While their share of industry assets has declined over time, they are disproportionately important providers of credit to small businesses and serve hundreds of counties and thousands of communities that are overlooked by larger non-community institutions. While the overall trend of consolidation may well continue, it appears unlikely to diminish the importance of community banks or the role they play in our financial system.

The study, “The Continued Resiliency and Importance of Community Banks Amid Long-Term Industry Consolidation,” will be published in the next edition of the FDIC Quarterly.

Read the full article at http://omagdigital.com/article/FDIC+FINDS+PLUSES+AMID+COMMUNITY+BANK+CONSOLIDATION/1711829/209696/article.html.

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