Now that we are in our second week of 2023 and folks have (hopefully) recovered from their holiday festivities and getting back to focusing on business, it is a great time to start implementing plans for 2023. Of course, my favorite way to do this, both personally and professionally, is to adopt New Year's Resolutions. Everyone knows that community banks are largely reliant on relationships. So, while the stereotypical resolution of losing that extra ten pounds isn't appropriate for a community bank, I believe that resolutions for community banks in 2023 should be aimed at improving the bank's relationships. To give you a bit of a head start on setting these resolutions, we are giving you some ideas for what resolutions and relationships your bank may want to focus on and how these resolutions might benefit your bank in 2023.
Marketing & Customer Relationships
One focus of every community banker going into 2023 should be to check in with their customers and assess what they are doing as an individual and the bank is doing as a whole to retain customer loyalty. Banks not only have to consider lending competition with other banks, non-FDIC insured institutions, specialty finance companies, and online lenders, banks also have to contend with other banks, credit unions, and investment advisors on the deposit front. Since 2020 and the government's efforts to prevent serious economic decline as a result of the COVID-19 pandemic, most banks have had an abundance of deposits and focused efforts on seeking opportunities to convert their deposits to loans. However, in the recent rising-rate environment, banks are now having to focus on retaining deposit customers. Bank customers with large deposit accounts, despite their past loyalty, may be tempted to transfer their deposits to an investment account offering a much high return on their deposits than the bank is able to offer, especially as time deposits mature and reprice.
Of course, one way to retain these deposits is to increase deposit pricing, but eventually competing on price alone becomes unsustainable. Another, potentially lest costly, way to retain deposits is to revisit the bank's marketing plans and make improvements to the bank's customer relations plans and procedures to enhance customer loyalty. Consider the best way to reach out to the bank's customers, both current and prospective, in an effort to enhance customer relationships, rebuild relationships that may have slipped while communities were focused more on safety and COVID-19 protocols than building in person relationships, and increase the bank's market share.
Another benefit of resolving to focus on maintaining or improving the bank's marketing and relationships with its customers is the likelihood these efforts will yield growth and diversity with respect to the bank's loan portfolio, which may reduce the bank's risk profile, especially given increased concerns regarding asset quality. To the extent that the bank has any significant risk concentrations in any industry, geographical area, or loan type, it may be beneficial to the bank to resolve to create relationships with current and prospective customers in industries or geographical areas outside of those areas in which the bank may have concentrations.
Another relationship-oriented resolution in 2023 for community banks is to take intentional actions to enhance the bank's culture. Similar to customer relationships, building a corporate culture that values and empowers its employees helps a bank attract and retain talent. It is no secret that community banks are struggling to find and maintain talent. Take some time at the beginning of this year and take inventory of what makes your bank special and why employees are proud to work at your bank and make a plan to build on these positive attributes throughout the year. Be sure to focus on encouraging employee engagement and recognize employees for their contributions. Including employees in the bank's initiatives and plansgives them a sense of purpose and encourages employees to take pride in the bank. Banks could even solicit employee ideas for ways to engage with customers and enhance the bank's relationships with customers and the communities served by the bank.
Another resolution in 2023 should also be to evaluate the bank's relationship with compliance personnel, both internal and external. I know, incredibly predicable for a lawyer to suggest a resolution related to compliance…and yes, while we lawyers always think compliance and risk management is important, I think 2023 will definitely be an important year to evaluate the bank's compliance programs and risk management, especially if the bank has experienced growth over the past couple years. Resolve to assess the adequacy and effectiveness of the bank's compliance and risk management policies and procedures in 2023. Also consider what the relationship between the bank's management team and compliance officers looks like. Are compliance officers involved in actions aimed at achieving growth or are compliance officers consulted once growth has been achieved? Regulatory agencies expect for compliance policies to be appropriate relative to the size and risk profile of the bank. Many banks focus on growth and fail to update compliance policies and procedures to reflect such growth.
Compliance may also suffer as the bank is faced with staffing shortages. If sufficient staffing and other resources are not available to implement and follow up with the bank's compliance policies, policies and procedures may be appropriate for the bank's risk profile as adopted but not as executed. Consider whether the bank has enough staff to perform all manual acts set forth in its compliance policies such as reviewing potential suspicious activity alerts and all supporting documents such as deposit slips, wire transcripts, and check images). If not, the bank should consider whether the process can be updated to require fewer manual tasks and reviews, whether certain functions could be outsourced, or whether the bank needs to devote resources to increasing staffing in order to properly implement its compliance policies and procedures.
Branch Footprint and Community Accessibility
A final idea for a bank resolution is to take some time to assess and enhance the bank's relationship with the communities served by the bank. Many banks across the country have spent a lot of time evaluating their branch offices and determining whether the bank should maintain each of its brick and mortar branch locations. Efforts in 2023 should be no different; however, instead of simply determining whether an existing branch office should be eliminated due to decreased foot traffic, consider whether the branch should instead be relocated. Community banks are about communities, and I'm willing to bet that the communities served by your bank have changed over the years since many of the existing branches were established. Take some time to evaluate how your community has changed and what changes the bank can make to adapt to the changes in the community. It could be that traffic patterns have shifted since the branch was established and is no longer as convenient to its customers or the existing branch location isn't as accessible due to development or other changes in the area. Also consider whether the bank needs to establish a branch in an additional location in order to achieve the bank's growth goals or to expand into another market to tap into a new customer base to increase deposits or actively diversity its loan portfolio.
Whether your bank
determines that it is appropriate to adopt any of these resolutions for 2023 is
dependent on the institution; however, I can almost guarantee that no matter
what goals you set for 2023, any resolution aimed at enhancing the bank's
relationships with its employees, customers, and/or communities will be
beneficial to the bank in 2023.