A detailed timeline will be developed for each group. Organizing a bank is a process separated into different phases. Depending on the application strategies adopted, certain phases will be included or eliminated. As an example, if the group decides to form a holding company then different phases are included to achieve that goal. It is not a linear path, but a process of working on multiple phases at one time. Each phase will then be separated into specific tasks necessary to complete a specific phase. The timeline will reflect the major phases of the project and identify strategic decisions, organizational committees, milestones, deliverables, and timeline assumptions. Once the timeline is approved then specific meeting goals can be identified.
It is necessary for the group to conduct regular board meetings. It is also understood that all directors are busy and time is important. Utilizing the timeline agendas can be created for the entire project. Specific tasks for each board meeting and items to be completed between board meetings are identified. By distributing the agendas early, meetings are efficient and purposeful. This combined with the ability to attend meetings electronically increases participation and shortens the process.
Organizational Strategies and Structure
Matching the directors’ goals and objectives with the correct organizational strategies assists in creating a cohesive application. Although all banks must obtain deposit insurance from the FDIC, they can apply for either a state or national charter. The group can also apply for a holding company. Furthermore, each state has different chartering approaches. Some states require the group to raise capital before they submit a charter application. As an example, Arizona allows the group to file an organizational application, separate from the FDIC, to allow the group to raise capital before hiring a president or selecting a location. Under certain circumstances, this could substantially reduce organizational costs. Directors’ Services experience in all the various filing strategies allows the group to select an appropriate organizational path.
Detailed Organizational Costs
Determining the total organizational costs based on the selected organizational path is essential. A detailed schedule of organizational costs is provided to assist the group in determining cash flow and controlling costs. By controlling organizational costs, the group reduces the amount of the capital raise.
Director Development Program
Directors’ Services LLC provides a custom director development program for each client. Its purpose is not to make each director a banker, but to make each organizer a bank director. Leadership begins at the board level. Directors cannot be leaders if they do not understand banking and their roles and responsibilities. The program is designed to address at least the following:
- How does a community bank become profitable?
- What are the regulations and my responsibilities?
- What is Basel III? Why is it important?
- What is Risk Management? What is our risk appetite?
- What are the key ratios? What do they mean?
- What are the bank committees?
- What are my Liabilities?
- What is CAMELS?
- What is all this jargon and terminology?
- How do we handle technology?
- What is the role of the regulators? Who are the regulators? Who is the CFPB?
- What are Enforcement Actions? What is a MOU? What is a cease and desist order?
- What are the Red Flags something is not right? What are the things I should do and what should not I do?
- What should I do with the regulatory examination report?
- How do I obtain and evaluate bank data on the competition?
- What is compliance?
- Who is responsible for what at my bank?
- What are the key issues?
Once the directors, as a group, obtain a specific level of understanding, creating a strategic plan and communicating with the regulators is easier and smoother.
Connecting micro market area factors with macro community bank considerations is one objective of the feasibility study. It is the foundation for positioning the bank and identifying market needs.
The feasibility study includes, but is not limited to, discussions concerning the business model, regulations, regulatory environment, current banking environment, capital adequacy, and the proposed market area. It may also include a market area questionnaire if desired by the group. Regulators encourage detailed support for strategic plan assumptions and financial projections.
Analysis of Initial Capital and Capital Adequacy
Capital adequacy is defined differently by each of the stakeholders in the bank. Shareholders want initial capital low to create a greater return on investment. Clients of the bank want initial capital high enough to originate loans and create a sound bank for their deposits. Directors want initial capital low enough so it is easier to raise capital. Regulators desire capital to support growth, absorb unexpected losses and protect the insurance fund from any losses. Balancing the interests of all stakeholders cannot be boiled down to a single ratio or arbitrary number. To correctly determine both the initial capital and future capital adequacy, an integrated analysis of the strategic plan, risk appetite, market area data and other application information is required. Consequently, a group should not rely on published reports or what a “banking expert” may think is the required initial capital. Each bank has different risk appetites, is seeking approval at different times, and weight the competing stakeholders’ interests differently. Directors’ Services analyzes the necessary information and assists the group in identifying the correct initial capital and future capital adequacy of the bank.
Strategic Planning/Risk Management
Strategic planning/risk management is essential for creating a successful community bank. However not all strategic plans are created equal. Recently the FDIC indicated some concerns about strategic plans for de novo banks.
The FDIC has identified the following weaknesses in business plans:
- Insufficient details regarding mission, business strategies, business lines, products, services, competitive aspects or geographic markets, particularly when business plans are submitted in an outline or high-level format rather than the requested descriptive narrative format.
- Strategies that are lacking, overly broad or undefined; for example, establishing a strategy focused on serving commercial customers without identifying the products and services to be offered.
- Weak underlying analyses or inadequate/unsupported assumptions.
- Insufficient disclosure regarding business history, transactions, relationships or strategies with respect to operating uninsured entities seeking deposit insurance.
- Inadequate details with respect to management or particular roles.
- Errors in financial projections, unexplained adjustments, or large “catch all” or “other” categories.
- The lack of adequate execution strategies, such as assuming the proposed institution will become a market leader in particular loan or deposit products without providing sufficient details as to how the objective is to be achieved.
It is important to draw a line through the organizers’ skill sets, the feasibility study, strategies to the financial projections. Too often this lack of continuity and detail results in regulatory concerns. Directors’ Services creates strategic plans based upon the specific qualities of the organizers and market area.
Completing the interagency de novo bank application requires consistency, detail, supporting documentation, and knowledge of the current regulatory and banking issues. Through Directors’ Services’ experience, processes, and research each group’s application is designed to reflect their specific goals, market area and skills. In today’s regulatory environment differentiation and detail are important.
As a client, each group is provided a secured “venue” or “room” at the website. Unique access codes are provided for each group. In this room, all pertinent documentation will be maintained for review be a director at any time. Draft feasibility studies and strategic plans will be available in your specific room. Directors will be able to edit and review other edits within the room. This service significantly increases the efficiency of the process.
Directors’ Services LLC periodically creates research pertinent to de novo banking and community banks. These white papers will be available to all clients and are designed to increase each director’s understanding of community banking.