Pub. 7 2016 Issue 4

Winter 2016 19 West Virginia Banker and remain compliant with applicable regulations. One would ask, “What key leadership positions should be considered in succession planning?” of which many would obviously center their discussions towards the President or Chief Executive Officer. It would be prudent to continue on down the management ranks within your organization and have your succession plan consider, at a minimum, the following key positions: •Senior Lender •Chief Financial Officer •Chief Operating Officer •Chief Information Officer •Business Development Officer •Compliance Officer / BSA Officer •Director of Risk Management / Internal Audit Function Many community banks have very tenured Presidents or Chief Executive Officers at the helm; effectively navigating their banks through complex and difficult times, especially given today’s economic and regulatory environment, however, the average expected duration of these individuals is becoming an increasing red flag as they get closer and closer to the final chapter in their banking career. Many of these leaders are nearing, or in several instances, are beyond retirement age and for some more proactive banks, a protégé’ is in the shadows waiting to emerge. A study by AT Kearney and Indiana University found that companies (not limited to financial institutions) that promoted from within often outperform those who recruit outsiders. In addition, it can cost up to 65% more to hire an outside individual and only 40% of Chris Nice is the Partner- In-Charge of Financial Institutions Services Group of Arnett Carbis Toothman LLP and is located in the Charleston, West Virginia office. Mr. Nice has over 20 years of auditing and consulting services in the financial institution industry. Several financial institutions are finding it more cost beneficial to outsource various functions, such as certain aspects of their regulatory compliance function as well as their internal audit function, to external service providers. Although outsourcing does not discharge management and the board of directors from their responsibilities, it has become an area in which they can effectively mitigate certain risks within their organization while also ensuring accountability and independence is not compromised in the process. What will the community bank of 2025 look like? Obviously different, but most certainly viable and they will remain the cornerstone of the communities in which they serve. Community banks must ensure their succession plans include the aforementioned key leadership positions. The talent pool within community banks has been a long sought after talent pool, and much recruited base, for which larger banks have recruited from. Larger banks, as well as those in more urban markets, have the ability and resources to provide for increased compensation and benefits packages, including more vertical or lateral advancement, to potential candidates resulting in an ever increasing burden for community banks as they attempt to develop, retain or attract suitable individuals in key leadership positions. Futuristic, or truly proactive boards, will assess their current talent pool beyond the board member and President and Chief Executive Officer positions to identify known or potential areas in which attention is warranted to ensure that key leadership positions within their organization are appropriately covered in not only the short term but more importantly, the long term so that they are effectively positioned to serve the needs of their customers, adhere to regulatory and financial reporting requirements as well as enhance the financial well-being of their shareholders.  those leaders lasted for two years. Unfortunately for many banks, despite their concerted efforts and good faith attempts, coupled with perhaps being located in a more rural setting, they are having great difficulty in developing an internal candidate or recruiting an individual with long term potential. With such an emphasis on board and CEO succession planning, many banks have not formally considered the financial, reputational and regulatory impacts of some of the other key leaders within their organization. Despite having a seasoned President, a bank would have great difficulty complying with the ever growing financial reporting and information technology requirements without a Chief Financial Officer and Chief Information Technology Officer to ensure the related risks have been appropriately identified and mediated to an acceptable level within their board’s risk tolerances. In addition, banks that are without a prudent Senior Lender that is well known and respected within the community presents additional challenges as banks strive to grow their most significant earning asset, or more realistic in today’s market, maintain their existing loan portfolio in hopes of minimizing any additional tightening of their net interest margin. Keeping more and more bankers up night is the abundance of new compliance requirements that emerged as part of the Dodd Frank Act. Heightened scrutiny by the Consumer Financial Protection Board and agonizing Ability to Repay / Qualified Mortgages requirements have put an additional strain on banks’ compliance functions resulting in many retirements, several of which are experience accelerated retirements of their compliance persons, leaving the bank without a qualified replacement. What will the community bank of 2025 look like? Obviously different, but most certainly viable and they will remain the cornerstone of the communities in which they serve. Community banks must ensure their succession plans include the aforementioned key leadership positions.