Specific Action Plan and Steps Taken by Bank Management

After a number of intensive brainstorming sessions attended by the new management and the board of directors the new management recommended (and the board of directors approved) the following list of actions:

1. Continue to develop a sound corporate image and reputation in the local community, with the business community, and with the regulators.

■ Better and professional facilities.

■ Socially responsible, educated, experienced, friendly, humble, and professional staff.

■ Deeper community involvement by communicating with civic associations, faith-based organizations, and surrounding universities.

■ Training bank staff on bank regulations, RF banking and finance, RF credit, business development, communications, appearance, and customer service at the newly innovated RF Bank of Whittier Open University.

2. Develop strong roots and community relations to increase the bank's client base and its RF credit (loan) and deposit activities.

■ Call on existing bank holding company shareholders, friends, and our network of customers and potential customers to bring their business to the bank.

■ Call on medical doctors and professionals in our building and surrounding buildings, including Whittier Hospital, Presbyterian Intercommunity Hospital, churches, synagogues, and neighborhood fast food restaurant franchises.

■ Call all existing deposit and loan clients and bank shareholders.

■ Actively ask for referrals.

■ Hold in-person meetings with existing clients and prospects, in order to act as their trusted bankers.

■ Hire staff from the bank's immediate service areas and through neighboring universities and business colleges.

■ Participate actively in the local chamber of commerce.

■ Develop personal working relationships with city and county elected officials.

■ Broaden and stress the offering of diversified RF banking services. Cross-sell bank products and services.

3. Review all bank policies and develop a new set of bank policies and train staff through the new and innovative training program administered by the Bank of Whittier Open University. The following is an abbreviated list of policies developed by the new management team and reviewed and approved by the board of directors:

■ Employee handbook

■ Credit policy

■ Consumer compliance policy

■ USA PATRIOT Act policy

■ BSA policy

■ Customer identification program, used to open new accounts

■ Anti-money laundering policy

■ Large currency transactions and kiting detection policy

■ Availability of funds policy for out-of-town and area checks

■ Audit policy

■ Funds management policy

■ Liquidity policy

■ Wire transfer and automated clearinghouse policy

■ Investment policy

■ Information technology and information security policy

■ Emergency preparedness plan and procedure

■ Disaster recovery plan

■ Privacy policy and procedure (Gramm-Leach-Bliley Act)

■ Vendors' management policy

4. Improve and enhance the security of the bank facilities, systems, and operations.

■ Equip the bank with the most up-to-date alarm and security systems.

■ Run drills and emergency tests for different disaster scenarios, such as fire, earthquake, loss of power, loss of computer connection to the central computer processor, loss of server, and loss of Fed-line connection, which connects the bank with the Federal Reserve System.

■ Continue to implement frequent risk-based outside audit programs in all bank operations, loans, consumer compliance, BSA activities, accounting and finance, and technology.

5. Continue to improve bank quality of services and operating efficiency.

■ Assemble a strong team of RF bankers and instill a conservative, highly analytical, professional, helpful, and friendly operating culture.

■ Continue to hire highly educated, computer-literate, and professionally sound team members.

■ Hire part-time trainees from surrounding business colleges to prepare candidates for future employment at the bank and to fulfill the bank's social responsibility of training future generations.

■ Train staff on systems and on high ethical, moral, and professional standards.

■ Streamline management by focusing on specific job functions and the measurement of staff achievements against the board of directors' approved budget, joint planning, goal setting, and comparing results with budget.

6. Improve the computerization and automation of bank operations and services.

■ Start using a standard client and prospect management information and communications maintenance system on all staff's computers, to keep track of customers, prospects, loan renewals, and reviews.

■ Improve the quality and security of the bank's computer network.

■ Improve the quality of the hardware used by staff.

7. Increase bank deposit base.

■ Continue to improve facilities to increase efficiency and attract new customers.

■ Continue to improve service quality.

■ Tap existing network of community members and friends to open new accounts and to add new RF credits (loans).

■ Diversify bank RF products and services without having too many products that would confuse customers, using the “Keep It Simple Stupid” (KISS) approach.

■ Expand customer base through better involvement with family, including children and grandchildren, to keep an evergreen book of clients.

■ Expand customer base through asking for referrals.

■ Continue to carve and deepen a unique corporate image and culture and promote social responsibility in lending and services.

■ Continue to advocate, enhance, and implement a bank policy of cultural diversity among employees and bank customers.

8. Continue to reduce bank operating expenses.

■ Control expenses on all fronts by paying attention using a microexpense review approach.

■ Motivate and reward team members by using productivity-based and bank profitability-based salary and bonus review programs.

■ Insist on thorough and prudent credit (loan) analysis to reduce loan losses.

■ Develop steps to achieve close scrutiny and follow-up of existing credits (loans) in order to solve any problems and fix them, if possible, before they occur and become seriously troubled and nonperforming and become a loss.

■ Conduct weekly comparisons between actual expenses and budgeted expenses.

9. Increase bank income.

■ Actively pursue the prudent growth of the credit (loan) portfolio through deeper penetration of current depository customers and cultivation of new customers through referrals and community involvement.

■ Introduce RF mortgage financing based on the long years of experience gained at LARIBA finance company.

■ Preserve and retain existing credits (loans).

The following includes strategic steps that were implemented to improve the management process of bank operations.

1. Open and review all incoming and outgoing mail and faxes. The first step taken by the new management was to find out where the bank was, and what was going on in its day-to-day operations. It is important that we share our management experience with the reader, because this was one of the important steps that helps in understanding what is going on in a newly acquired institution. The new chief executive officer (your author) asked that all incoming and outgoing mail and faxes be brought to his office so that he could open the incoming mail with another bank manager, review the incoming faxes, approve the outgoing faxes before they are sent, and read the outgoing mail before the envelopes are sealed, stamped, and mailed. This is done always in the presence of another officer. The management needed to know how the bank was connected to the outside world by, for example, reviewing the incoming invoices and engagement contracts with various vendors to know who the bank is dealing with. This step gave us — in three months' time — a great and comprehensive feeling for the bank, its pulses, and its operations.

2. Hire new employees. We started looking for new employees to build our team. We needed at least two tellers, a highly qualified credit analyst, and a good accountant to start with. We contacted some of the tellers and loan administration officers who had resigned from the bank before we took over, to see if they would come back. Only one teller accepted our offer; all the rest declined. In fact, some of them did not care to return our calls.

We then started thinking about a way out of this dilemma. One of the management team came up with the idea of hiring business school students from the surrounding colleges and training them on the job. This proved to be a great idea. We appointed juniors at the business schools of the colleges and universities surrounding the bank as tellers and administration personnel. Later, these part-time student workers became candidates for full-time positions as operations manager and supervisors. As part of our training of these new employees and the existing staff we thought that if we engaged high-quality qualified outside auditors of bank operations would give the staff a useful hands-on and on the job training. We started looking for a high-quality and experienced auditor of banking operations and compliance. We wanted an auditor who would critique and at the same time coach and train the new staff as he audited the bank. We found an experienced and dedicated retired banker who was passionate about compliance, regulations, and quality of bank operations. We engaged him with instructions to play the dual role of an auditor of our bank operations to uncover deficiencies that need to be fixed and to provide hands-on training for our staff. We asked him to come on a quarterly basis and to make himself available for consultation. We instructed all employees to be open to any comments and recommendations on lack of compliance discovered by the auditor. We also instructed the staff to take advantage of the knowledge and experience of the auditor and not to be defensive and quick to justify why things were not done right. We assembled the staff before the audit started and asked them to look at the auditor as a teacher and a coach and to be truthful and open when answering any questions. The management team also had a meeting with the auditor and told him that the management and the board of directors wanted to learn in great detail what was wrong in the bank, not simply what was done right at the bank. We also assured the auditor that we intended to promptly fix any problems he found as soon as they were recognized.

3. Familiarize management and staff with computer systems and outside service providers. Management also started to familiarize the staff with the computer operating system and with the bank check processing and technology providers in order to know how the business is conducted.

4. Review all financial ledgers and financial operations. On the financial front, the new management went through the bank financial statement and ledger in great detail with the chief financial officer (CFO) and asked a lot of questions. This step was the most important, because we discovered many violations and nonposted transactions. For example, every time the CFO had not been able to balance the financial statement (assets and liabilities), he had assigned the discrepancy to a new bank control account. We discovered more than 30 such accounts and many tens of thousands of dollars that were not properly accounted for. It took us many months and long hours to try to reconcile these accounts and we still were not able to reconcile all of them. That meant that we had to add such discrepancies to the bank losses.

5. Evaluate the quality of the bank auditors. After discovering the unfortunate state of affairs of the treasury function and the professional quality of the financial officers involved at the bank and the fact that the auditors/CPA of the bank never questioned it or mentioned anything about it in their annual audited financial report, management was very disappointed in the quality and authenticity of the CPA audits. We contacted the chief CPA auditor of bank's CPA firm and complained about the unprofessional way the bank accounting and auditing system had been handled. He did not have the time, he said, because he was busy with bigger and more important banks. He relied on two young accountants who would come to the bank to pick up the statements from the CFO and leave without even spending a few minutes to discuss these statements with the officer. This shows what happens when the culture in an organization is to operate on “automatic pilot” and hopes for the best to happen. In fact, the worst happens because the quality of the operation deteriorates quickly as it did with the bank. Management conferred with the board and the bank's lawyer. We had some concern about changing the bank CPA auditor. We were worried that the regulators, the shareholders, customers, and people in general might suspect that the CPA auditor may have been in disagreement with bank management on some issues and that is why the bank management and board of directors were motivated to change the CPA auditor. Management finally decided to push hard to change the auditing firm. It took us a long time to find an audit firm that would accept a bank that was losing money and had a new unproven management. I called Mr. Findley, and he helped us to find a CPA firm that accepted the job. He kindly put in a very good word about the bank's new management. However, the new firm had a condition: they first wanted to review the bank's condition and then contact the existing audit firm to make sure that there is no irregular activity involved at the bank. They did. After numerous contacts and interviews, they decided to become our auditors. We were all very impressed by the quality and depth of their work, and we felt comfortable about this most important bank activity.

6. Develop the unique RF niche at the Bank of Whittier. One of the most important steps in rescuing and restructuring the bank was to develop a strategic vision for a niche that would characterize that bank. The following gives a summary of the process we used to articulate our RF finance system under difficult and challenging conditions.

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