Banking

Changes in technology, demographics, globalization, regulations, and interest rates have altered the business of banking dramatically. In the past few weeks, the Wall Street Journal reported that for the first time ever, more people are using mobile banking apps than going into bank branches on a weekly basis (39% versus 24%). The stat is not all that surprising. What is telling is how quickly we reached that pivot point.

“The new standard is intended to provide users of financial statements with more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. It improves the accounting model to better meet the requirements of today’s complex economic environment.”

FASB Chairman Russell G. Golden / January 5, 2016

On January 5, the Financial Accounting Standards Board (FASB) issued a new Accounting Standards Update (ASU) – the Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. According to FASB, the update is intended to improve the reporting model for financial instruments, giving users of the financial statements with more practical information. The ASU mandates a number of items that affect banks, with implementation set for 2017 for public companies and 2018 comprehensively.  

As 2015 was coming to a close, the AICPA Conference on Current SEC and PCAOB Developments brought together financial statement regulators, preparers, and auditors in Washington D.C. to discuss accounting, reporting, and audit practice issues. Keynote speaker, SEC Chairwoman Mary Jo White, along with other speakers and panelists discussed actionable steps for improving the U.S. financial reporting system. 

The last time the Federal Reserve increased rates was 2006. After predictions and discussion of a rising rate environment for a while, a unanimous vote brought the interest rate up a quarter-point this past week. While Chairman Janet Yellen says that future rate hikes will “come slowly” and such a minimal increase is unlikely to move the needle much, it warrants community banks taking the time to consider how it will impact balance sheets – in light of how it will influence customer behavior.

The internal audit function can be a powerful resource for creating competitive advantages and driving growth. It’s relatively intuitive to consider how identifying efficiencies and mitigating risk can aid in the sustainability of an organization. A deeper look at the internal audit (IA) process reveals that it is also incredibly effective for nurturing a strong bank culture during an M&A transaction. 

Let’s begin today with a brief multiple choice quiz. Internal audit allows your financial institution to do which of the following:

1. Increase revenue production

2. Cut costs

3. Produce reliable numbers for informed decisions

4. Increase efficiencies

5. Reduce fraud risk

6. All of the above 

Community banks have many strong assets that offer every reason for optimism. Even in the face of technology change, new demographics and increasing globalization of services, these smaller, local institutions have a host of leverageable assets.[1]

Internal audit is an objective source of confidence for stakeholders, and proof that your bank is compliant and prepared for the future. Typically, an internal auditor will focus on things like reputation, growth, and corporate governance by keeping sight of controls and management, risk, and operations. The most valuable and effective internal auditors, however, go beyond those functions. They help the bank to stay aware of business trends and remain anticipatory so you are equipped and prepared for upcoming challenges, risks, and opportunities.

The competitive spirit is a driving force that pushes each of us to reach unimaginable heights. It’s also what makes sports stories so endearing – particularly those where an underdog overcomes great obstacles to win.  I particularly like this quote from Rocky Balboa (Sylvester Stallone) in the movie Rocky: 

Not long ago, we examined the value and importance of a healthy bank culture.  In it, we shared the HORNE Wise Firm model, which is based on the belief that a strong foundation is built on the combination of ‘we’ and ‘service’ – a cultural belief in working together to make a difference. We also shared some powerful statistics that indicate per-employee profit increases from $7,802 to $27,401 in organizations with a shared culture based on vision, mission, and values. 

Last week at the 40^th annual AICPA “National Conference on Banks & Savings Institutions” in Washington, DC, change was on everyone’s mind. The conference coincided with the second Republican primary debate and the even bigger debate about whether the Federal Reserve would raise interest rates for the first time in almost a decade. 

Recently, we discussed the changes impacting the banking industry as non-bank companies have begun to employ investor funding and new automated models to underwrite loans with unprecedented efficiency. In the short time since this competition emerged in the marketplace, it has had a significant impact on consumer, mortgage, and small business lending.

I recently had the pleasure of having dinner with Senator Richard Shelby (R-AL). We were in Dallas, preparing to watch our shared alma mater, the Crimson Tide of Alabama, take on the Wisconsin Badgers. It was a great honor to connect with a man who has meant so much to the state where I was born, and who continues to work hard for the banking industry.