" I like the dreams of the future better than the history of the past" Thomas Jefferson
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Planning must be a living document. Why in the world would one want to reinvent a planning document each and every year. It must be sound at the first writing and adjusted each year as change effects us all.
The 19 member administrative council of the California Banking Group participated in preparing the groups Direction Statement at a two day retreat where the overall direction of the group was thoroughly discussed. After the retreat everyone was on the same page. The document was truly a group effort. Subsequent to the writing of the Direction Statement each product manager wrote a detailed near term business plan for their specific function.
The document originally written in 1980, and in my opinion stands the test of time and while it was last adjusted in 1983, would, with a few adjustments could well be titled - A Direction For The New Millennium, provided you are people sensitive: customers, employees, shareholders and the community.
The document was introduced, after presentation to the managing committee of the bank, at a mini conference in Los Angeles for the senior staff officers of all the functions at the Group and Regional level, and then was distributed to over 2,000 officers in the group, along with the Group Manager’s personal goals. All officers were aware of the bank’s mission statement, the group’s direction and the group manager’s personal goals.... all coordinated.
As a reference First Interstate Bancorporation was the 7th largest bank holding company in the United States. First interstate Bank of California was the 14 largest bank with assets of $22 billion. The California Banking Group’s assets were $10 billion, 335 branches, over 8,000 staff members and very, very highly profitable.
I was proud to be a part of the California Banking Group, when we clearly were years ahead of our competition and the marketplace. The officers and staff were smart, hard working, team players and there may never be a time again when an organization, management and staff worked so closely together. The California Banking Group was a critical participant in making the bank truly - The Quality Bank.
I believe the officers and staff would agree in the sharing of this document, as an excellent example of a direction statement, considering the time it was written - consider it a historical document.
Donald P., Crivellone Former Executive Vice President & Manager, California Banking Group
This paper deals with the issues of the eighties. It will focus on several broad areas of opportunity and challenges, which met successfully, will produce continued distinction in our overall performance. It will set forth a perspective from which to look ahead. It will describe in general terms the direction that will lead us to successively higher levels of accomplishment.
CHANGE
Someone observed many years ago that the only process, which never changes is the process of change itself. In banking, the pace of change is accelerating. Markets are becoming more specialized, as are the products we offer now and will be offering in the years ahead. Technology continues to supplement our traditional delivery system - the branch network. Today we have ATMs and remote banking. We will have additional sophisticated money management and information services through systems such as Project Edge. We will see banking from the corporate office through the telephone and specialized terminals. With technological advancements come changes in job functions, customer attitudes and expectations, regulation and legislation on and on.
Obviously, many of the forces that bring change are beyond our control. But, with relatively few exceptions, the means we employ to adapt to change are within our control. By looking forward, by keeping abreast of developments and trends, we can plan to change. We can adapt over time through the process of evolution.
We can know where we are going and why. We must be prepared for changes that will occur. We will clearly emphasize evolution as we follow our course in the 1980’s.. Our actions will be thought through before they are implemented. We will preserve the integrity of our banking group and of reasoned progress.
PROFIT
In the past, profit has been given the connotation of a “dirty word.” But it is not. Without a fair profit, we cannot be the institution we want to be. We cannot execute our strategies, be involved in our communities, invest in our future, or offer security to our customers, owners, and employees. Profit sustains us, gives us cause to be better, is both a means and a measure of a quality organization.
Pressures on profit are becoming more numerous and more intense. Our responsibility is to deal with them effectively in order to ensure long-range profitability for the California Banking Group and, in so doing, First Interstate Bank of California. We are and will be a profit sensitive organization.
PEOPLE
We are people serving people. Let us be forward-thinking professionals, concerned for the well being of our fellow employees, our customers, and our enterprises. Let is be said to us that collectively that we are The Quality Bank.
PRODUCTIVITY
Productivity will be a subject of increasing importance within the California Banking Group. We will be increasingly concerned with how can we do more with the people, facilities (maximize the use) and equipment we have now and will add in the future.
Our environment consists of many factors -economics, people, completion, regulation, politics, energy, technology and more. For purposes here, observations will be made about only a few of them.
ECONOMY
We should recognize that as in the past, we are faced with continuing economic uncertainties resulting from variable interest rates, inflation and unemployment, which severely impacts our cost of funds, which translates into fluctuating spreads and accentuates the business cycles.
COMPETITION
Our competitors today come from many areas - other California banks, savings and loans, credit unions, non-California banks domestic banks and foreign (offshore) banks.
Perhaps more importantly, non-traditional financial institutions, including insurance companies, brokers, retailers, and others are entering our arena. What few distinctions remain to differentiate our products are disappearing. In the final analysis, the distinguishing factor will be ----
--which obviously will be judged not only be its quality, but convenience and price.
Our challenge is: to provide quality service at market prices; to absorb all the related expenses of staff, facilities, delivery systems, and return a fair profit, while maintaining a growth position in the marketplace. We must find new sources of revenue, develop new products (stay on the leading edge with product development), maintain adequate spreads and optimize utilization of our resources through increased productivity; all of this while maintaining a competitive edge in the quality of service.
REGULATION
Regulation as well as deregulation is an ever-increasing burden upon all of us including customers. It is important that we continue to work toward easing the challenge of both regulation and deregulation while supporting the maintenance of regulations, which are appropriate and fair to the protection of businesses and consumers. We must be prepared to respond to changing regulations as they apply to financial institutions, such as the deregulation of interest ceilings and the transition to interstate banking.
TECHNOLOGY
The changes in technology occur at a rapid rate presenting the bank with mufti-faceted opportunities,. The practical limitations to the implementations of new technologies are the costs of converting existing systems, and the shortage of programmers needed to put them into place.
Looking into the future, then we see a diverse and changing environment. Our ability to manage change will determine our success as an institution.
In order to carry out our strategies effectively it is essential that we have the proper organization in place. Our utmost responsibility individually and as an organization is to be professional. The structure of our group and regional staffs is designed to foster professionalism. Our officers are specializing in the key areas of Personnel, Operations, Sales, Product Management, Financial Analysis, Commercial lending, Real Estate lending, Consumer lending, and the Middle Market. Branch Administrators are responsible for the day-to-day supervision of branches, allowing Regional Administrators to manage broadly and plan for the future.
Professionals on the Group Staff in conjunction with those on regional staffs will develop the specific strategies including new products necessary to achieve our goals.
Managers are responsible for every aspect of their product or area of expertise, be it in the branch, region or group. They will be responsible for plans and strategies which includes having information, as appropriate, including the following areas:
In summary, then our organization calls for professional specialization in the context of a team effort-each member is necessary to and complements our process overall.
As mentioned earlier, markets are changing dramatically in both the consumer and business arenas. Banking habits and customer expectations will interactively reshape the kinds of products and the methods by which they are delivered to customers.
Market segments themselves will change, and we must anticipate the ramifications of these changes. In the consumer area, for example, current projections indicate that by 1990 over 50% of the Los Angeles county population will be of Hispanic origin.. with important representation throughout California. We must understand and respond to the requirements of this market group. However, we expect changes in markets to be accompanied by changes in our products and methods of delivery.
Two considerations are critically important here. First, customer education will become increasingly more important in acquainting them with new methods of conducting banking business. Second, perhaps most critical, is our internal attitude: how we understand and support our goals and objectives. Whether it be the use of a new service or gradual changes in products and changes to our structure (such as the selection of particular branches for commercial banking). Using this approach, we will be successful in the transition that the marketplace will require.
BRANCH BANKING
The branch will continue to be our primary point of customer contact i.e., our most important delivery vehicle. However, changes in or markets, products and electronic systems will have a dramatic effect on the way we do business in our branches. Our world is becoming increasingly complex. The financial services we offer in our branches will continue to expand, including sharing our facilities with third party providers of selected services or sharing facilities outright with businesses that complement our strategies. We are following a branching strategy that relates branch size and products to the type of market to be served. Factors taken into consideration include:
Our branching strategy recognizes both the consumer and business markets. On the consumer side, we are building, and will continue to build, a network of branches to provide convenience of access throughout the state. On the business side, we will be concentrating expertise, service and product mix in selected branches.
Our branches are broadly classified in one of five categories:
Major Community Branch
Full range of banking services from major business relationships to all aspects of consumer banking
Community Branch
Limited commercial loans and allaspects of consumer banking
Major Consumer Branch
Principally consumer banking
Consumer Branch
Consumer banking only
Specialty Branch
Built to serve an explicit market segment, including self-service branches (no staff, maybe one person - now testing); privatebanking
New branches will be smaller, usually 3,500 sq. ft. to 2,200 sq. ft. or smaller, and will be built as mufti-use facilities, to allow for disposition as might be required by a changing market place. As stated earlier, the market to be served will determine the size and type of branch to be built.
Existing branches are also being changed to the appropriate configuration for the market served. For example, the Middle Market program will places new relationships in Major Community Branches and existing relationships are being transferred (usually when a management change occurs in the branch to minimize disruption to the customer and maintain morale of the branch manager) to these concentration branches.
Branches with also be measured by square footage, thus those branches with excess space will be required to seek alternative uses of the excess space. A barber shop?
Branch banking is profit sensitive. Branches are profit centers, and must accurately reflect the true cost of doing business, including carrying assets and liabilities at fair market rate and having a proper allocation of overhead. Our goal is to have every branch earn a minimum of a 2% pre-tax return on its earning assets..Branch automation is a key ingredient to our growth as an organization. Automation will allow more of our resources to be used for our own people and for our customers. By having machines handle the mundane, repetitive tasks will allow our people more time to serve our customers and prospects and increase our penetration of the marketplace.
SELF SERVICE BANKING
This term will become more commonplace as we continue through the decade of the eighties. Customer activated banking will be a major factor in improved productivity.
Automated Teller Machines: While providing varied services now, ATMs will become the principal source of cash for self service customers. Deposits will be made increasingly by direct deposit, and payments will be automatically deducted from accounts or handled via Telephone Banking. All of these services will reduce the need for customers to come into the branches for basic transactions. ATMs will continue to complement our branch distribution system and the services delivered through ATMs will continue to grow. The ATM like all self service systems is a mechanical device on one end of a telephone line talking to another mechanical device (our computers). We can program those mechanical devices to do whatever wish, no big secret here.
Remote Banking: Our branch network will be further complimented by telephone, cable TV and personal computers and terminals located at home or work. Our current testing of this product in the San Fernando Valley are proving successful.
Audio banking (telephone) and video banking (television) will expand for both business and consumers. Everything that can be stored on a computer can be routed by an audio or video response to a customer at his home or business. The customer can access their account, loan and trust information along with other data base information (educational, news, weather, merchandise as an example) or input their own information to the computer by entering the appropriate numbers to their telephone, remote control or computer. Our customers can and will be able to carry out the following transactions:
Remote Banking Services have expanded our distribution capabilities beyond the traditional branch network. Rather than expanding our number of branches in a community we have the capability of distributing most of our services to all the homes and businesses within a community over existing telephone networks. This will be the ultimate in location convenience for all of our customers. More importantly most of their banking needs can be accommodated 24 hours a day. Alleviating the need to concentrate branches in highly populated areas we can branch in new communities where we have no direct presence.
BANKING WITH CARDS
The role of plastic cards will continue to increase in importance during the 1980’s. Over the next several years plastic will become the primary access device for credit and deposit accounts as technology, systems and networks bring electronic banking to the point of sale across the US and, eventually around the world. Our banks cofounding of INTERLINK is an important step in this process. These advances will allow for a small family of cards with a wide range of services that will look like this:
Credit and Debit Card COMBINED
Front
Visa or MasterCard on Front (credit card)
Back
Day and Night Teller (ATM )
$200 Check Guarantee
Cirrus (Interstate Network)
INTERLINK (POS)
.
Debit card only
Day and Night Teller
Cirrus
INTERLINK
Cards are keys that allow customers to chose the services they want, to self-bank. They decide when, where, how they will use the service and will be willing to pay a fair price for the value of convenience, flexibility and freedom the cards deliver, providing us new fee income sources. Be it an ATM cash withdrawal or retail purchase near home, in another state, or halfway around the world, the card makes it possible. First Interstate will maintain its lead position in electronic card services, exemplified by our large ATM network and debit - credit card base, by adding new electronic services and new places to use the cards.
We will recognize the specialized needs of market segments, and their potential for additional fees by delivering custom cards such as the “premium” credit card for high income/net worth customers.
POINT OF SALE
POS terminals and similar electronic technology will grow dramatically this decade. By eliminating paper and providing on-line verification and immediate transfer of funds, POS terminals reduce costs, fraud losses and float and provide us fee income. The benefits to consumers, retailers and the bank assures its success.
POS terminals, which we call NOVA will initially provide electronic authorizations for MasterCard, Visa and Travel & Expense cards plus check verification and guarantee. Later, with addition of plug-in-pin pads and printers or new, fully-integrated replacement terminals full data capture at the point of sale is possible.
We will continue our aggressive terminal and electronic cash register (ECR) programs consistent with our goal of being a leader in electronic banking to consumer and commercial customers.
AUTOMATED CLEARING HOUSE
The automated clearing house (ACH) continues to increase in importance as an integral part of our overall payment system. It facilitates credit items such as payroll, dividends and social security deposits as well as direct debits, i.e. insurance and utility payments, which eliminates the issuing and processing of paper items. Eventually other government payments will be available through ATMs.
As markets evolve, so must our product mix and pricing policies. We must find an equilibrium between the products that we will offer and what the market will pay for them -- while at the same time providing a fair profit to the bank.
For example we must examine the selective kinds of criteria that go into pricing considerations -- for asset, liability and fee oriented products the following are necessary ingredients:
The market place clearly determines price accountability. Therefore we must constantly monitor the cost of developing, delivery and servicing our competitive products. The increasing difficulty in maintaining spreads will force us to increase and protect our yields, move more assets to variable rate pricing, shorten maturities or match assets and liabilities, so that our bank can maintain appropriate spreads.
Liability costs will be scrutinized to utilize marketplace products such as interest rate swaps, financial futures and fixed rate purchased funds, to better match our assets and liabilities, whether they are variable or fixed rate (such as our fixed rate 5 year rolling bonds to finance our credit card outstanding).
The quality portfolio side of our balance sheet requires close attention throughout the eighties.
COMMERCIAL PORTFOLIO
Improved information systems will permit us to target those industries and markets that represent the Bank’s greatest opportunities for quality commercial loan growth in the eighties. We want to increase our market share - particularly for middle market companies ($5 - 50 MM in sales); agri-business; high technology; mortgage lines of credit ; and asset based lending. We feel this can be achieved while at the same time upgrading the quality of the portfolio. This effort will be increasingly concentrated in select branches, staffed with experienced professionals.
As the level of sophistication among corporate customers and prospects increase the level of expertise of our commercial officers will need to keep pace. Therefore, we will direct increased emphasis towards recruitment, training and motivation of our commercial calling officers. Workshops, seminars and training programs in general as well as specific topics will be analyzed and presented in order to provide the necessary tools to accomplish our mission of market share while emphasizing quality. Career paths that promote from within our Group while striving for the highest level of professional, educated and experienced officer will be accentuated. Continued concentration along industry and geographic boundaries will allow for our branch system to deliver and service products to an ever increasing, quality corporate customer base.
MIDDLE MARKET
There is no mystery to the Middle Market. The market has always been there, in one form or another and we along with our competitors have been there to serve it. What has changed, however, is the manner in which financial institutions approach the marketplace. There are essentially three factors at work today that have forced this change. First, the quality of available resources (qualified people) and the realization that this is not a temporary phenomenon. Second, the continuing emphasis on productivity. Last, and perhaps most important, the ever increasing challenge to maintain our profitability objectives.
In response to the foregoing, our approach will be to field highly skilled and well coordinated teams of commercial lending officer from select number of offices throughout the state. In general terms their objectives will be to retain and where possible expand relationships with our existing customer base and aggressively solicit business from targeted prospects. In addition, we will target products principally within the board categories of credit, trade finance and cash management that have the greatest market appeal and potential. First and foremost, however, will be our overall goal to establish FICAL as an aggressive participant in the Middle Market.
REAL ESTATE PORTFOLIO
Construction Loans: The specialty in this portfolio over the years has been in tract construction which has resulted in over-concentration in the area. Our strategy is to achieve a construction loan portfolio of approximately 60% residential and 40% income. Within the residential area, further diversification is contemplated into some of the governmental insured programs, manufactured housing, and redevelopment projects. A more effective management information system is being developed which will assist us in better monitoring the portfolio for diversification in these categories, as well as, price and geographical concentration. These strategies should provide us a better risk balanced portfolio which we anticipate will continue to average approximately 11% of the total of FICAL’s overall loan portfolio.
Investment Loans: Our goal will be to continue a high-quality, well diversified portfolio of investment loans. Our principal thrust will be to improve the yield of the existing portfolio by offering attractive refinancing options and payoff incentives. With respect to new investment loans (with the exception of workout loan programs) our policy is to make only investment loans with floating rates or to set short maturities on fixed rate notes. No major growth in the investment portfolio is anticipated for the remainder of the 80’s. However, we will aggressively pursue residential mortgages for the mortgage company, who will fund and book them and package them for sale in the open market.
CONSUMER CREDIT PORTFOLIO
The way in which we deal with the California consumer will change substantially during the decade of the eighties from the way we have in the past.
The California consumer will become more affluent, have more leisure time, and be better educated.
Consumer credit will have to be in continual change to keep pace with not only the changing consumer, but competition and ever-increasing demands upon profitability.
We will focus on the kinds of consumer loan products offered and the manner in which they are delivered. Simplification of the loan products will be achieved by utilizing systems such as the versatility of Balance Plus, i.e. lines of credit including those supported by real estate.
Our delivery system to the consumer will change with computerized loan documentation and the possibilities of consumers making their loan requests by remote banking.
The opportunities for sharing programs and services are unique and will continue to be enthusiastically pursued. While this document discusses the California Banking Group, principally, we should all be cognizant of our relationship to the total bank, our affiliates and the holding company. There is a great potential for career opportunities within the entire organization. We have pledged 20 officers per year to the World Banking Group, so apply!
PEOPLE
A renouned historian observed that every enterprise is, in the final analysis, a human enterprise -- its success or failure is directly related to the quality of the people engaged in it. Clearly people are our most significant resource: to be understood in terms of their desires, expectations and frustrations; to be rewarded for their accomplishments; to be thoroughly directed and equitably managed. The consequences of the changes described here will be to provide more opportunities for job enrichment and career enhancement.
Communication is “a,” if not “the” key of our success. The underlying purpose of this paper is to communicate, to emphasize that we must become more professional, more productive, more capable of moving in a common direction with common understanding. Given effective communication and common perceptions, we can deal successfully with the technical requirements of training, auxiliary sales training, compensation and job enrichment. We can anticipate the effects of a changing environment and adapt smoothly over time.
Each officer should insure they have set goals utilizing the first two pages of the First Interstate performance evaluation sheet and that the officer and his/her supervisor understand and agree to the goals and that the goals support our bank’s missions statement - TQB, The Quality Bank, and the manager of the group’s goals.
These individual goals must be reviewed with subordinates as appropriate.
For it is the quality of our people that will determine or performance, that will be the measure of The Quality Bank.
In once sense, this section is inappropriately titled. Although preceding sections have described our “direction” for the eighties - that we will anticipate and adapt to a changing world in many facets of our business, that we will be a professional organization dedicated to quality of performance - this section signals the beginnings. We now can initiate development of strategies within a framework that sets forth the general guidelines which underlie our efforts.
Using the direction called for in the preceding sections, our staff professionals (product managers), group and regional, working together with other units of the bank have developed specific strategies, which will take the California Banking Group to higher levels of accomplishments in the years ahead. Detailed d business plans containing near term strategic plans have been developed for the following:
- Commercial
- Agri-Business
- Commercial Finance
- Government Guaranteed Loan
- Consumer Loans
- Middle Market
- Real Estate Loans
- Bank Card
While the California Banking Group has successfully met many challenges, more lie ahead. Operating a in a dynamic environment - economic, technological, regulatory - will require a management vision ground in the practical. We must succeed today and be better tomorrow.
PROFIT - 2% return on earning assets
.
Earnings per square foot
Loan mix
Rent excess space
Deposit mix
Interunit Cost Transfer
Facilities
Staff
PRODUCTS
Fair fee increases
Telephone Banking
Middle Market, et al
Trust
Nova
LOANS
Commercial
Installment
Accounts Receivable
Balance Plus (lines)
Agriculture
Bank Card
Real Estate
Auto Leasing
LOSSES
Authorites
ON THE MOVE III
ATM Card
Discount Brokerage
Telepone Banking
Trust
Bank Card
Contract Collections
ADP
NOVA terminals
Safe Deposit
Traverlers Checks
IRAs
SALES TRAINING
FATHER SERRA BRANCHING