Strategic Business Planning Introducing Strategic Business Planning Community Banks

Strategic Business Planning Model Rationale This planning model reflects the synthesis of two well-known processes: Strategic Planning and Business Planning. In the past, each process was viewed separately. Ideally, the strategic planning process would complement the business planning process. In reality, each process typically operates independently of one another. The strategic planning process generally brings together a diverse group of participants who are charged with developing a comprehensive strategic plan. The outputs of the strategic plan are strategies and action plans. The business planning process often involves the development of a business plan. The business plan is typically comprised of marketing, financial, and operating plans. There is no requirement that the business plan link to the strategies and action plans identified in the strategic plan. Furthermore, the participants that develop the strategic plan tend to be creative thinkers, whereas the authors of the business plan are usually marketing, finance, and management practitioners. Strategic Business Planning creates a Strategic Pathway as an output in the strategic planning process that serves as an input to the business planning process.

Strategic Business Planning Model 3 Vision 4 Mission 5 Big Goal 6 Strategic Pathway 7 Strategies 8 Action Plans 2 Forces of Change 9 Capacity Tests 1 Current State

Strategic Business Planning Model Strategic Planning 1 Current State 2 Forces of Change 3 Vision 4 Mission 7 Strategies 5 Big Goal 8 Action Plans 6 Strategic Pathway 9 Capacity Tests

Strategic Business Planning Model 3 Vision 4 Mission 5 Big Goal 6 Strategies 2 Forces of Change 6 Strategic Pathway Business Planning 7 Strategies 1 Current State 8 Action Plans 9 Capacity Tests

Strategic Business Planning Model Develop Strategic Plan Business Plan Year One Reset Strategic Plan Business Plan Year Two Reset Strategic Plan Business Plan Year Three Vision Mission Strategic Pathway Current State

Community Banks Current State Strategic Business Planning Model Community Banks Current State The determination of the Current State requires an internal analysis of the community bank’s strengths and weaknesses. Current State Notable Strengths ▪ Flawless execution of basic banking. ▪ Strong tangible culture. ▪ Low-cost producer of sustainable revenue. ▪ Highly recognized brand identity. ▪ Focused product lines for target market segments.

Community Banks Current State Strategic Business Planning Model Community Banks Current State The determination of the Current State requires an internal analysis of the community bank’s strengths and weaknesses. Current State Notable Weaknesses ▪ High compliance and regulatory costs. ▪ Increasing compression of interest margins. ▪ Weakening of loan demand. ▪ Declining profitability trend. ▪ Low core capital adequacy.

Community Banks Forces of Change Strategic Business Planning Model Community Banks Forces of Change The identification of the Forces of Change requires an external examination of the community bank’s opportunities and threats. Forces of Change Notable Opportunities ▪ Focus on a specific customer market segment to maximize its share-of-wallet. ▪ Capitalize on underserved product or geographic niches to yield superior profits. ▪ Identify an additional line-of-business niche that can supplement basic banking. ▪ Commit to be recognized as an employer-of-choice in the markets it serves. ▪ Adapt an acquisition strategy that reflects the bank’s culture and core beliefs.

Community Banks Forces of Change Strategic Business Planning Model Community Banks Forces of Change The identification of the Forces of Change requires an external examination of the community bank’s opportunities and threats. Forces of Change Notable Threats ▪ Expanded role of government in student loans. ▪ Impact of mobile banking on branch banking. ▪ Low interest rate environment could continue to affect core earnings. ▪ Competitive pressures likely to intensify pressure on margins. ▪ High systemic risk in the US banking industry.

Community Banks Vision Strategic Business Planning Model Community Banks Vision The Vision is an energizing statement that describes what the community bank aspires to be in the foreseeable future, based upon its core values and shared beliefs. Vision Notable Example Sterling Bank has been cited for applying an innovative approach to launching a new branch. Well before a new branch opens in a community, it hires the most prominent commercial banker within that community. It then recruits influential community advocates to form a branch advisory board. Therefore, each new branch opens with a CEO and Advisory Board in place.

Community Banks Mission Strategic Business Planning Model Community Banks Mission The Mission describes what the community bank must do to move from its current state to its vision of the future, giving due consideration to the forces of change. Mission Notable Example Sterling Bank drives branch growth and profitability by granting founding board members with shares of convertible preferred stock. The share conversion formula is scaled so as to provide advisory board members with a greater number of common shares based on the shortest time frame by which the new branch reaches breaks even. This incentive program thereby aligns the advisory board’s interest with the community bank’s shareholder base.

Community Banks Big Goal Strategic Business Planning Model Community Banks Big Goal The Big Goal focuses the community bank’s energy on a specific outcome that is bold and audacious, requires a reworking of current thinking, and represents a remarkable level of achievement. Big Goal Notable Example Sterling Bank aspires to become one of Fortune Magazine’s designated “100 Best Companies To Work For”.

Community Banks Strategic Pathway Strategic Business Planning Model Community Banks Strategic Pathway The Strategic Pathway reflects the strategic intent of the community bank. It is the output of the strategic planning process and the input to the business planning process. It consists of a balanced mix of continuous improvement and remarkable achievement initiatives. It is broad in scope, aligned with the community bank’s vision and mission, and representative of its core values and shared beliefs.

Community Banks Strategic Pathway Strategic Business Planning Model Community Banks Strategic Pathway Continuous Improvement Notable Example Sterling Bank focuses each and every day on the execution of its strategic plan. It uses a performance scorecard, updated annually, to track current strategic goals and financial expectations. This scorecard also serves as the foundation for the bank’s incentive compensation program, which reinforces accountability and the bank’s reward-for-performance philosophy.

Community Banks Strategic Pathway Strategic Business Planning Model Community Banks Strategic Pathway Remarkable Achievement Notable Example Sterling Bank thinks strategically about its future. The bank’s vision includes innovative performance measures not typically seen in bank scorecards. The strategic plan is updated quarterly to advise all audiences of their progress. The bank’s advisory board receives monthly updates on the bank’s progress as well. Such wide-spread communication ensures that all bank stakeholders have a role to play in making their shared vision a reality.