Publications & Resources

October/November 2007
Focus: Directors Issues

Addressing the Challenges of Board Reporting

By Mack Wood

Reporting to the board of directors was once less complex for community banks. A bank chief executive officer and staff would gather this numbers-based information, then assemble and organize it as best they could to prove the viability of the institution. This generalist approach was oft-times subscribed to as a “more is better” philosophy, as the bank intended to provide everything the board needed to carry out its fiduciary responsibilities. However, more often than not the board would find itself cast adrift in a sea of numbers without much context. This made it difficult to find the information necessary to accurately assess the bank’s present and future profitability, balance sheet strength and asset quality.

A shift in the financial services market has further complicated board reporting for banks of all sizes. Heightened risk and compliancy considerations call for a deepened, broadened analysis. A bank must learn to be comprehensive, yet at the same time discerning as it attempts to assemble data for presentation to the board. For all these reasons, banks need to reassess their approach to board reporting if they haven’t already. Although information valuable to one bank may not always be relevant to others, the following general guidelines can help institutions deal with some of the challenges of board reporting.

Include Quality Information

Effective board reporting means that a bank director is receiving quality information that can be interpreted in a relatively short period of time, on a consistent basis. According to Alice Peterson, president of the Listen Up Group which provides confidential whistleblower systems and related ethics and compliance services, such information includes:

Timely receipt of information
Coverage of critical subjects and topics
The right amount of information
Analyzed data and facts that truly inform
Objective information from multiple sources

Review Financial Performance

The nuts and bolts of sound financial management should not be discounted in these reports, as they provide the underpinnings of the bank’s health. This perspective is best illustrated by the supervisory rating method commonly referred to as CAMELS – an acronym for Capital Adequacy, Asset Quality, Management Quality, Earnings, Liquidity and Sensitivity to Risk. This rating provides a useful baseline for financial reporting and should be supplemented by a deeper analysis of key financial performance data including:

Aged delinquency report by product
Weighted average interest rates to loan and deposit reports
Peer group comparisons
Target rates and values
Yield curve values
Trending analysis

Assess Risk Management

Board reports should allow the bank’s directors to assess the institution’s ability to manage, monitor and control risks through the review of processes, policies and practices in numerous risk-related categories. Although they will vary from bank to bank in terms of emphasis, the following key risk categories have been viewed as critical for inclusion in the board report package:

Credit risk
Interest rate and market risk
Liquidity risk
Compliance risk
Transaction risk
Reputation/legal risk
Strategic risk

Think Like A Director

When assembling content for board review, bank management needs to think like a director. What decisions may ultimately be called for? What data best depicts both sides of an issue? Proactive managers can go a long way in preparing board members to better function with pre-analyzed data and reports – saving valuable meeting time in the process.

Augment Information With Effective Delivery

Even the most efficient delivery model is useless unless it delivers value. However, once the appropriate content is identified and collected, it is imperative that the delivery presents the information to the board in the manner intended by the management. An intelligent presentation methodology allows the audience to navigate through the available material, gleaning not just facts but the context necessary for accurate, timely assessments of the bank’s operation. Effective delivery incorporates the following conditions:

Easy-to-digest presentation
Empowered user
Intuitive interface
Direct delivery from the data source

Mack Wood is vice president and general manager of the Consulting and Professional Services business unit at Metavante Corporation in Milwaukee. He can be reached at mack.wood@metavante.com.