|2. Financial Report|
|What you need to know||Join the Meeting||Review the Reports||The board's response|
|Monitoring Portfolio Risk||Basic Financial Reports||Financial Information on the Web||Practice|
Do you agree with Hi that the "Visions for Success" program is a "smashing success"? Think about information you received during Hiram's presentation, Insights' financial reports (particularly the Basic Ratio Analysis and Financial Comparisons lessons), and the minutes from the previous board meeting.
Here are some specific questions to consider. Click on each question to reveal its respective answer.
In his report to the board, Hi notes that loan volume is increasing rapidly. He also states there has been an unexpected increase in nonperforming loans, loans where the borrower is 90 days or more behind in his/her payments.
Certainly the plan at Insights Bank and Trust is to grow the loan portfolio in order “to become the premiere lender in the market.” In this regard, the program is a success. However, this should not be the sole criteria for judging its success. Loan quality is also important. The program may result in the bank’s failure if borrowers do not repay their loans.
In his report to the board, Hi said “nonperforming loans are increasing, something not totally unexpected.” As a new bank director, with little banking experience, are there any questions you would ask Hi about this statement?
There are two questions worth considering. First, you might ask what the term “nonperforming loans” means, and second, why was the increase in nonperforming loans not unexpected?
Questions can be one of the most valuable management tools board members have. If you don’t understand the information being presented to you because of terminology, ask a question. If you don’t understand the logic or thinking behind items brought to the board table for your approval, ask a question. If the inherent risk or downside in a proposal is unclear, ask a question.
If the answer you receive does not make sense, ask that it be further clarified. Your goal is to thoroughly understand what you are voting for or against in order to avoid making decisions that may negatively affect the bank.
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