1997 Report to Members
|
Francis J.
Shashaty, President & CEO 1997 Report to Members |
I concluded my 1994 report to First Monetary members with the somewhat tongue-in-cheek advice, If you want to know what other service corporation's will be doing in 1997, just look at us today.
While appropriate in the past, it has now become clear that truism can no longer be applied. After all, what organization in three years could provide your institution more product at a lower cost; increase existing services; add new cutting-edge services worth thousands of dollars at no cost; pay a dividend and increase your equity?
That's what First Monetary did in 1996 and your continued support makes it clear that's what you -- our member/owners -- want. We did it with FM's Project David strategic plan, which was designed to address two immediate threats to operations -- the continued consolidation of the industry, resulting in the loss of members and potential members; and the alphabet soup of competitors re-entering the D&O insurance market. While the first threat is obvious, the second is less clear.
Why have the commercial insurance underwriters re-entered the bank D&O market a decade after abandoning it?
Simply stated, when an industry sector such as banking is performing well, the entire class benefits in the form of lower insurance prices and expanded coverage. The old adage, Memories can be short in good times, certainly applies today. But, because the rising tide lifts all ships, some question the necessity of maintaining an industry owned insurance company.
When the tide runs out and the market reversal occurs, no one questions the value of a banking owned company like ours -- in fact, more often than not, there are calls for expanded operations. Given the long-term stability we saw in the economy -- and the tremendous profits that banks generated during the past several years -- the renewed interest in banking by commercial underwriters comes as no surprise.
I am delighted to report that we anticipated a period of difficult -- often reckless -- pricing competition and we weathered the immediate challenge. I am convinced, however, that long term success requires a creative approach to our business. Most member owned mutuals rely on the hard insurance market cycleö to attract new members and profitability.
When the market turns soft, that is where there are many more providers of insurance at lower costs, these mutuals generally cease operations. Clearly, a company that relies solely on the insurance market cycle is at risk to larger better capitalized competitors. Our mission must remain the protection of the decision makers of New York community institutions, but the way we accomplish that mission must be expanded.
First Monetary has identified two major emerging issues
that offer opportunities and threats to community institutions.
First - the convergence of financial services providers, including banks
& insurance companies.
Secondly - use of InterNet and PC technology for low cost effective
marketing and customer service.
To address these emerging issues, First Monetary's Board of Directors approved an operational plan that provides members with expanded InterNet services and discounted membership in the Independent Bankers Association of New York State. Known as |P|R|O|P|H|E|T|, the plan builds on the organization's strength -- providing maximum value for member/owners -- and expands the pool of potential members by establishing closer ties with New York's independent commercial banks.
At its very core, |P|R|O|P|H|E|T| reduces
FM's risk to market cycles by providing members value added services which increase
the desirability of continued membership. New members are encouraged to participate
through a balanced program of reduced premiums and benefit services.
DIVIDEND
The FM Board approved a dividend of $125,000 payable on a
pro-rata basis according to individual member share values as of December 31, 1996. The
Board is also committed to considering additional dividends for next year.
INTERNET WEB SITES
In addition to insurance products and services, First Monetary members have complimentary InterNet sites through the INTERmoNETary System. Each member receives a private domain name, or individual InterNet address. The fully functional web sites include design and implementation of text information, graphics, photographs and links to related sites.
Over twenty FM members currently have operational sites on the internet through the INTERmoNETary system. These sites are registered with all of the major InterNet search engines, free of charge, and an unlimited number of changes can be made to the site. In the near future, FM will provide complementary software to each member so that site modification can be made directly to the internet servers by the member. Significantly, First Monetary members also receive the benefit of our co-op InterNet advertising program.
This extension into a non-insurance area is consistent
with FM's mission and core strength -- the effective use of low-cost technology to compete
with much larger organizations. FM has used the internet since 1993 -- to identify
important issues relative to the banking and insuranceindustries. In 1994, the
INTERmoNETary site became one of the earliest banking and insurance sites established on
the web. INTERmoNETary is the largest host of community bank web sites in New York State.
COMMUNITY BANK MONTH
The first tangible benefit of the FM~IBANYS alliance is the new Community Bank Month site on the World Wide Web. IBANYS has a long tradition of highlighting the valuable services provided by community banks during statewide Community Bank Month activities in May.
The new InterNet site -- http://communitybankmonth.com. -- has been made
available to IBANYS and its members to post materials and to link the site to individual
member bank pages.
FM ON-LINE
FM announced the launch of its web site in 1996. Located at http://firstmonetary.com, the site allows visitors to obtain information about the company's products and services; to register for company meetings -- an industry first; to obtain risk management information and to interact with the company via e-mail. Soon, through a project headed by Chairman Charles Kleis, a members only section will be available to exchange business-related information.
POSITIONING N Y BANKS
First Monetary is the only bank-owned venture designed to give community banks ownership and control of an insurance company. Current regulatory conditions allow First Monetary to be owned by New York banks -- but limit insurance product offerings to those which insure the risks of its owner/members. Accordingly, FM currently provides Directors and Officers liability and IRA liability insurance for New York community banks.
As important as D&O insurance is for banks, the experience FM members gain from owning and operating an insurance company has greater long-term potential.
First Monetary believes that its members will be the best positioned New York banks when anticipated changes are made in the regulatory framework that currently separates banking and insurance.
In addition to the preceding developments, FM will develop and implement new risk-management programs for members.
First Monetary will also continue to provide outstanding benefits including its membership reinvestment program and reimbursement for attending its annual shareholders and risk management meeting.
The next 36 months will determine if First Monetary will profit from |P|R|O|P|H|E|T|.
Thank You.
Francis J. Shashaty, CPCU
President & CEO