Shay Financial ServicesInvestment Education Conference

March 25, 2013

T. J e ff e r s o n Fa i rj f a i r @ a m e r i c a n p l a n n i n g . c o m

2 2 5 . 2 8 1 . 2 9 9 8

Profit Drivers in the New Normal

Industry Overview

470+ bank and thrift failures since Sept. 2007

7,083 FDIC-insured institutions as of 12/31/1212 Down from 8,533 as of 12/31/2007 (down 17%) Over 650 “Problem Institutions” remain

System is awash in liquidityQuality loan demand still lowEconomy will continue to be a drain on

earningsMergers and acquisition activity is picking upBasel III standards will probably increase

capital requirements

U.S. Banking Landscape

Sources: FDIC and SNL Financial, compiled by American Planning Corporation

The 90 /10

Solution

Cumulative % of Total Assets in US Banks

2,589 institutions (33%) < $100MM = 0.97% of Industry Assets

4,719 (65%) < $250MM = 3.7% of Industry Assets

5,943 (81%) < $500MM = 6.6% of Industry Assets

6,621 (91%) < $1B = 10% of Industry Assets

Top 4 Banks = 41% of Industry Assets

June 2012 Call Report Data

(30,000)

(20,000)

(10,000)

0

10,000

20,000

30,000

40,000De

c '9

1

Dec

'92

Dec

'93

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'94

Dec

'95

Dec

'96

Dec

'97

Dec

'98

Dec

'99

Dec

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Dec

'01

Dec

'02

Dec

'03

Dec

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Dec

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Dec

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Dec

'07

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Dec

'10

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'12

Commercial Bank Net Income ($MM)

Inflation: $10,000 in 1993 = $15,650 in 2011

Sources: FDIC, BLS and SNL Financial, compiled by American Planning Corporation

Eisenhower JFK Johnson Nixon Ford Carter Reagan Bush I Clinton Bush II Obama

Source: Federal Reserve, compiled by American Planning Corporation

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2.00

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n-53

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57

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65

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69

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73

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77

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81

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85

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89

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93

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97

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01

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05

Jan-

09

Jan-

13

Historical Fed Funds Target Rate

Economic Situation

Longest bottom of an economic cycle in 60 years

Lowest rates at the bottom of the cycleBorrowers not borrowing, investors not

investingFederal Reserve willing to risk future

inflation to avoid current recessionEvery week brings a new poli-fiscal crisisDon’t bet against the Fed

Current Regulatory Environment

Regulatory attitude has changed: from supervisory to enforcement posture from risk-based to legalistic analysis

Compliance costs are high, but noncompliance costs are higher

The key to dealing with an enforcement action is to avoid getting one Aggressively deal with all Matters Requiring Attention Communicate with your regulators and avoid

surprises Act as if you are already under an enforcement order Don’t agree to implement changes

Banking Industry Outlook

Economic recovery slower than expectedEnhanced regulatory regime will remainHigher minimum capital requirementsYield chasing and poor risk/return

relationshipsConsolidation will occur

Enhancing Profits in this New Normal

Marginal loan growthAggressive deposit cost reductionGood relationship with regulatorsActive investment portfolio managementEffective capital deploymentAcquisition or merger of equalsP&L controlAncillary servicesMarketing and Image

Marginal Loan Growth

Look for good loan participationsSteal good relationship lending teamsPrice aggressively

Understand your IRR position Avoid cannibalization Price for risk

Revisit and revise traditional roles of loan and investment portfolios

Aggressive Deposit Cost Reduction

Trim the fat, not the coreThe bank is not a charityBe a leader on rate reductions, if you canReview fee schedulesImprove product set and features, branding

Mobile apps

Good Relationship with Regulators

Protect CAMELS rating 3 rating = 10bp additional expense ≈ 10bp ROA Current, effective policies and procedures

Lending Investments ALCO (Funds Management, Liquidity and Interest Rate

Risk)

Predatory lending or disparate impact allegation Legal fees, lost time, distraction

Consent Order = $100K to $500K Management review ≈ $30,000 Regulatory consultant ≈ $50,000+ Lawyers ≈ $20,000+

Active Investment Portfolio Management

Trusted advisor vs. bond salesmanEffective ALCO policies, processes, reports,

minutesGood pre- and post-purchase analysis and

documentationTake gains that the Treasury gives youTrim tails

Effective Capital Deployment

Have a capital plan – .doc and .xlsYou can do more with your capital than your

shareholders canRegulators will demand more capital – be

preparedBe prepared to reduce debt when rates go upBe prepared for growth when markets

recover

Acquisition or Merger of Equals

Cost savings in an acquisition can be hugeTired, frustrated seller = lower asking priceMake a trial run for experienceHave response plans

If you are approached by a suitor If a competitor is acquired

P&L Control

Look for redundanciesConsider outsourcingReduce fee leakageTier pricing based on customer behavior and

costsAsk vendors for discounts before contract

renewalNegotiate to remove fees and penalties from

contractsOffer rewards to employeesImprove communication

Ancillary Services

Mortgage lending Acquire mortgage company Add servicing department Escrow services

Investments Partner with professionals (IPI, LPL) Avoid deposit cannibalization

InsuranceFinance companyProducts for the unbanked / underbanked

Marketing and Image

Bankers are not good at marketingBankers are not graphic designersLet experts help you with:

Marketing Advertising Web design (to graphic designer standards, not

banker standards)Clean up your buildingsAsk for the business

Contact Information

T. Jefferson Fairjfair@americanplanning.com 106 Waters Edge DriveShreveport, LA 71106225.281.2998 (direct)225.765.7200 (fax)

American Planning Corporation www.americanplanning.com National Capital, L.L.C. www.ncval.com Curative Advisors, L.L.C. www.curativeadvisors.com

Disclosure:

This presentation is provided by T. Jefferson Fair with American Planning Corporation. (“APC”) and is intended for your private use and does not constitute an offer or solicitation with respect to the purchase or sale of any security.  This presentation is not prepared or intended to be investment advice and is issued without regard to the specific investment objectives, financial situation or particular needs of any specific recipient.  The information was obtained from sources we believe to be reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such.  The information was based in part on current market indicators, which may vary over time.  APC makes no representation, express or implied, as to the accuracy, timeliness, completeness or correct sequencing of any such information or with regard to the results to be obtained from its use.  All expressions of opinion are subject to change without notice, and APC does not undertake any responsibility to update or supplement the information contained herein. In no event should APC or any affiliated party be liable for any direct or indirect investment or trading losses directly or indirectly caused by, or resulting from, the information presented.  Investors should do their own research and due diligence.  This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. APC may from time to time buy or sell or have long or short positions in securities identical or related to those identified herein, if any. The individual presenting may have received compensation for his or her participation in this event.

 

The views expressed are those of APC. These views do not necessarily reflect the opinions of any other firm.