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Surviving the Short Term and Excelling at the Long Term
Presented By: Jeffrey C. Gerrish Gerrish McCreary Smith, Attorneys and Consultants
Presented at:Community Bankers Association of Illinois
35th Annual Convention & ExpositionRenaissance Hotel, Schaumburg, Illinois
September 25, 2009 Gerrish McCreary SmithConsultants and Attorneys
700 Colonial Road, Suite 200Memphis, Tennessee 38117Telephone (901)-767-0900Facsimile (901)-684-2339
www.gerrish.com
jgerrish@gerrish.com
• The present: assure the short term or there will be no long term
• Major trends for the future
• Focus on ways to thrive in the futureGerrish McCreary
SmithConsultants and Attorneys
Community Banks: Surviving the Short Term and Excelling at the Long Term
Surviving the Short-Term
• Look in the Rearview Mirror at 2008
• Likely Environment for the Rest of 2009
• Regulatory Issues
Gerrish McCreary Smith
Consultants and Attorneys
Excelling at the Long-Term
• Maintaining Shareholder Value
• Focus on Profitability, Asset Quality and Liquidity
• Manage the Risks
• Plan for ItGerrish McCreary
SmithConsultants and Attorneys
The Directors and Officers’ Real Job
• Allocate Managerial (Human) Capital and Financial Capital
• Enhance/Maintain Shareholder Value
Gerrish McCreary Smith
Consultants and Attorneys
Allocate Managerial and Financial Capital
• All Decisions Involve Allocation of Managerial and Financial Capital
• Managerial Capital (Human Capital)• Do we have adequate management for the
long term goals of the institution?
• Financial Capital• Does excess capital exist?• How should it be allocated?
Gerrish McCreary Smith
Consultants and Attorneys
Primary Obligation: To Enhance Shareholder Value
• Growing Earnings Per Share 8% to 10% a Year
• Return on Equity of 15% or Better
• Liquidity for the Shares
• Appropriate Cash Flow
Do these metrics still hold?Gerrish McCreary
SmithConsultants and Attorneys
Looking in the Rearview Mirror 2008
• Wild Ride: National Economy
• Stock Market Freefall
• Unprecedented Job Losses
• Recession/Depression
• Multi-Billion Dollar Stimulus Plan for the General Economy
Gerrish McCreary Smith
Consultants and Attorneys
Bank-Specific Issues 2008
• Capital/Credit Markets Meltdown• TARP/CPP/CAP• Regulatory Aggression• Bank Liquidity Issues• Asset Quality/Real Estate Valuation Freefall• Bank Failures• Merger and Acquisition Creativity• The “Haves” and “Have Nots”
Gerrish McCreary Smith
Consultants and Attorneys
Looking to the Short TermThe Rest of 2009
• Critical Needs:
– Stabilization of Real Estate Values: PPIP
– Liquidity Contingency Planning
– Capital Contingency PlanningGerrish McCreary
SmithConsultants and Attorneys
Looking to the Short TermThe Rest of 2009 (Cont’d)
• The Haves and Have Nots
• Increased Bank Failures
• Continued Regulatory Aggression
• Hunker Down PhilosophyGerrish McCreary
SmithConsultants and Attorneys
Dealing with Short-TermRegulatory Aggression
• Hot Buttons for 2009• Asset Quality
• Identification of Problem Assets• Snowball Effect
• Liquidity• Bank Failure Potential• Contingency Planning
• Capital• Scarce• Debt versus Equity• Capital Contingency Planning
• Strategic Opportunity Issues Gerrish McCreary Smith
Consultants and Attorneys
Dealing with the Regulators
• Know Your Options: Board is in Control
• Know Their Options
• Resolution/MOU• C&D/Written Agreement/Formal Agreement• Civil Money Penalties • Removal From Banking• Miscellaneous
• Understand Your Bank’s Due Process RightsGerrish McCreary
SmithConsultants and Attorneys
Strategic Opportunities Long Term:Once Out of the “Trough”
• When: Mid 2010??
• Industry Trends for the Long, Long Term• Consolidation: Survival of Community Banks• Continuous Community Bank Advantage • Technology• Ownership• Erosion of Customer Confidence/Less Loyal
Shareholder/Customer Base
Gerrish McCreary Smith
Consultants and Attorneys
Industry Trends -Consolidation of the Industry
• Unprecedented 30-year consolidation
• Only five remaining banks?
• Is there a future for community banks?
Gerrish McCreary Smith
Consultants and Attorneys
Industry Trends – Continuous Community Bank Advantage
• Distinct Advantage in Small Business Lending and Agricultural Lending
• Strengths – High Touch/Relationship/Trust
• Large Banks Stubbing Their Toes
Gerrish McCreary Smith
Consultants and Attorneys
Industry Trends – Dominance of Technology
• Community Bank Advantages Regarding Technology
• Technology Strategy
Gerrish McCreary Smith
Consultants and Attorneys
Industry Trends – Ownership Will Be Important
• Most Survivors – Sub S– Likely Further Relaxation of the Rules
• Only Public Bank Holding Companies – Those That Derive Significant Advantages
Gerrish McCreary Smith
Consultants and Attorneys
Customer/Stockholder Trends
• Less Loyal Shareholder/Customer Base
• Aging of the Population and the Changes Resulting
• Changing Demographics
• Flight to Quality/Customer confidence
Gerrish McCreary Smith
Consultants and Attorneys
Product and Service/Line of Business Trends
• Allocation of Capital: Purchase or Joint Venture
• All Things to all People?
• Target Changing Demographics, including Elderly, Hispanic/Latino, Un-banked and Women
Gerrish McCreary Smith
Consultants and Attorneys
Employee Trends
• Attract and Retain Human Capital
• 2009 Employee “on Steroids”
• Demand for Comparable Benefits of Mega Banks
Gerrish McCreary Smith
Consultants and Attorneys
Regulatory Trends
• Federal Regulatory Consolidation?
• Systemic Regulator?
• Community Bank Regulator?
• Regulatory Burden
• The “Good Old Days”
Gerrish McCreary Smith
Consultants and Attorneys
Excelling Over the Long Term
• Survive the Short Term
• Focus on Profitability, Asset Quality and Liquidity
• Enhancing Shareholder Value
• Manage the Risks
• Plan for It or It Will Not Happen
• Let’s Get Back to the BasicsGerrish McCreary
SmithConsultants and Attorneys
Focus On Profitability
• Understand the Secret Formula:
Revenue – Expenses = Profit
• Deconstruct the Income Statement• Sources of Revenue and How to Increase• Expenses and How to Reduce
Gerrish McCreary Smith
Consultants and Attorneys
Sources of Revenue and How to Increase
• Yield on Securities Portfolio
• Reduce Non-Earning Fixed Assets, e.g. sale/leaseback
• Increase Yield on Earning Assets• Loan Floors• Pricing Models
• Fee Income Increase
• New Lines of BusinessGerrish McCreary
SmithConsultants and Attorneys
Focus on Profitability
• Reduction of Expenses– Increased Deposit Insurance Assessment– Loan Loss Reserve – Snowball Effect– Personnel– Deposit and Other Funding Costs Wholesale vs. Retail Funding Increase Demand Accounts– Charitable Contributions– Miscellaneous Other Expenses
Gerrish McCreary Smith
Consultants and Attorneys
Excelling Over the Long Term
• Enhancing Shareholder Value
• Manage the Risks
• Plan for It or It Will Not Happen
• Let’s Get Back to the Basics
Gerrish McCreary Smith
Consultants and Attorneys
Recognize the Need for Change
• Resistance to Change
• Change for Change Sake
• Open Mind/Willing Ear
• Establishment of Company Policy
Gerrish McCreary Smith
Consultants and Attorneys
Plan for Success – Action Planning
• Board Obligation• Understand the Foundation• Enhance Shareholder Value• Prepare for Change• Get Off Site• Don’t Waste Time• Have Two Agendas• Analyze Substantive Issues• Use an Outside Facilitator (Shameless Self-
Promotion)• Create an Action Plan
Gerrish McCreary Smith
Consultants and Attorneys
Long-Term Capital Allocation Techniques to Enhance Shareholder Value
• Structure – Bank Holding Company• Allocating Capital for Share Liquidity• Dividend Policy • Allocating Capital to Restructure Ownership –
Public/Private/Sub S• New Lines of Business• Technology to Improve Service• Capital to Foster Relationship Building • Attracting and Retaining Key Personnel• Planning for the Future
Gerrish McCreary Smith
Consultants and Attorneys
Conclusion
• Focus on the short term or there will not be a long term
• Short Term Profitability: The Secret Formula
• Strategic Long Term Obligation: Enhance Shareholder Value
• Long Term Success: Take Advantage of Strategic Opportunities
Gerrish McCreary Smith
Consultants and Attorneys
Surviving the Short Term and Excelling at the Long Term
Presented By: Jeffrey C. Gerrish Gerrish McCreary Smith, Attorneys and Consultants
Presented at:Community Bankers Association of Illinois
35th Annual Convention & ExpositionRenaissance Hotel, Schaumburg, Illinois
September 25, 2009 Gerrish McCreary SmithConsultants and Attorneys
700 Colonial Road, Suite 200Memphis, Tennessee 38117Telephone (901)-767-0900Facsimile (901)-684-2339
www.gerrish.com
jgerrish@gerrish.com