Surviving the Short Term and Excelling at the Long Term
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Transcript of Surviving the Short Term and Excelling at the Long Term
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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
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• 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
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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
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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
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The Directors and Officers’ Real Job
• Allocate Managerial (Human) Capital and Financial Capital
• Enhance/Maintain Shareholder Value
Gerrish McCreary Smith
Consultants and Attorneys
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Industry Trends – Dominance of Technology
• Community Bank Advantages Regarding Technology
• Technology Strategy
Gerrish McCreary Smith
Consultants and Attorneys
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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
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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
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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
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Employee Trends
• Attract and Retain Human Capital
• 2009 Employee “on Steroids”
• Demand for Comparable Benefits of Mega Banks
Gerrish McCreary Smith
Consultants and Attorneys
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Regulatory Trends
• Federal Regulatory Consolidation?
• Systemic Regulator?
• Community Bank Regulator?
• Regulatory Burden
• The “Good Old Days”
Gerrish McCreary Smith
Consultants and Attorneys
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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