Surviving the Short Term and Excelling at the Long Term Presented By: Jeffrey C. Gerrish Gerrish McCreary Smith, Attorneys and Consultants Presented at:

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

[email protected]

http://www.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


The Directors and Officers’ Real Job

• Allocate Managerial (Human) Capital and Financial Capital

• Enhance/Maintain Shareholder Value



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?



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


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



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”



Looking to the Short TermThe Rest of 2009

• Critical Needs:

– Stabilization of Real Estate Values: PPIP

– Liquidity Contingency Planning

– Capital Contingency PlanningGerrish McCreary


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


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


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


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



Industry Trends -Consolidation of the Industry

• Unprecedented 30-year consolidation

• Only five remaining banks?

• Is there a future for community banks?



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



Industry Trends – Dominance of Technology

• Community Bank Advantages Regarding Technology

• Technology Strategy



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



Customer/Stockholder Trends

• Less Loyal Shareholder/Customer Base

• Aging of the Population and the Changes Resulting

• Changing Demographics

• Flight to Quality/Customer confidence



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



Employee Trends

• Attract and Retain Human Capital

• 2009 Employee “on Steroids”

• Demand for Comparable Benefits of Mega Banks



Regulatory Trends

• Federal Regulatory Consolidation?

• Systemic Regulator?

• Community Bank Regulator?

• Regulatory Burden

• The “Good Old Days”



Excelling Over the Long Term

• Survive the Short Term

• Focus on Profitability, Asset Quality and Liquidity

• Enhancing Shareholder Value


• Plan for It or It Will Not Happen

• Let’s Get Back to the BasicsGerrish McCreary


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



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


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



Excelling Over the Long Term

• Enhancing Shareholder Value


• Plan for It or It Will Not Happen

• Let’s Get Back to the Basics



Recognize the Need for Change

• Resistance to Change

• Change for Change Sake

• Open Mind/Willing Ear

• Establishment of Company Policy



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



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



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



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

[email protected]

http://www.gerrish.com/

Documents

Surviving the Short Term and Excelling at the Long Term Presented By: Jeffrey C. Gerrish Gerrish McCreary Smith, Attorneys and Consultants Presented at: