© 2013 – FinPro, Inc.020 Church Street Liberty Corner, NJ 07938 P: (908) 604-9336 F: (908) 604-5951 [email protected] www.finpronj.com
2013 – A Year of TransitionAnnual Presidents and Directors Conference
April 4, 2013
© 2013 – FinPro, Inc.
1. Table of Contents . . .
A. Return to value creation
1. Change mindset
2. Do not reinvent the wheel
B. FinPro’s Core Principal
1. Risk
2. Corporate governance
3. Regulatory
4. Customer
5. Market
6. Franchise
C. Driving value - 7 ways to build value
1. Grow deposits & diversify the mix
2. Grow loans & diversify the mix
3. Grow and diversify noninterest income
4. Control expenses
5. Enhance the franchise
6. Increase number of, and penetration within, customers
7. Utilize capital markets tools.
D. Final thoughts
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© 2013 – FinPro, Inc.
A. We must return to value creation . . .
Change the mindset from defense to offense
Stop fretting over regulation, governance and risk
FinPro has built the tools to allow you to manage these areas
We must control our destiny, DO NOT ALLOW others to seize it
Everything we do should:
Enhance Tangible Book Value Per Share (TBVS)
Enhance Core Earnings Per Share (CEPS)
Enhance the Franchise Value (Core Deposits, Delivery Channels)
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© 2013 – FinPro, Inc.
B. Start by re-adopting the FinPro value model . . .
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© 2013 – FinPro, Inc.
B1. Risk
4
Enterprise Risk Management
Asset Liability Management
Compliance Findings
Allowance for Loan and Lease Loss
Methodology
Asset Migration
Liquidity Stress Test
Contingency Funding Planning
Satisfaction of Requirements of 939A of the
Dodd-Frank Act
Safety and Soundness Compliance Review
Investment Advisory
Quarterly Economic Update and Webinar
© 2013 – FinPro, Inc.
1. Take control of our destiny . . .
5
Merge ERM, planning, budgeting, ALCO and stress testing
Break down SILOs
Integrate processes
Single model
Forward looking stress testing
© 2013 – FinPro, Inc.
ERM is the integrated umbrella that delineates linkages among various risks
currently managed in a SILO environment and provides the foundation for
planning . . .
Enterprise Risk Management
CCapital Plan
ACredit Concentration Plan
Loan Migration Analysis
Loan-to-one-borrower Analysis
Management Succession Plan
Compensation Plans
Budget
Business Plan
M
E
Contingency Funding Plan
Wholesale Funding and Funds Management PlanL
Interest Rate Risk Analysis
S
Litigation Mitigation Plan
Response to Regulatory Order+
Public Relations Plan
Investor Relations Plan+
Internal Audit
Internal Controls and Procedures+
IT Controls and Testing Plan+
Compliance Plan+
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© 2013 – FinPro, Inc.
FinPro developed an ERM approach utilizing the regulatory CAMELS+ process
and tracking the (“COSO”) process . . .
7
Phase One: Combine modeling into ONE process
Phase Two: Identify enterprise risk in
the CAMELS+ approach
COSO Step Four:
Conduct the Initial
Enterprise-wide Assessment
and Develop an Action Plan
Phase Three: Prioritize risks
Phase Four: Ensure data integrity
COSO Step Five:
Inventory the Existing
Risk Management Practices
COSO Step Seven:
Develop the Next Phase of Action
Plans and Ongoing Communications
Phase Seven: Establish people, policies
and procedures.
Phase Eight: Review in context of overall
enterprise risk management
COSO Step Six:
Develop Your Initial
Reporting System
Phase Five: Prepare alternative plan scenarios
Phase Six: Conduct stress tests
Enterprise
Risk
Management
COSO recommends that these initial steps be followed before the ERM process is started: COSO Step One: Seek Board and Senior Management Leadership, Involvement and Oversight.
COSO Step Two: Select a Strong Leader to Drive the ERM Initiative.
COSO Step Three: Establish a Management Risk Committee or Working Group.
© 2013 – FinPro, Inc.
Implementation of ERM is an eight phase process as shown graphically
below . . .
Identify and
Quantify Risk
Set Risk
Thresholds/
Tolerances
Horizontal
Risk
AssessmentCapital
Asset
Quality
Liquidity
Sensitivity
+’s
Model
Base
Case
Scenario
Manage-
ment
Earnings
Prioritization
of Risk
Vertical Risk
Assessment
Phase 1: Combine Modeling Into One Process & Phase 4: Ensure Data Integrity
1. Variable
Stress Tests
2. Enterprise
Wide Stress
Tests
Two
Approaches:
Stress
Test the
Base
Case
Pre-Phase Phase 8
Model
Alternative
Scenarios
Pro Forma
CAMELS+
Assessment
CAMELS+
Assessment
FinPro Regulatory Review
Identify
Trigger
Events
Mitigation
Strategies/
Policies/
Procedures
Phase 7Phase 6Phase 5Phase 3Phase 2
Setup Risk
Committee
Adopt
CAMELS+
Approach
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© 2013 – FinPro, Inc.
We need to change the way we manage liquidity . . .
9
1. Avoid a continued inverse liquidity crisis
Prepare to stop shrinking
Follow the 2, 10, and 20 rule
Allocate collateral in most efficient manner
Update Contingency Funding Plan and incorporate stress tests
2. Manage investment portfolios
By now, Banks should have underwritten and documented whether their
investments are “investment grade”
Investment purchases should be pre-planned. Buy in bigger chunks and less
frequently
Stay with a defensive posture
© 2013 – FinPro, Inc.
We need to continue to work out our problem loan portfolios . . .
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1. Complete detailed asset migration analytics
Cash flow every classified asset
2. Fix credit documentation now
3. Examine potential for bulk sales
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14
Total NPL and Coverage Ratio: Plan and Actuals
Projected Total NPL Actual Total NPL Projected ALLL/NPL Ratio Actual Total ALLL/NPL Ratio
© 2013 – FinPro, Inc.
B2. Governance
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FinPro Central Hub
Board Filing Cabinet
Board Education, Training, and Retreat
Moderation
Management Succession
Management and Board Review
Organization Structure Review and Planning
Community Reinvestment Act Performance
Review
Compensation Analysis
© 2013 – FinPro, Inc.
Board member selection should include some parameters (in priority order) . . .
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Shareholder
Expertise
Business Generation
Local
Diversity
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Mini Models
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Director Training
Module One
Module Two
Module Three
Interactive Applications
Policies
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Network Groups
My Central Hub
My Bank Portals
Major Events
FinPro Industry Resources
FinPro Capital Advisors (FCA)
4/4/2013 – Annual Conference
4/11/2013 – Scott PolakoffPresenting at ABA RE Lending Conference
4/26/2013 – Scott PolakoffPresenting at NJ Bankers Conference
Important Events
1. NEW! – Your Policy Guideline Is Now Available
2. NEW! – Your Policy Guideline Has Been Reviewed
1. NEW! – Your Ask A Regulator Inquiry Has Received a Response
2. 3/27/2013 – Interest Rate Policies Have Been Updated
1. NJ Bankers – Jane Doe Has Requested To Join Your Group
2. ABA – New Industry Report Has Been Uploaded To Your Group
Upgrade Your Account To Access This Service
1. NEW! – Accredited Investor List Has Been Updated
Upgrade Your Account To Access This Service
1. NEW! – April Edition Of “Musso Minute” Has Been Uploaded
2. NEW! – Don Musso’s “Banking 101” Article Has Been Published
1. NOTE – Registration For Annual Conference Closes 3/20/2013
2. NEW! – Date for Economic Webinar Announced: 5/12/2013
© 2013 – FinPro, Inc.
FinPro will offer Certificate of Director Credits for attendance at this conference
as well as other conferences . . .
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© 2013 – FinPro, Inc.
Boards set strategic direction. As such, they must establish several key
principals which will drive strategic decision making. For example . . .
No TBVS dilution
Grow EPS significantly
12% compounded annual return on TBVS over next 3 years
Only consider sale today if:
The offer is very strong and is from an acquirer with a strong currency
Market “double dips”
Continue to improve asset quality position
Goal of <3% NPAs/Total Assets
Goal of <50% Classified Asset coverage ratio
Become a “2” rated institution
Eliminate regulatory orders (consent or MOU)
Achieve 8.5% tangible equity capital ratio at the holding company over time
Shift the holding company capital structure away from debt and toward more common
Goal is 33% debt / total capital
Look to replace interest and dividend bearing instruments with new capital after Company is rated a “2” and can raise capital that is accretive to current TBVS
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© 2013 – FinPro, Inc.
Effective governance requires effort . . .
Loan
Asset Liability Management
Audit and Compliance
BSA and AML
CRA
Investment
Capital
Liquidity
Contingency Funding
IT
ERM
ALLL methodology
Accounts Payable
Code of Business Conduct
Reg. B
Reg. D
Reg. O
Reg. Z
RESPA
Reg. DD
Information Security and Internet
Usage
Vendor Management
Etc…
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Maintaining Policies and Procedures:
© 2013 – FinPro, Inc.
Regulatory Consulting
Board Resolution, MOU, C&D Mitigation and Compliance
Regulatory Consulting
Negotiate Regulatory Agreements
Expert Witness Testimony
Policy Review
Capital Planning
“Ask FinPro”
B3. Regulatory
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© 2013 – FinPro, Inc.
Regulatory . . .
Current Issues:
BASEL III
Dodd-Frank Implementation
Enterprise Risk Management and stress testing
Asset Quality Issues: Classifications, Concentrations & Credit
Administration
Bank Secrecy Act/Anti-Money Laundering
Qualified Mortgages and Servicing
Interest Rate Risk
Cyber Security
Earnings
Margin Compression
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© 2013 – FinPro, Inc.
B4. Market
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Branch Improvement
Market Ranking Studies
Strategic Market Assessment
Peer Market Composition analysis
Site Studies & Branch Applications
© 2013 – FinPro, Inc.
A geographic market area is defined for each branch (illustrated as pushpins
below). This example will look at the branch identified as the red pushpin
below . . .
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© 2013 – FinPro, Inc.
The branch market (defined as the zip code) is illustrated below. This market
definition reflects natural boundaries but is irregular and overlaps onto adjacent
branches . . .
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© 2013 – FinPro, Inc.
The branch market (defined as a 3 mile radius) is illustrated below. This market
definition would overlap onto adjacent branches and does not take into account
apparent natural boundaries . . .
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© 2013 – FinPro, Inc.
The branch market (defined as a 5 minute drive time) is illustrated below. This
market definition more accurately reflects the reach of the branch office, but
also overlaps onto adjacent branches and extends over natural boundaries . . .
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© 2013 – FinPro, Inc.
The core deposit customers for the branch are overlaid below . . .
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© 2013 – FinPro, Inc.
And the 60% of the core deposits closest to the branch are
identified . . .
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© 2013 – FinPro, Inc.
The branch market (defined as the Natural Market) is illustrated below. This
market definition reflects the actual customer distribution of the branch office, or
the area that the branch has historically drawn
from . . .
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© 2013 – FinPro, Inc.
Competition in the market needs to be analyzed to determine deposit
marketshare and to rank the facility compared to the competition. A detailed
market tour and data collection will help to determine the strengths and
weaknesses . . .
INSTNAME TYPE ADDRESS CITY ST ZIP 2002 2003 2004 2005 2006
TOTAL: 831,384 905,925 964,615 1,031,481 943,258
TD Banknorth NA Bank 21 Market St Poughkeepsie NY 12602 73,944 70,954 84,461 82,674 73,253
TD Banknorth NA Bank 703 Main St Poughkeepsie NY 12601 46,710 49,428 67,416 71,073 65,587
HSBC Bank USA NA Bank 1 La Grange Ave Poughkeepsie NY 12603 66,088 71,118 75,191 79,381 83,568
JPMorgan Chase Bank, NA Bank 576 Albany Post Rd Hyde Park NY 12538 29,605 29,376 27,217 30,080 31,416
JPMorgan Chase Bank, NA Bank Rt 55 Apple Valley Shoppi Poughkeepsie NY 12603 25,085 24,841 26,205 30,341 28,919
KeyBank NA Bank 830 Main St Poughkeepsie NY 12603 38,769 36,819 41,171 39,480 40,912
Bank of America NA Bank 45 Market St Poughkeepsie NY 12601 13,418 10,959 10,596 9,405 7,082
Bank of America NA Bank 11 Raymond Ave Poughkeepsie NY 12603 11,602 10,939 12,063 10,960 13,748
Manufacturers & Traders TC Bank 289 Main Mall Poughkeepsie NY 12601 19,434 22,049 26,514 43,395 28,595
Manufacturers & Traders TC Bank 4 Jefferson Plz Poughkeepsie NY 12601 37,025 39,345 35,681 31,719 37,820
Riverside Bank Bank 11-13 Garden St Poughkeepsie NY 12602 53,948 69,249 66,253 75,714 78,054
HSBC Bank USA NA Bank 347 Main St Poughkeepsie NY 12601 83,843 78,445 76,095 58,708 49,535
KeyBank NA Bank 20 Cannon St Poughkeepsie NY 12601 19,732 13,532 11,963 11,596 21,918
Citizens Bank NA Bank 3650 Rt 9W Highland NY 12528 29,353 28,983 34,562 32,698 31,440
JPMorgan Chase Bank, NA Bank 130 North Rd Poughkeepsie NY 12601 29,613 28,908 21,970 18,247 0
JPMorgan Chase Bank, NA Bank 285 Main St Poughkeepsie NY 12602 82,174 99,904 109,033 117,647 125,464
Manufacturers & Traders TC Bank 10 Milton Ave Highland NY 12528 144,366 184,507 196,622 244,336 172,007
Rhinebeck Savings Bank Savings Bank 3432 North Rd Rt 9 Poughkeepsie NY 12601 14,697 22,900 27,853 29,208 39,250
Sawyer Savings Bank Savings Bank 71 Vineyard Ave Highland NY 12528 11,978 13,669 13,749 14,819 12,805
Citizens Bank NA Bank 2540 South Rd Poughkeepsie NY 12601 0 0 0 0 1,885
Market Area: Market Share by Institution TypeTotal ($000's) Mkt Share $ Growth % Growth Avg Branch Branch Perf
Institution 2006 2006 2002 - 2006 2002 - 2006 2006 Count Index
Total $943,258 100.00% $111,874 13.46% $49,645 19 1.00
Commercial Banks $891,203 94.48% $86,494 10.75% $52,424 17 1.06
Savings Banks $52,055 5.52% $25,380 95.15% $26,028 2 0.52
Thrifts $0 0.00% $0 0.00% $0 0 0.00
Credit Unions $0 0.00% $0 0.00% $0 0 0.00
Market Area: Market Share by InstitutionTotal ($000's) Mkt Share $ Growth % Growth Avg Branch Branch Perf
Institution 2006 2006 2002 - 2006 2002 - 2006 2006 Count Index
Total $943,258 100.00% $111,874 13.46% $49,645 19 1.00
TD Banknorth NA $138,840 14.72% $18,186 15.07% $69,420 2 1.40
Manufacturers & Traders TC $238,422 25.28% $37,597 18.72% $79,474 3 1.60
HSBC Bank USA NA $133,103 14.11% ($16,828) -11.22% $66,552 2 1.34
JPMorgan Chase Bank, NA $185,799 19.70% $19,322 11.61% $61,933 3 1.25
KeyBank NA $62,830 6.66% $4,329 7.40% $31,415 2 0.63
Bank of America NA $20,830 2.21% ($4,190) -16.75% $10,415 2 0.21
Riverside Bank $78,054 8.27% $24,106 44.68% $78,054 1 1.57
Wachovia Bank NA $0 0.00% $0 0.00% $0 0 0.00
Citizens Bank NA $33,325 3.53% $3,972 13.53% $16,663 2 0.34
Rhinebeck Savings Bank $39,250 4.16% $24,553 167.06% $39,250 1 0.79
Sawyer Savings Bank $12,805 1.36% $827 6.90% $12,805 1 0.26
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© 2013 – FinPro, Inc.
Establish the appropriate brand . . .
FBT INVESTMENTS,
INC.
BANKING Operational Services Financial Services
Systems
Accounting
Strategy
Human Resources
Marketing
Risk Management
Delivery Channels
PeoplesL O U I S I A N A
Bank
Capital Trust
Mortgage L.L.C.
FBT INVESTMENTS,
INC.
27
© 2013 – FinPro, Inc.
A market ranking tool can be utilize to find specific markets based on desired
market or customer characteristics. The process would be the same once the
market was identified . . .
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© 2013 – FinPro, Inc.
B5. Customer
29
Customer Segmentation Analysis
Product Propensity Analysis
New Product Development
Incremental Cost of Funds Analysis
© 2013 – FinPro, Inc.
Customer segments should be analyzed to determine the customer base. So
let’s look at an example in Jersey City, NJ . . .
07307 Jersey City MKT
DESCRIPTION HSHLDS PCT HSHLDS PCT SHARE HSHLDS PCT
Globetrotters 8 0.1% 26 2 0.0% 24.0% 6 0.1%
Business Class 1 0.0% 34 0 0.0% 12.0% 1 0.0%
Golden Agers 4 0.0% 31 1 0.0% 14.0% 3 0.0%
Civic Spirits 3 0.0% 32 1 0.0% 32.0% 2 0.0%
Retiree Chic 37 0.2% 22 10 0.2% 28.0% 27 0.2%
Big Spenders 35 0.2% 23 6 0.2% 18.0% 29 0.3%
Jumbo Mortgagees 18 0.1% 25 6 0.1% 32.0% 12 0.1%
Prosperous Parents 94 0.6% 16 23 0.5% 24.0% 71 0.6%
Leisure Land 73 0.5% 17 16 0.4% 22.0% 57 0.5%
Home Sweet Equity 7 0.0% 27 1 0.0% 8.0% 6 0.1%
Travel & Antiques 6 0.0% 29 0 0.0% 6.0% 6 0.0%
New Money 5 0.0% 30 1 0.0% 28.0% 4 0.0%
Comfortably Retired 41 0.3% 21 11 0.3% 28.0% 30 0.3%
Active Empty Nesters 406 2.6% 13 85 2.0% 21.0% 321 2.8%
Suburban Scramble 7 0.0% 27 2 0.0% 27.0% 5 0.0%
Early-Bird Specials 68 0.4% 18 15 0.4% 22.0% 53 0.5%
Conservative Couples 49 0.3% 20 15 0.4% 31.0% 34 0.3%
Senior Solitaire 25 0.2% 24 4 0.1% 15.0% 21 0.2%
Retirement Ready 0 0.0% 35 0 0.0% 0.0% 0 0.0%
Fiscal Rookies 1,023 6.6% 6 256 6.1% 25.0% 767 6.7%
Khakis & Credit 1,052 6.8% 5 158 3.8% 15.0% 894 7.8%
Family Sprawl 662 4.2% 9 132 3.2% 20.0% 530 4.6%
Old Homesteaders 140 0.9% 15 25 0.6% 18.0% 115 1.0%
Urbanistas 628 4.0% 10 75 1.8% 12.0% 553 4.8%
Forever Young 569 3.7% 11 40 1.0% 7.0% 529 4.6%
Settling Down 2,140 13.7% 3 556 13.4% 26.0% 1,584 13.9%
Loan Rangers 959 6.2% 7 201 4.8% 21.0% 758 6.6%
Urban Essentials 2,409 15.5% 2 964 23.2% 40.0% 1,445 12.7%
Country Cottages 2 0.0% 33 0 0.0% 9.0% 2 0.0%
Social Insecurity 416 2.7% 12 42 1.0% 10.0% 374 3.3%
City Strivers 700 4.5% 8 203 4.9% 29.0% 497 4.4%
Young & Thrifty 2,446 15.7% 1 832 20.0% 34.0% 1,614 14.1%
Economizers 65 0.4% 19 20 0.5% 31.0% 45 0.4%
Young Urban Renters 1,235 7.9% 4 383 9.2% 31.0% 852 7.5%
Bottom-Line Blues 252 1.6% 14 76 1.8% 30.0% 176 1.5%
15,585 100.0% 4,162 100.0% 26.7% 11,423 100.0%
BANK DIST POTENTIAL
Customer Segment Distribution - By Life Cycle
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
24 OR YOUNGER 25-34 35-44 45-54 55-64/PRE
RETIRED
65 OR
OLDER/RETIRED
07307 Jersey City
New Jersey
This immediately says we need to cater to a younger retail
customer, if we want to be successful
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© 2013 – FinPro, Inc.
As such we need to understand the following customer segments . . .
07307 Jersey City MKT
DESCRIPTION HSHLDS PCT HSHLDS PCT SHARE HSHLDS PCT
Globetrotters 8 0.1% 26 2 0.0% 24.0% 6 0.1%
Business Class 1 0.0% 34 0 0.0% 12.0% 1 0.0%
Golden Agers 4 0.0% 31 1 0.0% 14.0% 3 0.0%
Civic Spirits 3 0.0% 32 1 0.0% 32.0% 2 0.0%
Retiree Chic 37 0.2% 22 10 0.2% 28.0% 27 0.2%
Big Spenders 35 0.2% 23 6 0.2% 18.0% 29 0.3%
Jumbo Mortgagees 18 0.1% 25 6 0.1% 32.0% 12 0.1%
Prosperous Parents 94 0.6% 16 23 0.5% 24.0% 71 0.6%
Leisure Land 73 0.5% 17 16 0.4% 22.0% 57 0.5%
Home Sweet Equity 7 0.0% 27 1 0.0% 8.0% 6 0.1%
Travel & Antiques 6 0.0% 29 0 0.0% 6.0% 6 0.0%
New Money 5 0.0% 30 1 0.0% 28.0% 4 0.0%
Comfortably Retired 41 0.3% 21 11 0.3% 28.0% 30 0.3%
Active Empty Nesters 406 2.6% 13 85 2.0% 21.0% 321 2.8%
Suburban Scramble 7 0.0% 27 2 0.0% 27.0% 5 0.0%
Early-Bird Specials 68 0.4% 18 15 0.4% 22.0% 53 0.5%
Conservative Couples 49 0.3% 20 15 0.4% 31.0% 34 0.3%
Senior Solitaire 25 0.2% 24 4 0.1% 15.0% 21 0.2%
Retirement Ready 0 0.0% 35 0 0.0% 0.0% 0 0.0%
Fiscal Rookies 1,023 6.6% 6 256 6.1% 25.0% 767 6.7%
Khakis & Credit 1,052 6.8% 5 158 3.8% 15.0% 894 7.8%
Family Sprawl 662 4.2% 9 132 3.2% 20.0% 530 4.6%
Old Homesteaders 140 0.9% 15 25 0.6% 18.0% 115 1.0%
Urbanistas 628 4.0% 10 75 1.8% 12.0% 553 4.8%
Forever Young 569 3.7% 11 40 1.0% 7.0% 529 4.6%
Settling Down 2,140 13.7% 3 556 13.4% 26.0% 1,584 13.9%
Loan Rangers 959 6.2% 7 201 4.8% 21.0% 758 6.6%
Urban Essentials 2,409 15.5% 2 964 23.2% 40.0% 1,445 12.7%
Country Cottages 2 0.0% 33 0 0.0% 9.0% 2 0.0%
Social Insecurity 416 2.7% 12 42 1.0% 10.0% 374 3.3%
City Strivers 700 4.5% 8 203 4.9% 29.0% 497 4.4%
Young & Thrifty 2,446 15.7% 1 832 20.0% 34.0% 1,614 14.1%
Economizers 65 0.4% 19 20 0.5% 31.0% 45 0.4%
Young Urban Renters 1,235 7.9% 4 383 9.2% 31.0% 852 7.5%
Bottom-Line Blues 252 1.6% 14 76 1.8% 30.0% 176 1.5%
15,585 100.0% 4,162 100.0% 26.7% 11,423 100.0%
BANK DIST POTENTIAL
• Fiscal Rookies
Segment:
– Young couples and
families.
– Relatively high incomes
– 25- to 44-year-olds
– Not saving a lot of money
– Average levels of income-
producing assets.
– Carry debt from student
and auto loans
– First home mortgages
– Dabbling in investment-
style insurance and
mutual funds for their
401(k)s.
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© 2013 – FinPro, Inc.
The needs profile for the Fiscal Rookies looks like this . . .
Offer some form of custom loan, a term loan secured by real estate for borrowers with good credit but little or no equity to use as an alternative to costly student loans or for other debt consolidation.
Consider higher LTV loans with approach of underwriting borrower vs. collateral, when direct payment is made from a bank checking account. Also consider offering interest only periods and some fixed number of options for the customer to convert some or all of the outstanding line into a fixed term loan.
A checking account with a low minimum or no minimum balance requirement, no fees, free internet banking, unlimited check writing, automatic overdraft protection, and tied to a savings account.
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© 2013 – FinPro, Inc.
Product delivery . . .
Technology, Technology, Technology:
Internet and Electronic banking – low usage rate of traditional brick and mortar
Link all accounts together and offer some form of a unified statement as well a free and unlimited electronic access to accounts
These customers have high ATM usage rates (next generation ATMs)
Convenience, Convenience, Convenience:
Direct deposit of payroll checks into a Bank account
Location near retail draws, walking patterns, and stops for the Bergen Hudson Light Rail
Free ATM usage at any Bank locations
A dual credit card/debit/ATM card should be offered
Type of Media:
Radio
Entertainment, Fitness, and Airline Magazines
Affinity relationships
Business Finance section of the newspaper
Search Engine
NO Television
TOP 10 Lifestyle Index
Prof Furniture Clnrs LstYr (1.8%) 278
Used Baby Foods Last 6 Mos (5.8%) 271
Go Downhill Skiing (3.6%) 269
Go Scuba/Skin Dive/Snorkel (2.5%) 244
Play Softball (5.3%) 238
In-Home Preg Test Lst 12Mos (5.9%) 237
Rntd Fam/Kid Videos Lst Mo (10.0%) 233
Exercise at Club 2x a Week (6.5%) 231
Buy Medium Rock Music (8.7%) 230
Buy Hard Rock Music (5.9%) 215
TOP 10 Media Index
Baby Mags: Net Aud (3.8%) 268
Entertain/Perf Art Mag (3.8%) 268
Classic Rock: Net Audience (8.5%) 233
Progressive Rock: Net Aud (13.7%) 215
Fitness Mags: Net Aud (4.0%) 188
Computer Mags: Net Aud (6.6%) 158
VH1: Net Audience (11.7%) 156
TV Col Basketball: NetAud (15.6%) 154
Airline Mags: Net Aud (4.6%) 151
Radio Col/Pro Bsktbl:NetAud(5.8%) 148
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© 2013 – FinPro, Inc.
And we should get even more detailed . . .
NEWSPAPER Index RADIO Index Programming Index
Top 20% Newspaper: Net Aud (20.0%) 92 Top 20% Radio: Net Audience(20.0%) 132 Adult Contemp: Net Aud(20.6%) 134
Bottom 20% Newsppr: Net Aud(20.0%) 68 Bottom 20% Radio: Net Aud (19.8%) 44 News: Net Audience (4.8%) 81
Progressive Rock: Net Aud (13.7%) 215
Read Business/Finance Sec (30.3%) 128 Radio M-F 6am-10am: Net Aud(55.8%) 127 Black: Net Audience (1.5%) 27
Read Classified Section (35.5%) 124 Radio M-F 10am-3pm: Net Aud(36.9%) 113 CHR/Rock: Net Aud (12.0%) 136
Read Comics Section (34.2%) 113 Radio M-F 3pm-7pm: Net Aud (42.7%) 144 Classic Rock: Net Audience (8.5%) 233
Read Editorial Section (34.7%) 90 Radio M-F 7pm-12am: Net Aud(16.4%) 105 Classical: Net Aud (2.1%) 85
Read Fashion Section (18.2%) 99 Radio M-F 12am-6am: Net Aud(5.2%) 112 Country: Net Aud (21.4%) 124
Read Food/Cooking Section (28.9%) 98 Radio S-S 6am-10am: Net Aud(29.5%) 112 Easy List: Net Aud (1.3%) 54
Read General News Section (59.8%) 110 Radio S-S 10am-3pm: Net Aud(38.0%) 126 Golden Oldies: Net Aud(12.8%) 123
Read Home/Furn/Garden Sec (23.0%) 119 Radio S-S 3pm-7pm: Net Aud(28.5%) 131 Jazz: Net Audience (3.7%) 68
Read Movie Listngs&Reviews (29.9%) 115 Radio S-S 7pm-12am: Net Aud(14.0%) 92 Nostalgia: Net Aud (2.6%) 38
Read Science/Tech Section (19.0%) 111 Radio S-S 12am-6am: Net Aud(3.2%) 85 News/Talk: Net Aud (17.9%) 112
Read Sports Section (32.5%) 126 Relig/Gospel: Net Aud (4.5%) 91
Read TV/Radio Listings (34.0%) 90 Soft Contemp: Net Aud (2.5%) 144
Spanish: Net Aud (2.2%) 18
MAGAZINE Index Urban Contemp: Net Aud(6.5%) 54
Top 20% Magazines: Net Aud (20.0%) 107 Variety: Net Aud (1.5%) 73
Bottom 20% Mags: Net Aud (20.1%) 75
TELEVISION Index Programming Index
Airline Mags: Net Aud (4.6%) 151 Top 20% Total TV: Net Aud (19.8%) 42 A&E: Net Audience (32.8%) 86
Automotive Mags: Net Aud (10.7%) 130 Bottom 20% Total TV: NetAud(19.9%) 122 Amer Movie Classics: NetAud(19.0%) 64
Baby Mags: Net Aud (3.8%) 268 BET: Net Audience (6.2%) 71
Boating Mags: Net Aud (2.5%) 132 TV M-F 6am-7am: Net Aud (5.1%) 80 Bravo: Net Audience (2.2%) 64
Bridal Mags: Net Aud (3.7%) 59 TV M-F 7am-9am: Net Aud (7.8%) 62 Cartoon Network: Net Aud (6.6%) 140
Bus/Finance Mags: Net Aud (22.7%) 139 TV M-F 9am-10am: Net Aud (8.8%) 52 CNBC: Net Audience (14.0%) 90
Computer Mags: Net Aud (6.6%) 158 TV M-F 10am-1pm: Net Aud (10.3%) 32 CNN: Net Audience (58.8%) 97
Entertain/Perf Art Mag (3.8%) 268 TV M-F 1pm-4pm: Net Aud (12.1%) 30 Comedy Central: Net Aud (10.9%) 146
Epicurean Mags: Net Aud(5.1%) 102 TV M-F 4pm-4:30pm: Net Aud (12.2%) 31 Country Music TV: Net Aud (11.7%) 103
Fish/Hunt Mags: Net Aud (14.2%) 103 TV M-F 4:30pm-5pm: Net Aud (12.4%) 35 Court TV: Net Audience (4.6%) 80
Fitness Mags: Net Aud (4.0%) 188 TV M-F-5pm-5:30pm: Net Aud (16.8%) 53 C-Span: Net Audience (12.8%) 95
Fraternal Mags: Net Aud (2.8%) 32 TV M-F 5:30pm-6pm: Net Aud (18.4%) 56 Discovery Channel: Net Aud (47.3%) 95
Gardening Mags: Net Aud (4.1%) 60 TV M-F 6pm-6:30pm: Net Aud (28.6%) 55 E!: Net Audience (9.9%) 121
Gen Editorial Mags: Net Aud(53.9%) 90 TV M-F 6:30pm-7pm: Net Aud (30.2%) 58 ESPN: Net Audience (40.3%) 119
Health Mags: Net Aud (9.6%) 74 TV M-F 7pm-7:30pm: Net Aud (34.9%) 63 ESPN2: Net Audience (5.8%) 131
Home Svcs Mags: Net Aud (33.0%) 122 TV M-F 7:30pm-8pm: Net Aud (35.3%) 67 Family Channel: Net Aud (28.1%) 89
Mens Mags: Net Aud (16.1%) 127 TV M-F 8pm-11pm: Net Aud (52.3%) 96 Headline News: Net Aud (28.9%) 103
Motorcycle Mags: Net Aud (3.1%) 106 TV M-F-11pm-11:30pm: NetAud(27.3%) 89 Home Shopping Club:Net Aud (5.5%) 115
Music Mags: Net Aud (9.3%) 112 TV M-F 11:30pm-12am: NetAud(15.0%) 87 Learning Channel: Net Aud (12.2%) 104
News Weekly Mags: Net Aud (50.7%) 100 TV M-F 12am-12:30am: NetAud(7.7%) 82 Lifetime: Net Audience (25.0%) 96
Newspaper-Distrib Mags: NetAud(61.4%) 107 TV M-F 12:30am-1am: Net Aud(4.2%) 74 MTV: Net Audience (18.5%) 114
Parenthood Mags: Net Aud (8.7%) 125 TV M-F 1am-2am: Net Aud (1.9%) 63 Nick at Nite: Net Audience (16.7%) 132
Photographic Mags: Net Aud (1.3%) 77 TV Sat 7am-10am: Net Aud (3.5%) 74 Nickelodeon: Net Audience (15.8%) 124
Science/Tech Mags: Net Aud (7.4%) 99 TV Sat 10am-1pm: Net Aud (7.0%) 74 Nostalgia TV: Net Aud (1.5%) 0
Sports Mags: Net Aud (13.5%) 139 TV Sat 1pm-4:30pm: Net Aud (11.7%) 67 Prevue Guide Channel:NetAud(9.4%) 119
Travel Mags: Net Aud (7.2%) 99 TV Sat 4:30pm-6pm: Net Aud (14.1%) 73 QVC: Net Audience (5.1%) 88
Womens Mags: Net Aud (45.4%) 114 TV Sat 6pm-7:30pm: Net Aud (19.5%) 63 TBS: Net Audience (36.0%) 105
Womens Fashion Mags: NetAud(6.2%) 84 TV Sat 7:30pm-8pm: Net Aud (22.7%) 61 TNN: Net Audience (25.6%) 82
TV Sat 8pm-11pm: Net Aud (36.8%) 77 TNT: Net Audience (35.4%) 94
TV Sat 11pm-11:30pm: NetAud(14.4%) 72 Travel Channel: Net Aud (3.5%) 137
TV Sat 11:30pm-1am: Net Aud(4.8%) 108 USA Network: Net Audience (39.2%) 102
TV Sunday 7am-10am: Net Aud(3.3%) 76 VH1: Net Audience (11.7%) 156
TV Sun 10am-1pm: Net Aud (6.9%) 87 Weather Channel: Net Aud (41.4%) 96
TV Sun 1pm-4:30pm: Net Aud (16.0%) 106 WGN-TV: Net Audience (18.9%) 105
TV Sun 4:30pm-6pm: Net Aud (17.2%) 85 Cinemax: Net Audience (11.3%) 87
TV Sunday 6pm-7pm: Net Aud (22.2%) 73 Disney Channel: Net Aud (8.3%) 106
TV Sun 7pm-11pm: Net Aud (40.0%) 93 HBO: Net Audience (26.2%) 92
TV Sun 11pm-11:30pm: NetAud(14.4%) 92 Movie Channel: Net Audience(5.3%) 55
TV Sun 11:30-1am: Net Aud (3.1%) 74 Showtime: Net Audience (10.9%) 83
TELEVISION Index Programming Index
Top 20% Total TV: Net Aud (19.8%) 42 A&E: Net Audience (32.8%) 86
Bottom 20% Total TV: NetAud(19.9%) 122 Amer Movie Classics: NetAud(19.0%) 64
BET: Net Audience (6.2%) 71
TV M-F 6am-7am: Net Aud (5.1%) 80 Bravo: Net Audience (2.2%) 64
TV M-F 7am-9am: Net Aud (7.8%) 62 Cartoon Network: Net Aud (6.6%) 140
TV M-F 9am-10am: Net Aud (8.8%) 52 CNBC: Net Audience (14.0%) 90
TV M-F 10am-1pm: Net Aud (10.3%) 32 CNN: Net Audience (58.8%) 97
TV M-F 1pm-4pm: Net Aud (12.1%) 30 Comedy Central: Net Aud (10.9%) 146
TV M-F 4pm-4:30pm: Net Aud (12.2%) 31 Country Music TV: Net Aud (11.7%) 103
TV M-F 4:30pm-5pm: Net Aud (12.4%) 35 Court TV: Net Audience (4.6%) 80
TV M-F-5pm-5:30pm: Net Aud (16.8%) 53 C-Span: Net Audience (12.8%) 95
TV M-F 5:30pm-6pm: Net Aud (18.4%) 56 Discovery Channel: Net Aud (47.3%) 95
TV M-F 6pm-6:30pm: Net Aud (28.6%) 55 E!: Net Audience (9.9%) 121
TV M-F 6:30pm-7pm: Net Aud (30.2%) 58 ESPN: Net Audience (40.3%) 119
TV M-F 7pm-7:30pm: Net Aud (34.9%) 63 ESPN2: Net Audience (5.8%) 131
TV M-F 7:30pm-8pm: Net Aud (35.3%) 67 Family Channel: Net Aud (28.1%) 89
TV M-F 8pm-11pm: Net Aud (52.3%) 96 Headline News: Net Aud (28.9%) 103
TV M-F-11pm-11:30pm: NetAud(27.3%) 89 Home Shopping Club:Net Aud (5.5%) 115
TV M-F 11:30pm-12am: NetAud(15.0%) 87 Learning Channel: Net Aud (12.2%) 104
TV M-F 12am-12:30am: NetAud(7.7%) 82 Lifetime: Net Audience (25.0%) 96
TV M-F 12:30am-1am: Net Aud(4.2%) 74 MTV: Net Audience (18.5%) 114
TV M-F 1am-2am: Net Aud (1.9%) 63 Nick at Nite: Net Audience (16.7%) 132
TV Sat 7am-10am: Net Aud (3.5%) 74 Nickelodeon: Net Audience (15.8%) 124
TV Sat 10am-1pm: Net Aud (7.0%) 74 Nostalgia TV: Net Aud (1.5%) 0
TV Sat 1pm-4:30pm: Net Aud (11.7%) 67 Prevue Guide Channel:NetAud(9.4%) 119
TV Sat 4:30pm-6pm: Net Aud (14.1%) 73 QVC: Net Audience (5.1%) 88
TV Sat 6pm-7:30pm: Net Aud (19.5%) 63 TBS: Net Audience (36.0%) 105
TV Sat 7:30pm-8pm: Net Aud (22.7%) 61 TNN: Net Audience (25.6%) 82
TV Sat 8pm-11pm: Net Aud (36.8%) 77 TNT: Net Audience (35.4%) 94
TV Sat 11pm-11:30pm: NetAud(14.4%) 72 Travel Channel: Net Aud (3.5%) 137
TV Sat 11:30pm-1am: Net Aud(4.8%) 108 USA Network: Net Audience (39.2%) 102
TV Sunday 7am-10am: Net Aud(3.3%) 76 VH1: Net Audience (11.7%) 156
TV Sun 10am-1pm: Net Aud (6.9%) 87 Weather Channel: Net Aud (41.4%) 96
TV Sun 1pm-4:30pm: Net Aud (16.0%) 106 WGN-TV: Net Audience (18.9%) 105
TV Sun 4:30pm-6pm: Net Aud (17.2%) 85 Cinemax: Net Audience (11.3%) 87
TV Sunday 6pm-7pm: Net Aud (22.2%) 73 Disney Channel: Net Aud (8.3%) 106
TV Sun 7pm-11pm: Net Aud (40.0%) 93 HBO: Net Audience (26.2%) 92
TV Sun 11pm-11:30pm: NetAud(14.4%) 92 Movie Channel: Net Audience(5.3%) 55
TV Sun 11:30-1am: Net Aud (3.1%) 74 Showtime: Net Audience (10.9%) 83
NEWSPAPER Index
Top 20% Newspaper: Net Aud (20.0%) 92
Bottom 20% Newsppr: Net Aud(20.0%) 68
Read Business/Finance Sec (30.3%) 128
Read Classified Section (35.5%) 124
Read Comics Section (34.2%) 113
Read Editorial Section (34.7%) 90
Read Fashion Section (18.2%) 99
Read Food/Cooking Section (28.9%) 98
Read General News Section (59.8%) 110
Read Home/Furn/Garden Sec (23.0%) 119
Read Movie Listngs&Reviews (29.9%) 115
Read Science/Tech Section (19.0%) 111
Read Sports Section (32.5%) 126
Read TV/Radio Listings (34.0%) 90
RADIO Index Programming Index
Top 20% Radio: Net Audience(20.0%) 132 Adult Contemp: Net Aud(20.6%) 134
Bottom 20% Radio: Net Aud (19.8%) 44 News: Net Audience (4.8%) 81
Progressive Rock: Net Aud (13.7%) 215
Radio M-F 6am-10am: Net Aud(55.8%) 127 Black: Net Audience (1.5%) 27
Radio M-F 10am-3pm: Net Aud(36.9%) 113 CHR/Rock: Net Aud (12.0%) 136
Radio M-F 3pm-7pm: Net Aud (42.7%) 144 Classic Rock: Net Audience (8.5%) 233
Radio M-F 7pm-12am: Net Aud(16.4%) 105 Classical: Net Aud (2.1%) 85
Radio M-F 12am-6am: Net Aud(5.2%) 112 Country: Net Aud (21.4%) 124
Radio S-S 6am-10am: Net Aud(29.5%) 112 Easy List: Net Aud (1.3%) 54
Radio S-S 10am-3pm: Net Aud(38.0%) 126 Golden Oldies: Net Aud(12.8%) 123
Radio S-S 3pm-7pm: Net Aud(28.5%) 131 Jazz: Net Audience (3.7%) 68
Radio S-S 7pm-12am: Net Aud(14.0%) 92 Nostalgia: Net Aud (2.6%) 38
Radio S-S 12am-6am: Net Aud(3.2%) 85 News/Talk: Net Aud (17.9%) 112
Relig/Gospel: Net Aud (4.5%) 91
Soft Contemp: Net Aud (2.5%) 144
Spanish: Net Aud (2.2%) 18
Urban Contemp: Net Aud(6.5%) 54
Variety: Net Aud (1.5%) 73
MAGAZINE Index
Top 20% Magazines: Net Aud (20.0%) 107
Bottom 20% Mags: Net Aud (20.1%) 75
Airline Mags: Net Aud (4.6%) 151
Automotive Mags: Net Aud (10.7%) 130
Baby Mags: Net Aud (3.8%) 268
Boating Mags: Net Aud (2.5%) 132
Bridal Mags: Net Aud (3.7%) 59
Bus/Finance Mags: Net Aud (22.7%) 139
Computer Mags: Net Aud (6.6%) 158
Entertain/Perf Art Mag (3.8%) 268
Epicurean Mags: Net Aud(5.1%) 102
Fish/Hunt Mags: Net Aud (14.2%) 103
Fitness Mags: Net Aud (4.0%) 188
Fraternal Mags: Net Aud (2.8%) 32
Gardening Mags: Net Aud (4.1%) 60
Gen Editorial Mags: Net Aud(53.9%) 90
Health Mags: Net Aud (9.6%) 74
Home Svcs Mags: Net Aud (33.0%) 122
Mens Mags: Net Aud (16.1%) 127
Motorcycle Mags: Net Aud (3.1%) 106
Music Mags: Net Aud (9.3%) 112
News Weekly Mags: Net Aud (50.7%) 100
Newspaper-Distrib Mags: NetAud(61.4%) 107
Parenthood Mags: Net Aud (8.7%) 125
Photographic Mags: Net Aud (1.3%) 77
Science/Tech Mags: Net Aud (7.4%) 99
Sports Mags: Net Aud (13.5%) 139
Travel Mags: Net Aud (7.2%) 99
Womens Mags: Net Aud (45.4%) 114
Womens Fashion Mags: NetAud(6.2%) 84 34
© 2013 – FinPro, Inc.
And create a culture which rewards service quality, but separates service from
sales . . .
Implement tracking system
Create appropriate metrics to monitor performance, for example:
Total Accounts
Total Households
Accounts per Household
Products per Household
Loan $ per Household
Deposit $ per Household
Create incentive compensation for the branch manager based on selected metrics.
Utilize data mining of current customers to identify cross sell potential and calling lists for branch staff
Fiscal Rookies
07307 Jersey City
HSHLDS
W/ACCT
% MKT
HSHLDS
AVG
BALANCE
POTENTIAL
MARKET % MIX INDEX
DEPOSIT PRODUCTS:
Non-interest DDA 603 58.9% $7,121 $4,292,576 20.2% 1.22
Interest DDA 524 51.3% $7,888 $4,136,514 19.4% 1.07
Total Transaction/DDA 992 97.0% $8,497 $8,429,090 39.6% 1.12
Savings - Regular 903 88.3% $10,354 $9,349,599 43.9% 1.28
Money Market 192 18.8% $10,873 $2,090,229 9.8% 1.07
CD 110 10.8% $11,315 $1,248,288 5.9% 0.78
IRA-CD 18 1.8% $9,842 $179,420 0.8% 0.63
Total Savings 937 91.6% $13,735 $12,867,536 60.4% 1.24
TOTAL DEPOSIT PRODUCTS 1,020 99.7% $20,885 $21,296,626 100.0% 1.08
LOAN PRODUCTS:
Mortgage 618 60.4% $115,379 $71,322,198 334.9% 1.49
2nd Mortgage 60 5.9% $28,111 $1,683,804 7.9% 1.20
Home Equity LOC 97 9.5% $18,577 $1,807,602 8.5% 1.09
Total Real Estate Secured 630 61.6% $118,708 $74,813,604 351.3% 1.40
Auto 620 60.6% $16,602 $10,286,481 48.3% 1.79
Student 356 34.8% $22,138 $7,888,164 37.0% 3.03
Other Personal Loans 77 7.6% $10,945 $847,348 4.0% 1.44
Total Installment Credit 769 75.2% $26,910 $19,021,994 89.3% 1.73
Bank Credit Card 944 92.3% $4,359 $4,116,864 19.3% 1.27
Overdraft 234 22.9% $3,865 $905,882 4.3% 1.37
Other PLOC 52 5.1% $8,160 $423,096 2.0% 1.50
Total Revolving Credit 960 93.8% $7,559 $5,445,842 25.6% 1.24
TOTAL LOAN PRODUCTS 1,008 98.5% $98,485 $99,281,440 466.2% 1.18
35
© 2013 – FinPro, Inc.
B6. Franchise
36
Management Succession
Holding Company, Exchange Registration and Charter Analysis
Branch network restructuring
Market share acquisitions
Branch network in-fill
© 2013 – FinPro, Inc.
Staff are the most important element of banking . . .
37
Investors don’t invest in banks, they invest in management teams
We are like Republicans – Old grumpy men
A management review is a good thing
True staff planning is essential
Migrate to organizational structure for the future, not today
Which will necessitate organization wide management succession, and
Individual management succession
Must identify training needs and build it in house
We should hire outside the industry, we need new ideas
© 2013 – FinPro, Inc.
All banks need to relook at their compensation plans . . .
Number of and provisions in employment agreements
Value effect of stock plans
Shift to total compensation management
38
C. Compensation Grid
Management
Position: Chief Executive Officer
Name: John Doe
Actual Actual Actual Projected
2010 2011 2012 2013
Base Salary $ - $ - $ - $ -
Cash Bonus $ - $ - $ - $ -
Medical Benefits $ - $ - $ - $ -
401K Contribution $ - $ - $ - $ -
Outstanding LTIP $ - $ - $ - $ -
New LTIP $ - $ - $ - $ -
Total
Compensation $ - $ - $ - $ -
© 2013 – FinPro, Inc.
Corporate infrastructure needs to be re-evaluated . . .
39
Eliminate Holding Company, if not utilizing it
Select appropriate charter
Deregister and delist
Ensure that you have enough authorized but unissued shares for both common stock
and preferred stock
Plan to fix your capital structure
2/3 common
1/3 in dividend or interest bearing form
Potential adjustment to $2.5 billion from $500 million cut off
© 2013 – FinPro, Inc.
Eliminate the holding company unless there is a real need for it . . .
You need a HC if:
You want multiple bank charters
You have, or want, subsidiaries at the HC level
You currently have a complex capital structure
To take full advantage of anti-takeover provisions (super majority votes)
Possibly, you are an active acquirer
Eliminating the HC will:
Save considerable expense, $200k for a $500 million bank
Eliminate the Federal Reserve as regulator
Exempt from SEC Registrations
Clean up legal structure
40
© 2013 – FinPro, Inc.
Review charter choices and select the optimal one . . .
41
State State National
Member Non Member Bank
Bank Examination State State OCC
Federal Reserve FDIC
If Holding Company Federal Reserve Federal Reserve Federal Reserve
© 2013 – FinPro, Inc.
Evaluate the cost and effectiveness of the current systems . . .
42
In-house vs. outsourcing
The Cloud
Data management
Contract reviews to avoid astronomical early cancellation fees
FinPro Central Hub
FinPro Online Applications
© 2013 – FinPro, Inc.
Ensure the Bank has the appropriate services and sales channels . . .
43
© 2013 – FinPro, Inc.
C. Value Creation
44
1. Grow deposits & diversify the mix
2. Grow loan & diversify the mix
3. Grow and diversify noninterest income
4. Control expenses
5. Enhance the branch network and
alternative delivery options
6. Increase number of and penetration
within customers
7. Utilize capital market tools
© 2013 – FinPro, Inc.
C1. Grow Deposits &
Diversify the Mix
45
Deposit disintermediation study
Decay analysis
Beta analysis
Deposit concentration analysis 1. Grow deposits & diversify the mix
2. Grow loan & diversify the mix
3. Grow and diversify noninterest income
4. Control expenses
5. Enhance the branch network and
alternative delivery options
6. Increase number of and penetration
within customers
7. Utilize capital market tools
© 2013 – FinPro, Inc.
From a funding perspective, we need to grow deposits and diversify the mix . . .
46
1. Today, diversifying mix is much more important than deposit growth. Deposit growth is a function of:
Need to pay down non core funding, and/or
The ability to grow loans
2. Minimize non core funding but some, in moderation, is acceptable
Brokered deposits are preferable to wholesale borrowings
3. Conduct deposit disintermediation study
Relationship
Tenure
Location
Transactions
Price
Size
4. Conduct new deposit decay and beta analyses
FDIC - Statistics on Depository Institutions
Report in (000's)
2007Y 2008Y 2009Y 2010Y 2011Y 2012Y
Transaction accounts 786,653,638$ 924,718,053$ 983,511,046$ 1,048,325,569$ 1,401,141,927$ 1,586,458,938$
Money market deposit accounts (MMDAs) 2,695,036,295 2,876,802,186 3,283,086,020 3,586,758,445 4,029,255,861 4,315,419,516
Other savings deposits (excluding MMDAs) 832,266,809 870,962,858 1,065,307,646 1,259,875,003 1,505,890,420 1,817,372,457
Total time deposits 2,598,896,528 2,823,780,238 2,364,766,203 1,978,335,575 1,821,712,372 1,727,746,993
Total Domestic Deposits 6,912,853,270$ 7,496,263,335$ 7,696,670,915$ 7,873,294,592$ 8,758,000,580$ 9,446,997,904$
© 2013 – FinPro, Inc.
In fact, the last time rates rose quickly was from 2004 to 2007 . . .
47
Total Interest Expense for Industry (In Millions)
128,786
102,060 102,455
171,530
271,443
317,097
218,055
126,190
93,664 75,094 65,927
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
2002Y 2003Y 2004Y 2005Y 2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y
Source: SNL Financial
Implied Beta = 55%
1.00%
3.00%
5.00%5.25%
1.78%
2.72%
3.94%4.11%
2.75%
4.38%
5.00%4.71%
4.24% 4.39%
4.71%
4.04%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2004Y 2005Y 2006Y 2007Y
Fed Funds Interest Expense to Average Costing Liabilities 1 Year Treasury Rate 10 Year Treasury Rate
© 2013 – FinPro, Inc.
C2. Grow Loans &
Diversify the Mix
48
Loan concentration analysis
Risk vs. Profitability analysis
New product white papers
Prepayment speed analysis 1. Grow deposits & diversify the mix
2. Grow loan & diversify the mix
3. Grow and diversify noninterest income
4. Control expenses
5. Enhance the branch network and
alternative delivery options
6. Increase number of and penetration
within customers
7. Utilize capital market tools
© 2013 – FinPro, Inc.
From a Lending perspective, we need to grow loans and diversify the mix . . .
1. Need expertise, systems, processes and
controls
2. Migrate from investments to loans
3. Need to hire loan producers
4. Loan participations are okay only if
underwritten by purchaser
5. Establish solid concentration limits and
granularly stratify whenever appropriate
FICO
Geography
LTV (funded and fully drawn) Stress Test:
5%, 10%, 15%
Purchased vs. Refinance
Non owner vs. owner (CRE)
Industry, NAICS code
DSC
49
Gross Loans
Annual Quarterly
$6,626
$7,321
$7,579
$7,241 $7,350
$7,466
$7,698
$7,413 $7,515
$7,580
$7,698
$6,000
$6,200
$6,400
$6,600
$6,800
$7,000
$7,200
$7,400
$7,600
$7,800
2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y 2012Q1 2012Q2 2012Q3 2012Q4
© 2013 – FinPro, Inc.
And continue to reduce asset quality concerns . . .
2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y 2012Q1 2012Q2 2012Q3 2012Q4
Total Assets Past Due 30-89 Days 64,955$ 94,259$ 148,137$ 138,755$ 117,398$ 100,865$ 89,189$ 89,884$ 84,092$ 87,072$ 89,189$
Total Assets Past Due 90+ Days 21,850 30,851 72,448 131,519 130,463 133,862 124,168 131,907 128,379 130,370 124,168
Total Nonaccrual Assets 30,883 65,677 147,976 264,284 229,066 181,333 154,832 175,493 167,130 164,761 154,832
Total OREO & Repos Assets 5,365 10,148 24,615 41,130 52,543 46,194 38,631 44,924 41,882 41,165 38,631
Total 123,053$ 200,936$ 393,175$ 575,688$ 529,471$ 462,254$ 406,821$ 442,208$ 421,483$ 423,368$ 406,821$
Percent Change 63.29% 95.67% 46.42% -8.03% -12.70% -11.99% -4.69% 0.45% -3.91%
Annual Quarterly
Asset Quality Trends
(In millions)
Asset Quality Migration Trends ($ in millions)
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
Total Assets Past
Due 30-89 Days
Total Assets Past
Due 90+ Days
Total Nonaccrual
Assets
Total OREO &
Repos Assets
50
© 2013 – FinPro, Inc.
C3. Grow and diversify noninterest
income
51
Wealth management
Mortgage operation
Alternative fee opportunities
Small Business Investment
Companies1. Grow deposits & diversify the mix
2. Grow loan & diversify the mix
3. Grow and diversify noninterest income
4. Control expenses
5. Enhance the branch network and
alternative delivery options
6. Increase number of and penetration
within customers
7. Utilize capital market tools
© 2013 – FinPro, Inc.
Analyze fee income opportunities . . .
52
Stop waiving fees
Is this a competitive weapon?
Charge fees on small balance
Charge fees on single relationship accounts to make them profitable or move them out
Cyclical fee income will receive a lower earnings multiple
Consider purchasing RIA’s
Ultimately, fees may help but they are not the Panacea
Source: SNL Securities
Industry Median Noninterest Income / Average Assets (Excluding Security Sale Gains or Losses)
Annual Quarterly
0.63% 0.61% 0.60%
0.53%0.51%
0.49%0.51% 0.50% 0.50%
0.53% 0.54%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y 2012Q1 2012Q2 2012Q3 2012Q4
Target a 50+ basis point non interest income to average assets ratio
© 2013 – FinPro, Inc.
C4. Control Expenses
53
GL line item review
Transaction cost savings analysis
Organizational efficiency study
Branch profitability study1. Grow deposits & diversify the mix
2. Grow loan & diversify the mix
3. Grow and diversify noninterest income
4. Control expenses
5. Enhance the branch network and
alternative delivery options
6. Increase number of and penetration
within customers
7. Utilize capital market tools
© 2013 – FinPro, Inc.
Implement expense control measures . . .
Conduct a general ledger line item review
Everyone says they can’t cut and yet when
pressed all can and do
Remove sacred cow excuse
Lead by example – Board fees and executive
compensation
Sell or close unprofitable branches
Eliminate multiple layers of organization – Flatten
organization chart
Conduct branch, account and customer
profitability analytics
Recognize pickup from reduced asset quality
problems: FDIC insurance, Legal and carry costs,
and provision
Ensure your Bank has the appropriate Charter
Determine need, and usage of, Holding Company
If possible, de-register
54Source: SNL Securities
Industry Median Noninterest Expenses / Avg. Assets
Annual Quarterly
2.98%2.99%
3.00%
3.04%
3.01%
2.99%
2.95%
2.91%2.92%
2.91%
3.02%
2.80%
2.85%
2.90%
2.95%
3.00%
3.05%
2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y 2012Q1 2012Q2 2012Q3 2012Q4
© 2013 – FinPro, Inc.
C5. Enhance the branch network
and alternative delivery options
55
Branch Improvement
Market Ranking Studies
Strategic Market Assessment
Peer Market Composition analysis
Site Studies & Branch Applications
1. Grow deposits & diversify the mix
2. Grow loan & diversify the mix
3. Grow and diversify noninterest income
4. Control expenses
5. Enhance the branch network and
alternative delivery options
6. Increase number of and penetration
within customers
7. Utilize capital market tools
© 2013 – FinPro, Inc.
C6. Increase number of and
penetration within customers
56
Customer Segmentation Analysis
Product Propensity Analysis
New Product Development
Incremental Cost of Funds Analysis1. Grow deposits & diversify the mix
2. Grow loan & diversify the mix
3. Grow and diversify noninterest income
4. Control expenses
5. Enhance the branch network and
alternative delivery options
6. Increase number of and penetration
within customers
7. Utilize capital market tools
© 2013 – FinPro, Inc.
C7. Utilize capital market tools
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Mutual Conversions
Capital Raise
ESOP and other stock valuations
Stock Repurchases
Dividend analytics
Intangible Valuation and Impairment
ASC 805 Mark-to-Market
Merger and Acquisition Advisory & Fairness Opinions
Branch Evaluations, Acquisitions, Sales, Consolidations & Swaps
Strategic Alternatives Review
Sell-Side Pre-Due Diligence Review
Buy-Side M&A Pro Forma Enterprise Risk Assessment
1. Grow deposits & diversify the mix
2. Grow loan & diversify the mix
3. Grow and diversify noninterest income
4. Control expenses
5. Enhance the branch network and
alternative delivery options
6. Increase number of and penetration
within customers
7. Utilize capital market tools
© 2013 – FinPro, Inc.
In M&A, you need to maintain discipline and be principled . . .
Any buy-side M&A deal must be:
Less than 10% TBVS dilutive (preferably less than 7.00%)
Immediately EPS accretive
Less than 5 year TBVS workback period (preferably 3 years)
To play in buy-side M&A, the Company must be a pro forma “2” rated institution
Always remember that Investment Bankers would sell you anything to get a fee
Do not fall in love with the deal, only execute transactions that fit your strategy and
build value
Must, must, must maintain key business producers
Monitor your position as both a buyer and a seller – Use the FinPro Quarterly Value
Book
58
© 2013 – FinPro, Inc.
Raising capital is going to remain a primary strategic thrust for most institutions
for the foreseeable future . . .
59
1. Build a value creation and detractor matrix
2. Understand investor preferences
3. Build shareholder list and analyze it
4. Compile an accredited investor list (local and national)
5. Compile a list of Private Equity players
6. Only raise the amount of capital that can be effectively deployed in 1 to 3 years
7. Think twice before highly dilutive capital raises
© 2013 – FinPro, Inc.
Build Value
60
1. Grow deposits & diversify the mix
2. Grow loan & diversify the mix
3. Grow and diversify noninterest income
4. Control expenses
5. Enhance the branch network and
alternative delivery options
6. Increase number of and penetration
within customers
7. Utilize capital market tools
© 2013 – FinPro, Inc.
All strategic initiatives must be measured as to value creation . . .
There are three ways to realize value:
Dividend Policy (Both Cash and Stock)
Trading Price Appreciation (Growth in EPS and TBV per share)
Takeout Value (Branching or any other long term strategy)
There is a 30% to 50% premium for takeout over trading values.
61
© 2013 – FinPro, Inc.
To build value the Bank needs to focus on TBVS and EPS . . .
62
Quarterly Tangible Book Value per Share ($)
Historical Projections
8.3
2
7.9
4
8.1
2 7.4
9
7.5
4
7.8
7
6.0
2
5.6
7
5.61 5.475.18 5.23 5.12 5.02
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13
High Low Moderate Peer Group 1 Median FinPro Community Bank Con Base Case Con Bulk Asset Sale ConAsset Sale and Capital Raise
© 2013 – FinPro, Inc.
Value creation also incorporates market multiples . . .
63
A B C=A+B D E=C+D F G=E+F H I=G+H
Pro Forma Pro Forma Pro Forma Pro Forma
Value Today
Fix Risk
Profile
Fix Risk
Profile
Enhance
Performance
Enhance
Performance
Capital
Raise
Capital
Raise Sale Sale
Tangible Common Equity 23,359$ - 23,359$ 500 23,859$ 5,000 28,859$ - 28,859$
Core Earnings 28.60$ - 29$ 500 529$ 150 679$ - 679$
Common Shares Outstanding 3,927 - 3,927$ - 3,927$ 748 4,674$ - 4,674$
Average Fully Diluted Shares 3,927 - 3,927$ - 3,927$ 748 4,674$ - 4,674$
TBVS 5.95 5.95 6.08 6.17 6.17
EPS 0.01 0.01 0.13 0.15 0.15
Stock Price Based on TBVS
TBVS Multiple 60.00% 85.00% 95.00% 110.00% 130.00%
Stock Price 3.57$ 5.06$ 5.78$ 6.79$ 8.02$
Capital Raise
Proceeds 5,000$
Price Per Share 6.69$
Opp Cost of Cash 3.00%
© 2013 – FinPro, Inc.
Together we can measure . . .
Total Investor Return, which is
Trading Appreciation
Plus: Dividend Yield
Equals: Direct Return
Plus: Takeout Value Appreciation
Equals: Total Investor Return
64
© 2013 – FinPro, Inc.
D. Final Thoughts
65
© 2013 – FinPro, Inc.
All strategic decisions should be compiled and modeled utilizing a decision tree
methodology . . .
Loan
Generation
Capability
Yes
No
Today
Strong Capital
Position
Strategies
- Demonstrate ability to manage risk
- Hire lenders or lending teams
- Evaluate accretion/dilution of cash
dividends or repurchases
- Evaluate acquisition opportunities with
a focus on loan growth capability
Strategies
- Continue growth
- Keep/hire the right team
- Setup buckets to manage
portfolio concentrations
- Consider match funding
strategies
- Consider sales if quota filled
Constrained
Capital Position
Evaluate Other
Strategies
1. Funding Strategies
- Run off wholesale funding
- If possible, lower offering rates
- Eliminate certain CD product offerings
- Run off “hot money” (high rate municipal
deposits for many institutions)
2. Investment Portfolio Management
- Stay in plain vanilla instruments
- Look at corporates selectively (ensure pre-
purchase analysis)
- Evaluate short term ladder strategies
- Keep duration short to intermediate term
3. Deleveraging/Cost Reduction
- Consider branch sales/closings
- Org. chart review and analysis
- Consider eliminating Holding Co.
- Outsource problem asset services
- Manage risk for lower FDIC insurance
4. Consider Sale or Merger
- Evaluate synergies
- Potential “double dip” for shareholders
66
© 2013 – FinPro, Inc.
The implementation of certain strategies is dependent on time and risk . . .
67
A. Raise
Capital
B. Remain
Independent
C. Sale Today
Probability: 0%
Probability: 90%
Probability: 10%
Today
A. Raise
Capital
B. Remain
Independent
C. Sale Today
Probability: 30%
Probability: 60%
Probability: 10%
12-18 Months
A. Raise
Capital
B. Remain
Independent
C. Sale Today
Probability: 33%
Probability: 33%
Probability: 33%
36 Months
SAMPLE BANK
© 2013 – FinPro, Inc.
Together, we have lots of work to do. I encourage you to have FinPro in to
discuss your specific needs and to integrate all activities that build value . . .
34
YOUR
BANK
Management
Succession
Corporate Governance
FOLA Board Training and File
Cabinet
Secondary Offerings
ERM
Balance Sheet
Management
Strategic Advisory
FinPro Central Hub
De novo Consultation
Mergers and Acquisitions Stock Valuations
Market Feasibility
Regulatory
© 2013 – FinPro, Inc.
To meet your ongoing needs, FinPro continues to improve its offerings . . .
2007 – Partnership
2008 – RAMP UP
2009 – Asset Migration
2010 – Single Engine Full Integration
2011 – Enterprise Risk Management
2012 – FinPro Capital Advisors
2013 – FCA: Secondary Offerings
– Expanding internet presence by offering FinPro Central Hub and FinPro Online Applications
Director Training
Board File Cabinet
ERM online
ALM online
Mini models online
Individual management succession
69
© 2013 – FinPro, Inc.
We have great speakers today with incredible expertise . . .
Lending Panel – Moderated by Steve Musso
Elizabeth Magennis - Chief Lending Officer and EVP of ConnectOne Bank
John J. Patrick – Chairman, President and CEO of Farmington Bank
William B. Young – Vice Chairman and CEO of Virginia Partners Bank
Regulatory Panel – Moderated by Nick Ketcha
Nancy Graves – Assistant Division Director of New Jersey Department of
Banking and Insurance
Grace Vallacchi – Assistant Deputy Comptroller of the Office of the
Comptroller of the Currency
Gregory Wyka – Assistant Regional Director of the Federal Deposit
Insurance Corporation
70
© 2013 – FinPro, Inc.
We have great speakers today with incredible expertise . . .
Case Studies in Value Creation
Scott Polakoff and Matt Miller
Capital Markets Issues Panel – Moderated by Dennis Gibney
Larry Seidman - Director of Union Center National Bank and Stonegate
Bank
Jay Sidhu – Chairman and CEO of Customers Bancorp, Inc. and Customers
Bank
Donald Musso – Chief Bottle Washer and Proctologist
Private Equity Panel – Moderated by Frank Sorrentino IV
Wayne Goldstein – Co-President of Endicott Management Company
Michael High – Managing Principal of Patriot Financial Partners, L.P.
71