Download - 20 Church Street Liberty Corner, NJ 07938 P: (908) 604-9336 F: (908) 604-5951 [email protected]
© 2014 – FinPro, Inc.120 Church Street Liberty Corner, NJ 07938 P: (908) 604-9336 F: (908) 604-5951 [email protected] www.finpronj.com
Embracing Opportunity in the Current Environment
Iowa Bankers Association
February 12, 2014
© 2014 – FinPro, Inc.
As much as things change, they stay the same . . .
2
Banking is a heavily regulated industry- The number and cost of which, is growing rapidly
Corporate Governance expectations are also burdensome Consumer compliance somehow, outweighs practical business sense
- The zealots are killing the industry But value is still easy to measure:
- Enhance Tangible Book Value Per Share (TBVS) - Enhance Core Earnings Per Share (CEPS) - Enhance the Franchise Value (Core Deposits, Delivery Channels)
© 2014 – FinPro, Inc.
In the banking industry, Risk, Governance and Regulation (RGR) drives strategy drives value . . .
3
© 2014 – FinPro, Inc.
This FinPro core principal has not changed since developed in 2003 . . .
4
Risk, Corporate Governance and Regulation are necessary, but too much of any of these impede value creation
The key is to pro-actively identify the key issues in each, devise mitigation strategies and thus preserve value
Once this outer ring is “under control”, we can go re-focus on real strategy and real value creation
Hopefully, this makes the industry fun again!
© 2014 – FinPro, Inc.
Risk
5
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
© 2014 – 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 AnalysisLoan-to-one-borrower Analysis
Management Succession PlanCompensation Plans
BudgetBusiness Plan
M
EContingency Funding PlanWholesale Funding and Funds Management PlanL
Interest Rate Risk AnalysisS
Litigation Mitigation PlanResponse to Regulatory Order+
Public Relations PlanInvestor Relations Plan+
Internal AuditInternal Controls and Procedures+IT Controls and Testing Plan
+Compliance Plan
+
6
© 2014 – FinPro, Inc.
Successful ERM requires a single model, breaking down the SILOs and integrating risk, ALCO, budgeting, planning and stress testing . . .
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
7
© 2014 – FinPro, Inc.
Liquidity is still the single risk that can cost you your bank overnight . . .
8
1. Deposit growth will return as the key to Balance Sheet growth- follow the 2, 10, and 20 rule - allocate collateral in most efficient manner- update Contingency Funding Plan and incorporate stress tests
2. Manage Investments- move investment portfolios to HTM- underwrite and document whether investments are “investment grade”- Investment purchases should be pre-planned- buy in bigger chunks and less frequently
© 2014 – FinPro, Inc.9
Governance
FinPro Central Hub Corporate Governance Management Tool Board Filing Cabinet Board Education, Training, and Retreat
Moderation Talent Management and Succession Management and Board Review Organization Structure Review and Planning Compensation Analysis Vendor Management
© 2014 – FinPro, Inc.
Boards set strategic direction. As such, they must establish several key principles which will drive strategic decision making. For example . . .
Board Principles Minimal 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
10
© 2014 – FinPro, Inc.
Document Library
Process Management
Meeting Management
Leadership and Education Management
Vendor Selection
Management
Talent Management
Community banks need to improve their Corporate Governance Management Tool (CGMT) to ensure all the processes are being accomplished . . .
11
List List
List
List
List
CGMT
© 2014 – FinPro, Inc.
CGMT should be able to track and ensure compliance with all the processes required and provide notice reminders . . .
Ability to enter dates for deadlines, expirations, and reviews for both processes and documents. Ability to securely store, transfer, and utilize documents critical to proper corporate governance. Ability to provide documents for specific meetings easily and intuitively to board members. A clean and color coded calendar that provides an overview of all processes and meetings. Ability for board members and senior management to audit the completion of processes and proper creation
of documents to comply with regulatory requirements. Ability to create custom alerts for each individual process, meeting, or document to ensure users are always
on top of due dates.
12
© 2014 – FinPro, Inc.
Community bankers are also in desperate need of a Board Education and Training program that works in the real world because . . .
New rules and regulations are being developed and implemented at a record pace;
Boards and executive management continue to age and must focus on talent management;
Ongoing education and training is viewed as a must in the industry;
FDIC is pursuing legal action against Board members more liberally than ever before;
Strategic planning is again focused on value creation, with an expectation of risk management already in place; and
Understanding the emerging issues will put the Bank at a competitive advantage over its competition.
Education and Training Modules include:1. Role of a Board Member2. Banking 1013. Financial Statements and Ratios4. Regulations and Exams5. Corporate Governance6. Capital7. Investments8. Loans9. Funding and Liquidity10. Management Compensation11. Talent Management12. ALCO13. Bank Strategy14. ERM and CAMELS+15. Value Creation16. Bank Specific ERM Review17. Bank Specific Corporate Governance18. Bank Specific Regulatory Review19. Bank Specific Bank Strategy20. Bank Specific Value Creation21. Bank Specific ALCO Review
13
© 2014 – FinPro, Inc.
Standard Board Education and Training Programs for Board Members should include . . .
Training Programs• Banking 101: Banking
Basics• Banking 201: Value
Creation• ALCO Committee• Risk Committee• Corporate Governance
Committee • Compensation and
Nominating Committee • Audit Committee• Loan Committee
Education Modules Indu
stry
Spe
cific
Bank
Spe
cific
Bank
ing
101:
Ban
king
Bas
ics
Bank
ing
201:
Val
ue C
reati
on
ALCO
Com
mitt
ee
Risk
Com
mitt
ee
Corp
orat
e Go
vern
ance
Com
mitt
ee
Com
pens
ation
and
Nom
inati
ng
Com
mitt
ee
Audi
t Com
mitt
ee
Loan
Com
mitt
ee
1 Role of a Board Member X 1 1 1 1 1 1 12 Banking 101 X 23 Financial Statements and Ratios X 34 Regulations and Exams X 45 Corporate Governance X 5 2 26 Capital X 67 Investments X 78 Loans X 8 29 Funding and Liquidity X 9
10 Management Compensation X 10 211 Talent Management X 11 312 ALCO X 12 213 Bank Strategy X 1314 ERM and CAMELS+ X 14 215 Value Creation X 1516 Bank Specific ERM Review X 1 3 317 Bank Specific Corporate Governance X 2 318 Bank Specific Regulatory Review X 319 Bank Specific Bank Strategy X 4 320 Bank Specific Value Creation X 521 Bank Specific ALCO Review X 3
Time Commitment 2 Days 1 Day 2-3 Hours 2-3 Hours 2-3 Hours 2-3 Hours 2-3 Hours 2-3 Hours
Note: program combinations are available upon request. FinPro also offers a CEO mentorship program and individual banker training on an as needed basis.
14
© 2014 – FinPro, Inc.15
Regulatory Consulting Board Resolution, MOU, C&D Mitigation and
Compliance Regulatory Consulting Negotiate Regulatory Agreements Expert Witness Testimony Policy Review Capital Planning Community Reinvestment Act Performance
Review
Regulatory
© 2014 – FinPro, Inc.
Current Issues . . .
BASEL III, Dodd-Frank and other new rules Asset Quality Issues: Classifications, Concentrations & Credit
Administration Compliance zealots and overreach Qualified Mortgages and Servicing Interest Rate Risk Cyber Security Slow upgrade of CAMELS scores
16
© 2014 – FinPro, Inc.
Regulatory Keys to success . . .
• Need to know and understand all regulatory ratings• Should conduct own internal CAMELS + assessment quarterly • Work with the regulators pro-actively, they hate surprises!• Know your rights and understand the appeals process
17
© 2014 – FinPro, Inc.
Market
18
Branch Improvement Market Ranking Studies Strategic Market Assessment Peer Market Composition analysis Site Studies & Branch Applications
© 2014 – FinPro, Inc.
Community banks need to be able to identify the most attractive markets based upon there desired strategic goals . . .
19
© 2014 – FinPro, Inc.
Customer
20
Customer Segmentation Analysis Product Propensity Analysis New Product Development Incremental Cost of Funds Analysis
© 2014 – FinPro, Inc.21
There are 58 segments that define the retail customer market. These 58 segments can be further combined into eight major groups based on predictive abilities of financial behavior including income producing assets, household income, age of householder, home-ownership and urbanization . . .
© 2014 – FinPro, Inc.8 - 22
The Bank’s commercial customers have the following segment distribution (based on all commercial customers in the US) . . .
The United StatesDESCRIPTION COUNT PCTAgriultural Production - Crops 2 0.1%Agricultural Production - Livestock 0 0.0%Agricultural Services 0 0.0%Forestry 0 0.0%Fishing, Hunting, and Trapping 2 0.1%Metal Mining 4 0.3%Coal Mining 0 0.0%Oil and Gas Extraction 2 0.1%Nonmetallic Mining 0 0.0%Building Cnstrctn - General Contractors & Operative Builders 37 2.6%Heavy Cnstrctn, Except Building Construction - Contractors 6 0.4%Construction - Special Trade Contractors 32 2.3%Food and Kindred Products 9 0.6%Tobacco Products 0 0.0%Textile Mill Products 4 0.3%Apparel & Textiles 12 0.9%Lumber and Wood Products 2 0.1%Furniture and Fixtures 3 0.2%Paper and Allied Products 3 0.2%Printing, Publishing and Allied Industries 1 0.1%Chemicals and Allied Products 1 0.1%Petroleum Refining and Related Industries 4 0.3%Rubber and Miscellaneous Plastic Products 2 0.1%Leather and Leather Products 2 0.1%Stone, Clay, Glass, and Concrete Products 12 0.9%Primary Metal Industries 5 0.4%Fabricated Metal Prdcts, Except Machinery & Transport Eqpmnt 4 0.3%Industrial and Commercial Machinery and Computer Equipment 4 0.3%Electronic, Elctrcl Eqpmnt & Cmpnts, Excpt Computer Eqpmnt 7 0.5%Transportation Equipment 1 0.1%Instruments & Related 0 0.0%Miscellaneous Manufacturing Industries 11 0.8%Raiload Transportation 0 0.0%Local, Suburban Transit & Interurbn Hgwy Passenger Transport 3 0.2%Motor Freight Transportation 8 0.6%United States Postal Service 0 0.0%Water Transportation 16 1.1%Transportation by Air 4 0.3%
Bank Dist Pipelines, Except Natural Gas 1 0.1%Transportation Services 10 0.7%Communications 6 0.4%Electric, Gas and Sanitary Services 10 0.7%Wholesale Trade - Durable Goods 7 0.5%Wholesale Trade - Nondurable Goods 8 0.6%Building Matrials, Hrdwr, Garden Supply & Mobile Home Dealrs 7 0.5%General Merchandise Stores 68 4.8%Food Stores 28 2.0%Automotive Dealers and Gasoline Service Stations 30 2.1%Apparel and Accessory Stores 8 0.6%Home Furniture, Furnishings and Equipment Stores 8 0.6%Eating and Drinking Places 41 2.9%Miscellaneous Retail 43 3.0%Depository Institutions 13 0.9%Nondepository Credit Institutions 6 0.4%Security & Commodity Brokers, Dealers, Exchanges & Services 12 0.9%Insurance Carriers 2 0.1%Insurance Agents, Brokers and Service 10 0.7%Real Estate 56 4.0%Holding and Other Investment Offices 11 0.8%Hotels, Rooming Houses, Camps, and Other Lodging Places 13 0.9%Personal Services 36 2.6%Business Services 9 0.6%Automotive Repair, Services and Parking 27 1.9%Miscellaneous Repair Services 10 0.7%Motion Pictures 1 0.1%Amusement and Recreation Services 22 1.6%Health Services 73 5.2%Legal Services 25 1.8%Educational Services 36 2.6%Social Services 22 1.6%Museums, Art Galleries and Botanical and Zoological Gardens 4 0.3%Membership Organizations 303 21.5%Engineering, Accounting, Research, Management & Related Svcs 10 0.7%Services, Not Elsewhere Classified 80 5.7%Government 87 6.2%Nonclassifiable Establishments 65 4.6%
1,411 100.0%
© 2014 – FinPro, Inc.
Franchise
23
Talent Management and Succession Holding Company, Exchange Registration
and Charter Analysis Branch network restructuring Market share acquisitions Branch network in-fill
© 2014 – FinPro, Inc.
Talent Management is the most important element of banking . . .
24
Investors don’t invest in banks, they invest in management teams 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
© 2014 – FinPro, Inc.
Corporate infrastructure needs to be re-evaluated . . .
25
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 $10 billion from $500 million cut off
© 2014 – FinPro, Inc.
Evaluate the cost and effectiveness of the current systems . . .
26
In-house vs. outsourcing The Cloud Data management Contract reviews to avoid astronomical early cancellation fees
© 2014 – FinPro, Inc.
Ensure the Bank has the appropriate services and sales channels . . .
27
© 2014 – FinPro, Inc.
Value Creation
28
1. Grow deposits & diversify the mix2. Grow loan & diversify the mix
3. Grow and diversify noninterest income4. Control expenses
5. Enhance the branch network and alternative delivery options
6. Increase number of and penetration within customers
7. Utilize capital market tools
© 2014 – FinPro, Inc.
Grow Deposits & Diversify the Mix
29
Deposit disintermediation study Decay analysis Beta analysis Deposit concentration analysis 1. Grow deposits & diversify the mix
2. Grow loan & diversify the mix3. Grow and diversify noninterest income
4. Control expenses5. Enhance the branch network and
alternative delivery options6. Increase number of and penetration
within customers7. Utilize capital market tools
© 2014 – FinPro, Inc.
The threat of rising rates has arrived. The last time rates rose quickly was from 2004 to 2007 and bank cost of funds tripled . . .
30
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
© 2014 – FinPro, Inc.
We need to not only grow deposits and diversify the mix, we need to avoid the rapid rise in funding costs . . .
31
• Minimize non core funding but some, in moderation, is acceptable Brokered deposits are preferable to wholesale borrowings
• Conduct deposit loyalty study Relationship Transactions Tenure Location Price Size
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$
© 2014 – FinPro, Inc.32
Definitions . . .
Beta Value = the change in a given deposit price for each 1.00% change in market price- Measured as a percent- Market price is typically fed funds, LIBOR, or some other short term rate proxy
Decay Rate = the amount of deposit dollars that leaves an individual deposit type over a measured time period- Measured on monthly or annual basis- Utilizes todays rate as a starting point
© 2014 – FinPro, Inc.
The sensitivity of decays to betas increases and decreases with the Propensity to Renew factor. With a low propensity to renew accounts (unloyal accounts), changes in betas have large impacts on decays . . .
33
DecayBeta
Low Propensity to Renew: ΔΒ < ΔD
ΔΒ
ΔD
© 2014 – FinPro, Inc.
Utilizing a Sample Bank’s Beta and Decay assumptions and adding the propensity to renew factor, we can model those changes that would help to improve the overall IRR position of the Bank . . .
34
Deposit Account Type Current BalancePotential Beta
Action Needed
Potential Decay Action
Needed
Propensity to Renew
ScoreBeta Decay Account
NIB1 $111,795,808 NA Lower Decay 78.5% Lower decay
NIB2 $197,055,029 NA Lower Decay 74.6% Lower decay
Checking 1 $45,434,048 Lower Beta No Change 66.4% Lower BetaChecking 2 $5,153,018 Lower Beta Lower Decay 65.7% Lower Beta Lower decayChecking 3 $7,662,886 Lower Beta Lower Decay 64.4% Lower Beta Lower decayChecking 4 $24,087,568 Lower Beta No Change 77.7% Lower Beta
High Rate Savings $186,694,145 Increase Beta Lower Decay 61.1% Lower decay Further segmentizeSavings 2 $880,332 Lower Beta No Change 53.6% Lower BetaSavings 3 $64,190,279 Lower Beta No Change 51.6% Lower BetaSavings 4 $100,966,347 No Change Lower Decay 56.5% Lower decay
Money Market 1 $96,349,783 No Change Lower Decay 50.9% Hold Decay Further segmentizeHigh Rate Money Market $176,616,906 No Change Lower Decay 50.5% Hold Decay Further segmentizeMoney Market 3 $87,226,835 No Change Lower Decay 50.5% Hold Decay Further segmentizeIRA Money Market $59,789,911 Lower Beta Lower Decay 48.6% Hold Beta Hold Decay
Recommended Action
© 2014 – FinPro, Inc.35
The results of a thorough deposit study are the justification of modeling assumptions, a well developed deposit strategy, and increased value (ability to communicate franchise of deposits to outsiders and potential interest expense savings) . . .
With the adjustments justified from this study the Sample Bank will save $1 million in interest expense in rising rates. That is a BIG number for a $620 million institution.
Original Beta Revised Beta BenefitNIB1 - - NIB2 - - Checking 1 102,003 85,003 17%Checking 2 11,457 9,547 17%Checking 3 17,279 14,399 17%Checking 4 72,286 72,286 0%High Rate Savings 1,117,079 811,323 27%Savings 2 3,961 3,301 17%Savings 3 288,255 240,213 17%Savings 4 453,953 453,953 0%Money Market 1 724,710 545,407 25%High Rate Money Market 1,322,012 1,024,568 22%Money Market 3 657,546 511,559 22%IRA Money Market 447,980 447,980 0%Total 5,218,522 4,219,539 19%
To Enhance Value, Managing Deposits Can Not Be ReactiveConduct Deposit Studies NOW!
© 2014 – FinPro, Inc.
Grow Loans & Diversify the Mix
36
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 mix3. Grow and diversify noninterest income
4. Control expenses5. Enhance the branch network and
alternative delivery options6. Increase number of and penetration
within customers7. Utilize capital market tools
© 2014 – FinPro, Inc.
Gross LoansAnnual Quarterly
$6,626
$7,321
$7,579
$7,241 $7,350
$7,465
$7,698 $7,698 $7,661 $7,734 $7,803
$6,000
$6,200
$6,400
$6,600
$6,800
$7,000
$7,200
$7,400
$7,600
$7,800
$8,000
2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y 2012Q4 2013Q1 2013Q2 2013Q3
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 loans3. Need to hire loan producers4. 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
37
© 2014 – FinPro, Inc.
Select from the 7 Ps of growth . . .
38
1. People – Hire Sales People 2. Price – For small buckets, Price to get loan volume3. Place – Establish LPO’s4. Product – Look to new products5. Promotion - Marketing6. Process – Quicker commitments7. Purchase – Buy pools but re-underwrite to your credit criteria
© 2014 – FinPro, Inc.
Grow and diversify noninterest income
39
Wealth management Mortgage operation Alternative fee opportunities Small Business Investment
Companies 1. Grow deposits & diversify the mix
2. Grow loan & diversify the mix3. Grow and diversify noninterest income
4. Control expenses5. Enhance the branch network and
alternative delivery options6. Increase number of and penetration
within customers7. Utilize capital market tools
© 2014 – FinPro, Inc.
Analyze fee income opportunities . . .
40
Stop waiving fees- Is this a competitive weapon?
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
Target a 50+ basis point non interest income to average assets ratio
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%0.54% 0.52% 0.53% 0.55%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y 2012Q4 2013Q1 2013Q2 2013Q3
© 2014 – FinPro, Inc.
Control Expenses
41
GL line item review Transaction cost savings analysis Organizational efficiency study Branch profitability study1. Grow deposits & diversify the mix
2. Grow loan & diversify the mix3. Grow and diversify noninterest income
4. Control expenses5. Enhance the branch network and
alternative delivery options6. Increase number of and penetration
within customers7. Utilize capital market tools
© 2014 – 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
42Source: SNL Securities
Annual QuarterlyIndustry Median Noninterest Expenses / Avg. Assets
2.98% 2.99% 3.00%
3.04%3.01%
2.99%
2.95%
3.02%
2.87% 2.87% 2.88%
2.75%
2.80%
2.85%
2.90%
2.95%
3.00%
3.05%
3.10%
2006Y 2007Y 2008Y 2009Y 2010Y 2011Y 2012Y 2012Q4 2013Q1 2013Q2 2013Q3
© 2014 – FinPro, Inc.
Enhance the branch network and alternative delivery options
43
Branch Improvement Market Ranking Studies Strategic Market Assessment Peer Market Composition analysis Site Studies & Branch Applications
1. Grow deposits & diversify the mix2. Grow loan & diversify the mix
3. Grow and diversify noninterest income4. Control expenses
5. Enhance the branch network and alternative delivery options
6. Increase number of and penetration within customers
7. Utilize capital market tools
© 2014 – FinPro, Inc.7 - 44
Looking at the retail customer segments, the Bank’s markets vary widely but the larger regions tend to have a more affluent customer base . . .
Total Households: The vertical axis shows the number of households in the market, from lowest at the bottom to highest at the top.
Relative Affluency: The horizontal axis shows the level of affluence in the market, from lowest at the left to highest at the right.
Illustration: A market in the top right is a large market with an affluent customer base.
Retail Market Size and Affluency
MI Delta
Crossroads
Greater New Orleans
East Central MI
Metro
North MI
MI South
North Shore
Southwest MI
Plantation CountrySportsman's Paradise
Gulf Coast
Cajun Country
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
Relative Affluency Level
Tota
l Hou
seho
lds
('06)
LOW HIGH
© 2014 – FinPro, Inc.7 - 45
The Bank’s markets have a broad range of commercial density, however there is a generally narrow range of relative business density . . .
Total Businesses: The vertical axis shows the number of businesses in the market, from lowest at the bottom to highest at the top.
Business Density: The horizontal axis shows the concentration of business in the market, from lowest at the left to highest at the right.
Illustration: A market in the top right has a lot of businesses in a concentrated area.
Business Market Size and Density
Gulf Coast
Cajun Country
Greater New Orleans
CrossroadsNorth MI
Metro
Southwest MI
East Central MI
MI South
Sportsman's Paradise
MI Delta
Plantation Country
North Shore
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
Relative Business Density
Tota
l Num
ber o
f Bus
ines
ses
LOW HIGH
© 2014 – FinPro, Inc.
Increase number of and penetration within customers
46
Customer Segmentation Analysis Product Propensity Analysis New Product Development Incremental Cost of Funds Analysis1. Grow deposits & diversify the mix
2. Grow loan & diversify the mix3. Grow and diversify noninterest income
4. Control expenses5. Enhance the branch network and
alternative delivery options6. Increase number of and penetration
within customers7. Utilize capital market tools
© 2014 – 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 MKTDESCRIPTION HSHLDS PCT HSHLDS PCT SHARE HSHLDS PCTGlobetrotters 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/PRERETIRED
65 OROLDER/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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As such we need to understand the following customer segments . . .
07307 Jersey City MKTDESCRIPTION HSHLDS PCT HSHLDS PCT SHARE HSHLDS PCTGlobetrotters 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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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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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 IndexProf Furniture Clnrs LstYr (1.8%) 278Used Baby Foods Last 6 Mos (5.8%) 271Go Downhill Skiing (3.6%) 269Go Scuba/Skin Dive/Snorkel (2.5%) 244Play Softball (5.3%) 238In-Home Preg Test Lst 12Mos (5.9%) 237Rntd Fam/Kid Videos Lst Mo (10.0%) 233Exercise at Club 2x a Week (6.5%) 231Buy Medium Rock Music (8.7%) 230Buy Hard Rock Music (5.9%) 215
TOP 10 Media IndexBaby Mags: Net Aud (3.8%) 268Entertain/Perf Art Mag (3.8%) 268Classic Rock: Net Audience (8.5%) 233Progressive Rock: Net Aud (13.7%) 215Fitness Mags: Net Aud (4.0%) 188Computer Mags: Net Aud (6.6%) 158VH1: Net Audience (11.7%) 156TV Col Basketball: NetAud (15.6%) 154Airline Mags: Net Aud (4.6%) 151Radio Col/Pro Bsktbl:NetAud(5.8%) 148
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And we should get even more detailed . . .NEWSPAPER Index RADIO Index Programming IndexTop 20% Newspaper: Net Aud (20.0%) 92 Top 20% Radio: Net Audience(20.0%) 132 Adult Contemp: Net Aud(20.6%) 134Bottom 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%) 215Read Business/Finance Sec (30.3%) 128 Radio M-F 6am-10am: Net Aud(55.8%) 127 Black: Net Audience (1.5%) 27Read Classified Section (35.5%) 124 Radio M-F 10am-3pm: Net Aud(36.9%) 113 CHR/Rock: Net Aud (12.0%) 136Read Comics Section (34.2%) 113 Radio M-F 3pm-7pm: Net Aud (42.7%) 144 Classic Rock: Net Audience (8.5%) 233Read Editorial Section (34.7%) 90 Radio M-F 7pm-12am: Net Aud(16.4%) 105 Classical: Net Aud (2.1%) 85Read Fashion Section (18.2%) 99 Radio M-F 12am-6am: Net Aud(5.2%) 112 Country: Net Aud (21.4%) 124Read Food/Cooking Section (28.9%) 98 Radio S-S 6am-10am: Net Aud(29.5%) 112 Easy List: Net Aud (1.3%) 54Read General News Section (59.8%) 110 Radio S-S 10am-3pm: Net Aud(38.0%) 126 Golden Oldies: Net Aud(12.8%) 123Read Home/Furn/Garden Sec (23.0%) 119 Radio S-S 3pm-7pm: Net Aud(28.5%) 131 Jazz: Net Audience (3.7%) 68Read Movie Listngs&Reviews (29.9%) 115 Radio S-S 7pm-12am: Net Aud(14.0%) 92 Nostalgia: Net Aud (2.6%) 38Read Science/Tech Section (19.0%) 111 Radio S-S 12am-6am: Net Aud(3.2%) 85 News/Talk: Net Aud (17.9%) 112Read Sports Section (32.5%) 126 Relig/Gospel: Net Aud (4.5%) 91Read TV/Radio Listings (34.0%) 90 Soft Contemp: Net Aud (2.5%) 144
Spanish: Net Aud (2.2%) 18MAGAZINE Index Urban Contemp: Net Aud(6.5%) 54Top 20% Magazines: Net Aud (20.0%) 107 Variety: Net Aud (1.5%) 73Bottom 20% Mags: Net Aud (20.1%) 75
TELEVISION Index Programming IndexAirline Mags: Net Aud (4.6%) 151 Top 20% Total TV: Net Aud (19.8%) 42 A&E: Net Audience (32.8%) 86Automotive Mags: Net Aud (10.7%) 130 Bottom 20% Total TV: NetAud(19.9%) 122 Amer Movie Classics: NetAud(19.0%) 64Baby Mags: Net Aud (3.8%) 268 BET: Net Audience (6.2%) 71Boating Mags: Net Aud (2.5%) 132 TV M-F 6am-7am: Net Aud (5.1%) 80 Bravo: Net Audience (2.2%) 64Bridal Mags: Net Aud (3.7%) 59 TV M-F 7am-9am: Net Aud (7.8%) 62 Cartoon Network: Net Aud (6.6%) 140Bus/Finance Mags: Net Aud (22.7%) 139 TV M-F 9am-10am: Net Aud (8.8%) 52 CNBC: Net Audience (14.0%) 90Computer Mags: Net Aud (6.6%) 158 TV M-F 10am-1pm: Net Aud (10.3%) 32 CNN: Net Audience (58.8%) 97Entertain/Perf Art Mag (3.8%) 268 TV M-F 1pm-4pm: Net Aud (12.1%) 30 Comedy Central: Net Aud (10.9%) 146Epicurean Mags: Net Aud(5.1%) 102 TV M-F 4pm-4:30pm: Net Aud (12.2%) 31 Country Music TV: Net Aud (11.7%) 103Fish/Hunt Mags: Net Aud (14.2%) 103 TV M-F 4:30pm-5pm: Net Aud (12.4%) 35 Court TV: Net Audience (4.6%) 80Fitness Mags: Net Aud (4.0%) 188 TV M-F-5pm-5:30pm: Net Aud (16.8%) 53 C-Span: Net Audience (12.8%) 95Fraternal Mags: Net Aud (2.8%) 32 TV M-F 5:30pm-6pm: Net Aud (18.4%) 56 Discovery Channel: Net Aud (47.3%) 95Gardening Mags: Net Aud (4.1%) 60 TV M-F 6pm-6:30pm: Net Aud (28.6%) 55 E!: Net Audience (9.9%) 121Gen Editorial Mags: Net Aud(53.9%) 90 TV M-F 6:30pm-7pm: Net Aud (30.2%) 58 ESPN: Net Audience (40.3%) 119Health Mags: Net Aud (9.6%) 74 TV M-F 7pm-7:30pm: Net Aud (34.9%) 63 ESPN2: Net Audience (5.8%) 131Home Svcs Mags: Net Aud (33.0%) 122 TV M-F 7:30pm-8pm: Net Aud (35.3%) 67 Family Channel: Net Aud (28.1%) 89Mens Mags: Net Aud (16.1%) 127 TV M-F 8pm-11pm: Net Aud (52.3%) 96 Headline News: Net Aud (28.9%) 103Motorcycle Mags: Net Aud (3.1%) 106 TV M-F-11pm-11:30pm: NetAud(27.3%) 89 Home Shopping Club:Net Aud (5.5%) 115Music Mags: Net Aud (9.3%) 112 TV M-F 11:30pm-12am: NetAud(15.0%) 87 Learning Channel: Net Aud (12.2%) 104News Weekly Mags: Net Aud (50.7%) 100 TV M-F 12am-12:30am: NetAud(7.7%) 82 Lifetime: Net Audience (25.0%) 96Newspaper-Distrib Mags: NetAud(61.4%) 107 TV M-F 12:30am-1am: Net Aud(4.2%) 74 MTV: Net Audience (18.5%) 114Parenthood Mags: Net Aud (8.7%) 125 TV M-F 1am-2am: Net Aud (1.9%) 63 Nick at Nite: Net Audience (16.7%) 132Photographic Mags: Net Aud (1.3%) 77 TV Sat 7am-10am: Net Aud (3.5%) 74 Nickelodeon: Net Audience (15.8%) 124Science/Tech Mags: Net Aud (7.4%) 99 TV Sat 10am-1pm: Net Aud (7.0%) 74 Nostalgia TV: Net Aud (1.5%) 0Sports Mags: Net Aud (13.5%) 139 TV Sat 1pm-4:30pm: Net Aud (11.7%) 67 Prevue Guide Channel:NetAud(9.4%) 119Travel Mags: Net Aud (7.2%) 99 TV Sat 4:30pm-6pm: Net Aud (14.1%) 73 QVC: Net Audience (5.1%) 88Womens Mags: Net Aud (45.4%) 114 TV Sat 6pm-7:30pm: Net Aud (19.5%) 63 TBS: Net Audience (36.0%) 105Womens 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%) 94TV Sat 11pm-11:30pm: NetAud(14.4%) 72 Travel Channel: Net Aud (3.5%) 137TV Sat 11:30pm-1am: Net Aud(4.8%) 108 USA Network: Net Audience (39.2%) 102TV Sunday 7am-10am: Net Aud(3.3%) 76 VH1: Net Audience (11.7%) 156TV Sun 10am-1pm: Net Aud (6.9%) 87 Weather Channel: Net Aud (41.4%) 96TV Sun 1pm-4:30pm: Net Aud (16.0%) 106 WGN-TV: Net Audience (18.9%) 105TV Sun 4:30pm-6pm: Net Aud (17.2%) 85 Cinemax: Net Audience (11.3%) 87TV Sunday 6pm-7pm: Net Aud (22.2%) 73 Disney Channel: Net Aud (8.3%) 106TV Sun 7pm-11pm: Net Aud (40.0%) 93 HBO: Net Audience (26.2%) 92TV Sun 11pm-11:30pm: NetAud(14.4%) 92 Movie Channel: Net Audience(5.3%) 55TV Sun 11:30-1am: Net Aud (3.1%) 74 Showtime: Net Audience (10.9%) 83
TELEVISION Index Programming IndexTop 20% Total TV: Net Aud (19.8%) 42 A&E: Net Audience (32.8%) 86Bottom 20% Total TV: NetAud(19.9%) 122 Amer Movie Classics: NetAud(19.0%) 64
BET: Net Audience (6.2%) 71TV M-F 6am-7am: Net Aud (5.1%) 80 Bravo: Net Audience (2.2%) 64TV M-F 7am-9am: Net Aud (7.8%) 62 Cartoon Network: Net Aud (6.6%) 140TV M-F 9am-10am: Net Aud (8.8%) 52 CNBC: Net Audience (14.0%) 90TV M-F 10am-1pm: Net Aud (10.3%) 32 CNN: Net Audience (58.8%) 97TV M-F 1pm-4pm: Net Aud (12.1%) 30 Comedy Central: Net Aud (10.9%) 146TV M-F 4pm-4:30pm: Net Aud (12.2%) 31 Country Music TV: Net Aud (11.7%) 103TV M-F 4:30pm-5pm: Net Aud (12.4%) 35 Court TV: Net Audience (4.6%) 80TV M-F-5pm-5:30pm: Net Aud (16.8%) 53 C-Span: Net Audience (12.8%) 95TV M-F 5:30pm-6pm: Net Aud (18.4%) 56 Discovery Channel: Net Aud (47.3%) 95TV M-F 6pm-6:30pm: Net Aud (28.6%) 55 E!: Net Audience (9.9%) 121TV M-F 6:30pm-7pm: Net Aud (30.2%) 58 ESPN: Net Audience (40.3%) 119TV M-F 7pm-7:30pm: Net Aud (34.9%) 63 ESPN2: Net Audience (5.8%) 131TV M-F 7:30pm-8pm: Net Aud (35.3%) 67 Family Channel: Net Aud (28.1%) 89TV M-F 8pm-11pm: Net Aud (52.3%) 96 Headline News: Net Aud (28.9%) 103TV M-F-11pm-11:30pm: NetAud(27.3%) 89 Home Shopping Club:Net Aud (5.5%) 115TV M-F 11:30pm-12am: NetAud(15.0%) 87 Learning Channel: Net Aud (12.2%) 104TV M-F 12am-12:30am: NetAud(7.7%) 82 Lifetime: Net Audience (25.0%) 96TV M-F 12:30am-1am: Net Aud(4.2%) 74 MTV: Net Audience (18.5%) 114TV M-F 1am-2am: Net Aud (1.9%) 63 Nick at Nite: Net Audience (16.7%) 132TV Sat 7am-10am: Net Aud (3.5%) 74 Nickelodeon: Net Audience (15.8%) 124TV Sat 10am-1pm: Net Aud (7.0%) 74 Nostalgia TV: Net Aud (1.5%) 0TV Sat 1pm-4:30pm: Net Aud (11.7%) 67 Prevue Guide Channel:NetAud(9.4%) 119TV Sat 4:30pm-6pm: Net Aud (14.1%) 73 QVC: Net Audience (5.1%) 88TV Sat 6pm-7:30pm: Net Aud (19.5%) 63 TBS: Net Audience (36.0%) 105TV Sat 7:30pm-8pm: Net Aud (22.7%) 61 TNN: Net Audience (25.6%) 82TV Sat 8pm-11pm: Net Aud (36.8%) 77 TNT: Net Audience (35.4%) 94TV Sat 11pm-11:30pm: NetAud(14.4%) 72 Travel Channel: Net Aud (3.5%) 137TV Sat 11:30pm-1am: Net Aud(4.8%) 108 USA Network: Net Audience (39.2%) 102TV Sunday 7am-10am: Net Aud(3.3%) 76 VH1: Net Audience (11.7%) 156TV Sun 10am-1pm: Net Aud (6.9%) 87 Weather Channel: Net Aud (41.4%) 96TV Sun 1pm-4:30pm: Net Aud (16.0%) 106 WGN-TV: Net Audience (18.9%) 105TV Sun 4:30pm-6pm: Net Aud (17.2%) 85 Cinemax: Net Audience (11.3%) 87TV Sunday 6pm-7pm: Net Aud (22.2%) 73 Disney Channel: Net Aud (8.3%) 106TV Sun 7pm-11pm: Net Aud (40.0%) 93 HBO: Net Audience (26.2%) 92TV Sun 11pm-11:30pm: NetAud(14.4%) 92 Movie Channel: Net Audience(5.3%) 55TV Sun 11:30-1am: Net Aud (3.1%) 74 Showtime: Net Audience (10.9%) 83
NEWSPAPER IndexTop 20% Newspaper: Net Aud (20.0%) 92Bottom 20% Newsppr: Net Aud(20.0%) 68
Read Business/Finance Sec (30.3%) 128Read Classified Section (35.5%) 124Read Comics Section (34.2%) 113Read Editorial Section (34.7%) 90Read Fashion Section (18.2%) 99Read Food/Cooking Section (28.9%) 98Read General News Section (59.8%) 110Read Home/Furn/Garden Sec (23.0%) 119Read Movie Listngs&Reviews (29.9%) 115Read Science/Tech Section (19.0%) 111Read Sports Section (32.5%) 126Read TV/Radio Listings (34.0%) 90
RADIO Index Programming IndexTop 20% Radio: Net Audience(20.0%) 132 Adult Contemp: Net Aud(20.6%) 134Bottom 20% Radio: Net Aud (19.8%) 44 News: Net Audience (4.8%) 81
Progressive Rock: Net Aud (13.7%) 215Radio M-F 6am-10am: Net Aud(55.8%) 127 Black: Net Audience (1.5%) 27Radio M-F 10am-3pm: Net Aud(36.9%) 113 CHR/Rock: Net Aud (12.0%) 136Radio M-F 3pm-7pm: Net Aud (42.7%) 144 Classic Rock: Net Audience (8.5%) 233Radio M-F 7pm-12am: Net Aud(16.4%) 105 Classical: Net Aud (2.1%) 85Radio M-F 12am-6am: Net Aud(5.2%) 112 Country: Net Aud (21.4%) 124Radio S-S 6am-10am: Net Aud(29.5%) 112 Easy List: Net Aud (1.3%) 54Radio S-S 10am-3pm: Net Aud(38.0%) 126 Golden Oldies: Net Aud(12.8%) 123Radio S-S 3pm-7pm: Net Aud(28.5%) 131 Jazz: Net Audience (3.7%) 68Radio S-S 7pm-12am: Net Aud(14.0%) 92 Nostalgia: Net Aud (2.6%) 38Radio S-S 12am-6am: Net Aud(3.2%) 85 News/Talk: Net Aud (17.9%) 112
Relig/Gospel: Net Aud (4.5%) 91Soft Contemp: Net Aud (2.5%) 144Spanish: Net Aud (2.2%) 18Urban Contemp: Net Aud(6.5%) 54Variety: Net Aud (1.5%) 73
MAGAZINE IndexTop 20% Magazines: Net Aud (20.0%) 107Bottom 20% Mags: Net Aud (20.1%) 75
Airline Mags: Net Aud (4.6%) 151Automotive Mags: Net Aud (10.7%) 130Baby Mags: Net Aud (3.8%) 268Boating Mags: Net Aud (2.5%) 132Bridal Mags: Net Aud (3.7%) 59Bus/Finance Mags: Net Aud (22.7%) 139Computer Mags: Net Aud (6.6%) 158Entertain/Perf Art Mag (3.8%) 268Epicurean Mags: Net Aud(5.1%) 102Fish/Hunt Mags: Net Aud (14.2%) 103Fitness Mags: Net Aud (4.0%) 188Fraternal Mags: Net Aud (2.8%) 32Gardening Mags: Net Aud (4.1%) 60Gen Editorial Mags: Net Aud(53.9%) 90Health Mags: Net Aud (9.6%) 74Home Svcs Mags: Net Aud (33.0%) 122Mens Mags: Net Aud (16.1%) 127Motorcycle Mags: Net Aud (3.1%) 106Music Mags: Net Aud (9.3%) 112News Weekly Mags: Net Aud (50.7%) 100Newspaper-Distrib Mags: NetAud(61.4%) 107Parenthood Mags: Net Aud (8.7%) 125Photographic Mags: Net Aud (1.3%) 77Science/Tech Mags: Net Aud (7.4%) 99Sports Mags: Net Aud (13.5%) 139Travel Mags: Net Aud (7.2%) 99Womens Mags: Net Aud (45.4%) 114Womens Fashion Mags: NetAud(6.2%) 84 51
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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 CityHSHLDS 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% 1.22Interest 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% 1.12Savings - Regular 903 88.3% $10,354 $9,349,599 43.9% 1.28Money Market 192 18.8% $10,873 $2,090,229 9.8% 1.07CD 110 10.8% $11,315 $1,248,288 5.9% 0.78IRA-CD 18 1.8% $9,842 $179,420 0.8% 0.63 Total Savings 937 91.6% $13,735 $12,867,536 60.4% 1.24TOTAL DEPOSIT PRODUCTS 1,020 99.7% $20,885 $21,296,626 100.0% 1.08LOAN PRODUCTS:Mortgage 618 60.4% $115,379 $71,322,198 334.9% 1.492nd Mortgage 60 5.9% $28,111 $1,683,804 7.9% 1.20Home 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% 1.40Auto 620 60.6% $16,602 $10,286,481 48.3% 1.79Student 356 34.8% $22,138 $7,888,164 37.0% 3.03Other 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% 1.73Bank Credit Card 944 92.3% $4,359 $4,116,864 19.3% 1.27Overdraft 234 22.9% $3,865 $905,882 4.3% 1.37Other 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% 1.24TOTAL LOAN PRODUCTS 1,008 98.5% $98,485 $99,281,440 466.2% 1.18
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Utilize capital market tools
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Merger and Acquisition Advisory & Fairness Opinions
Sell-Side Pre-Due Diligence Review Buy-Side M&A Pro Forma Enterprise
Risk Assessment Strategic Alternatives Review Capital Raise Stock Repurchases Dividend analytics Intangible Valuation and Impairment ESOP and other stock valuations ASC 805 Mark-to-Market Mutual Conversions Branch Evaluations, Acquisitions,
Sales, Consolidations & Swaps
1. Grow deposits & diversify the mix2. Grow loan & diversify the mix
3. Grow and diversify noninterest income4. Control expenses
5. Enhance the branch network and alternative delivery options
6. Increase number of and penetration within customers
7. Utilize capital market tools
© 2014 – 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
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Raising capital is going to remain a primary strategic thrust for most institutions for the foreseeable future . . .
Build a value creation and detractor matrix Understand investor preferences Build shareholder list and analyze it Compile an accredited investor list (local and national) Compile a list of Private Equity players Only raise the amount of capital that can be effectively deployed in 1 to 3 years Think twice before highly dilutive capital raises
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Build Value
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1. Grow deposits & diversify the mix2. Grow loan & diversify the mix
3. Grow and diversify noninterest income4. Control expenses
5. Enhance the branch network and alternative delivery options
6. Increase number of and penetration within customers
7. Utilize capital market tools
© 2014 – 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.
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Value creation also incorporates market multiples . . .
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A B C=A+B D E=C+D F G=E+F H I=G+HPro Forma Pro Forma Pro Forma Pro Forma
Value TodayFix 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 6.17EPS 0.01 0.01 0.13 0.15 0.15
Stock Price Based on TBVSTBVS Multiple 60.00% 85.00% 95.00% 110.00% 130.00%Stock Price 3.57$ 5.06$ 5.78$ 6.79$ 8.02$
Capital RaiseProceeds 5,000$ Price Per Share 6.69$ Opp Cost of Cash 3.00%
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D. Final Thoughts
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Conclusions and Takeaways. . .
RGR drives Strategy drives Value Eliminate SILOs and implement single
model Maximize liquidity Fix Investment structure Eliminate problem loans Establish Board Principles Conduct Direct Board Training using
real Bank Data Conduct Self CAMELS+ Assessment
Move from Product Centric to Customer Centric model
Conduct Talent Management Optimize Corporate Infrastructure Conduct Deposit Disintermediation
Study Generate Loans Delineate and understand Value
Creators/Detractors Drive Value through EPS and TBVS,
not ROA and ROE