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Surviving the Short Term and Excelling at the Long Term

Surviving the Short Term and Excelling at the Long Term. Presented By: Jeffrey C. Gerrish Gerrish McCreary Smith, Attorneys and Consultants. Presented at: Community Bankers Association of Illinois 35 th Annual Convention & Exposition Renaissance Hotel, Schaumburg, Illinois

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Surviving the Short Term and Excelling at the Long Term

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  1. Surviving the Short Term and Excelling at the Long Term Presented By: Jeffrey C. Gerrish Gerrish McCreary Smith, Attorneys and Consultants Presented at: Community Bankers Association of Illinois 35th Annual Convention & Exposition Renaissance Hotel, Schaumburg, Illinois September 25, 2009 Gerrish McCreary Smith Consultants and Attorneys 700 Colonial Road, Suite 200 Memphis, Tennessee 38117 Telephone (901)-767-0900 Facsimile (901)-684-2339 www.gerrish.com jgerrish@gerrish.com

  2. Community Banks: Surviving the Short Term and Excelling at the Long Term • The present: assure the short term or there will be no long term • Major trends for the future • Focus on ways to thrive in the future Gerrish McCreary Smith Consultants and Attorneys

  3. Surviving the Short-Term • Look in the Rearview Mirror at 2008 • Likely Environment for the Rest of 2009 • Regulatory Issues Gerrish McCreary Smith Consultants and Attorneys

  4. Excelling at the Long-Term • Maintaining Shareholder Value • Focus on Profitability, Asset Quality and Liquidity • Manage the Risks • Plan for It Gerrish McCreary Smith Consultants and Attorneys

  5. The Directors and Officers’ Real Job • Allocate Managerial (Human) Capital and Financial Capital • Enhance/Maintain Shareholder Value Gerrish McCreary Smith Consultants and Attorneys

  6. Allocate Managerial and Financial Capital • All Decisions Involve Allocation of Managerial and Financial Capital • Managerial Capital (Human Capital) • Do we have adequate management for the long term goals of the institution? • Financial Capital • Does excess capital exist? • How should it be allocated? Gerrish McCreary Smith Consultants and Attorneys

  7. Primary Obligation: To Enhance Shareholder Value • Growing Earnings Per Share 8% to 10% a Year • Return on Equity of 15% or Better • Liquidity for the Shares • Appropriate Cash Flow Do these metrics still hold? Gerrish McCreary Smith Consultants and Attorneys

  8. Looking in the Rearview Mirror 2008 • Wild Ride: National Economy • Stock Market Freefall • Unprecedented Job Losses • Recession/Depression • Multi-Billion Dollar Stimulus Plan for the General Economy Gerrish McCreary Smith Consultants and Attorneys

  9. Bank-Specific Issues 2008 • Capital/Credit Markets Meltdown • TARP/CPP/CAP • Regulatory Aggression • Bank Liquidity Issues • Asset Quality/Real Estate Valuation Freefall • Bank Failures • Merger and Acquisition Creativity • The “Haves” and “Have Nots” Gerrish McCreary Smith Consultants and Attorneys

  10. Looking to the Short TermThe Rest of 2009 • Critical Needs: • Stabilization of Real Estate Values: PPIP • Liquidity Contingency Planning • Capital Contingency Planning Gerrish McCreary Smith Consultants and Attorneys

  11. Looking to the Short TermThe Rest of 2009 (Cont’d) • The Haves and Have Nots • Increased Bank Failures • Continued Regulatory Aggression • Hunker Down Philosophy Gerrish McCreary Smith Consultants and Attorneys

  12. Dealing with Short-TermRegulatory Aggression • Hot Buttons for 2009 • Asset Quality • Identification of Problem Assets • Snowball Effect • Liquidity • Bank Failure Potential • Contingency Planning • Capital • Scarce • Debt versus Equity • Capital Contingency Planning • Strategic Opportunity Issues Gerrish McCreary Smith Consultants and Attorneys

  13. Dealing with the Regulators • Know Your Options: Board is in Control • Know Their Options • Resolution/MOU • C&D/Written Agreement/Formal Agreement • Civil Money Penalties • Removal From Banking • Miscellaneous • Understand Your Bank’s Due Process Rights Gerrish McCreary Smith Consultants and Attorneys

  14. Strategic Opportunities Long Term:Once Out of the “Trough” • When: Mid 2010?? • Industry Trends for the Long, Long Term • Consolidation: Survival of Community Banks • Continuous Community Bank Advantage • Technology • Ownership • Erosion of Customer Confidence/Less Loyal Shareholder/Customer Base Gerrish McCreary Smith Consultants and Attorneys

  15. Industry Trends -Consolidation of the Industry • Unprecedented 30-year consolidation • Only five remaining banks? • Is there a future for community banks? Gerrish McCreary Smith Consultants and Attorneys

  16. Industry Trends – Continuous Community Bank Advantage • Distinct Advantage in Small Business Lending and Agricultural Lending • Strengths – High Touch/Relationship/Trust • Large Banks Stubbing Their Toes Gerrish McCreary Smith Consultants and Attorneys

  17. Industry Trends – Dominance of Technology • Community Bank Advantages Regarding Technology • Technology Strategy Gerrish McCreary Smith Consultants and Attorneys

  18. Industry Trends – Ownership Will Be Important • Most Survivors – Sub S • Likely Further Relaxation of the Rules • Only Public Bank Holding Companies – Those That Derive Significant Advantages Gerrish McCreary Smith Consultants and Attorneys

  19. Customer/Stockholder Trends • Less Loyal Shareholder/Customer Base • Aging of the Population and the Changes Resulting • Changing Demographics • Flight to Quality/Customer confidence Gerrish McCreary Smith Consultants and Attorneys

  20. Product and Service/Line of Business Trends • Allocation of Capital: Purchase or Joint Venture • All Things to all People? • Target Changing Demographics, including Elderly, Hispanic/Latino, Un-banked and Women Gerrish McCreary Smith Consultants and Attorneys

  21. Employee Trends • Attract and Retain Human Capital • 2009 Employee “on Steroids” • Demand for Comparable Benefits of Mega Banks Gerrish McCreary Smith Consultants and Attorneys

  22. Regulatory Trends • Federal Regulatory Consolidation? • Systemic Regulator? • Community Bank Regulator? • Regulatory Burden • The “Good Old Days” Gerrish McCreary Smith Consultants and Attorneys

  23. Excelling Over the Long Term • Survive the Short Term • Focus on Profitability, Asset Quality and Liquidity • Enhancing Shareholder Value • Manage the Risks • Plan for It or It Will Not Happen • Let’s Get Back to the Basics Gerrish McCreary Smith Consultants and Attorneys

  24. Focus On Profitability • Understand the Secret Formula: Revenue – Expenses = Profit • Deconstruct the Income Statement • Sources of Revenue and How to Increase • Expenses and How to Reduce Gerrish McCreary Smith Consultants and Attorneys

  25. Sources of Revenue and How to Increase • Yield on Securities Portfolio • Reduce Non-Earning Fixed Assets, e.g. sale/leaseback • Increase Yield on Earning Assets • Loan Floors • Pricing Models • Fee Income Increase • New Lines of Business Gerrish McCreary Smith Consultants and Attorneys

  26. Focus on Profitability • Reduction of Expenses • Increased Deposit Insurance Assessment • Loan Loss Reserve – Snowball Effect • Personnel • Deposit and Other Funding Costs Wholesale vs. Retail Funding Increase Demand Accounts • Charitable Contributions • Miscellaneous Other Expenses Gerrish McCreary Smith Consultants and Attorneys

  27. Excelling Over the Long Term • Enhancing Shareholder Value • Manage the Risks • Plan for It or It Will Not Happen • Let’s Get Back to the Basics Gerrish McCreary Smith Consultants and Attorneys

  28. Recognize the Need for Change • Resistance to Change • Change for Change Sake • Open Mind/Willing Ear • Establishment of Company Policy Gerrish McCreary Smith Consultants and Attorneys

  29. Plan for Success – Action Planning • Board Obligation • Understand the Foundation • Enhance Shareholder Value • Prepare for Change • Get Off Site • Don’t Waste Time • Have Two Agendas • Analyze Substantive Issues • Use an Outside Facilitator (Shameless Self-Promotion) • Create an Action Plan Gerrish McCreary Smith Consultants and Attorneys

  30. Long-Term Capital Allocation Techniques to Enhance Shareholder Value • Structure – Bank Holding Company • Allocating Capital for Share Liquidity • Dividend Policy • Allocating Capital to Restructure Ownership – Public/Private/Sub S • New Lines of Business • Technology to Improve Service • Capital to Foster Relationship Building • Attracting and Retaining Key Personnel • Planning for the Future Gerrish McCreary Smith Consultants and Attorneys

  31. Conclusion • Focus on the short term or there will not be a long term • Short Term Profitability: The Secret Formula • Strategic Long Term Obligation: Enhance Shareholder Value • Long Term Success: Take Advantage of Strategic Opportunities Gerrish McCreary Smith Consultants and Attorneys

  32. Surviving the Short Term and Excelling at the Long Term Presented By: Jeffrey C. Gerrish Gerrish McCreary Smith, Attorneys and Consultants Presented at: Community Bankers Association of Illinois 35th Annual Convention & Exposition Renaissance Hotel, Schaumburg, Illinois September 25, 2009 Gerrish McCreary Smith Consultants and Attorneys 700 Colonial Road, Suite 200 Memphis, Tennessee 38117 Telephone (901)-767-0900 Facsimile (901)-684-2339 www.gerrish.com jgerrish@gerrish.com

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