profit drivers in the new normal
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Profit Drivers in the New Normal. Shay Financial Services Investment Education Conference March 25, 2013 T. Jefferson Fair [email protected] 225.281.2998. Industry Overview. 470+ bank and thrift failures since Sept. 2007 7,083 FDIC-insured institutions as of 12/31/1212 - PowerPoint PPT PresentationTRANSCRIPT
Shay Financial ServicesInvestment Education Conference
March 25, 2013
T. J e ff e r s o n Fa i rj f a i r @ a m e r i c a n p l a n n i n g . c o m
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Profit Drivers in the New Normal
Industry Overview
470+ bank and thrift failures since Sept. 2007
7,083 FDIC-insured institutions as of 12/31/1212 Down from 8,533 as of 12/31/2007 (down 17%) Over 650 “Problem Institutions” remain
System is awash in liquidityQuality loan demand still lowEconomy will continue to be a drain on
earningsMergers and acquisition activity is picking upBasel III standards will probably increase
capital requirements
U.S. Banking Landscape
Sources: FDIC and SNL Financial, compiled by American Planning Corporation
The 90 /10
Solution
Cumulative % of Total Assets in US Banks
2,589 institutions (33%) < $100MM = 0.97% of Industry Assets
4,719 (65%) < $250MM = 3.7% of Industry Assets
5,943 (81%) < $500MM = 6.6% of Industry Assets
6,621 (91%) < $1B = 10% of Industry Assets
Top 4 Banks = 41% of Industry Assets
June 2012 Call Report Data
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Commercial Bank Net Income ($MM)
Inflation: $10,000 in 1993 = $15,650 in 2011
Sources: FDIC, BLS and SNL Financial, compiled by American Planning Corporation
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Source: Federal Reserve, compiled by American Planning Corporation
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Historical Fed Funds Target Rate
Economic Situation
Longest bottom of an economic cycle in 60 years
Lowest rates at the bottom of the cycleBorrowers not borrowing, investors not
investingFederal Reserve willing to risk future
inflation to avoid current recessionEvery week brings a new poli-fiscal crisisDon’t bet against the Fed
Current Regulatory Environment
Regulatory attitude has changed: from supervisory to enforcement posture from risk-based to legalistic analysis
Compliance costs are high, but noncompliance costs are higher
The key to dealing with an enforcement action is to avoid getting one Aggressively deal with all Matters Requiring Attention Communicate with your regulators and avoid
surprises Act as if you are already under an enforcement order Don’t agree to implement changes
Banking Industry Outlook
Economic recovery slower than expectedEnhanced regulatory regime will remainHigher minimum capital requirementsYield chasing and poor risk/return
relationshipsConsolidation will occur
Enhancing Profits in this New Normal
Marginal loan growthAggressive deposit cost reductionGood relationship with regulatorsActive investment portfolio managementEffective capital deploymentAcquisition or merger of equalsP&L controlAncillary servicesMarketing and Image
Marginal Loan Growth
Look for good loan participationsSteal good relationship lending teamsPrice aggressively
Understand your IRR position Avoid cannibalization Price for risk
Revisit and revise traditional roles of loan and investment portfolios
Aggressive Deposit Cost Reduction
Trim the fat, not the coreThe bank is not a charityBe a leader on rate reductions, if you canReview fee schedulesImprove product set and features, branding
Mobile apps
Good Relationship with Regulators
Protect CAMELS rating 3 rating = 10bp additional expense ≈ 10bp ROA Current, effective policies and procedures
Lending Investments ALCO (Funds Management, Liquidity and Interest Rate
Risk)
Predatory lending or disparate impact allegation Legal fees, lost time, distraction
Consent Order = $100K to $500K Management review ≈ $30,000 Regulatory consultant ≈ $50,000+ Lawyers ≈ $20,000+
Active Investment Portfolio Management
Trusted advisor vs. bond salesmanEffective ALCO policies, processes, reports,
minutesGood pre- and post-purchase analysis and
documentationTake gains that the Treasury gives youTrim tails
Effective Capital Deployment
Have a capital plan – .doc and .xlsYou can do more with your capital than your
shareholders canRegulators will demand more capital – be
preparedBe prepared to reduce debt when rates go upBe prepared for growth when markets
recover
Acquisition or Merger of Equals
Cost savings in an acquisition can be hugeTired, frustrated seller = lower asking priceMake a trial run for experienceHave response plans
If you are approached by a suitor If a competitor is acquired
P&L Control
Look for redundanciesConsider outsourcingReduce fee leakageTier pricing based on customer behavior and
costsAsk vendors for discounts before contract
renewalNegotiate to remove fees and penalties from
contractsOffer rewards to employeesImprove communication
Ancillary Services
Mortgage lending Acquire mortgage company Add servicing department Escrow services
Investments Partner with professionals (IPI, LPL) Avoid deposit cannibalization
InsuranceFinance companyProducts for the unbanked / underbanked
Marketing and Image
Bankers are not good at marketingBankers are not graphic designersLet experts help you with:
Marketing Advertising Web design (to graphic designer standards, not
banker standards)Clean up your buildingsAsk for the business
Contact Information
T. Jefferson [email protected] 106 Waters Edge DriveShreveport, LA 71106225.281.2998 (direct)225.765.7200 (fax)
American Planning Corporation www.americanplanning.com National Capital, L.L.C. www.ncval.com Curative Advisors, L.L.C. www.curativeadvisors.com
Disclosure:
This presentation is provided by T. Jefferson Fair with American Planning Corporation. (“APC”) and is intended for your private use and does not constitute an offer or solicitation with respect to the purchase or sale of any security. This presentation is not prepared or intended to be investment advice and is issued without regard to the specific investment objectives, financial situation or particular needs of any specific recipient. The information was obtained from sources we believe to be reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The information was based in part on current market indicators, which may vary over time. APC makes no representation, express or implied, as to the accuracy, timeliness, completeness or correct sequencing of any such information or with regard to the results to be obtained from its use. All expressions of opinion are subject to change without notice, and APC does not undertake any responsibility to update or supplement the information contained herein. In no event should APC or any affiliated party be liable for any direct or indirect investment or trading losses directly or indirectly caused by, or resulting from, the information presented. Investors should do their own research and due diligence. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. APC may from time to time buy or sell or have long or short positions in securities identical or related to those identified herein, if any. The individual presenting may have received compensation for his or her participation in this event.
The views expressed are those of APC. These views do not necessarily reflect the opinions of any other firm.