1. After all of This, Where do We go from Here??
West Virginia Bankers Association
118th Annual Convention
July 17th=19th, 2011
Bankers Management, Inc.

2. Bankers Management, Inc.

3. Appreciation Rates State Peak % Decline Next 12 MThs
Nevada Mar % %
West VA May % %
Negative Equity: 23.8%
REO + Short Sales 38.8%
Washington, Arlington, Alexandria
Foreclosure Rate: 1.76%; (41); 90+ day 4.4%
Bankers Management, Inc.

4. What Will Drive Growth?
A. Increase cross-selling for current customers
WF services: Avg. Bank – 2.3 services
B. Expand presence on the internet
Facebook, Twitter
C. Provide customers with mobile banking
70% of banking is being done outside of banks
D. Acquire another bank
Does the growth fit the strategic plan?
Is there sufficient management talent?
Is there sufficient Capital?
Bankers Management, Inc.

5. Foundation of a Great Bank
A clear and measurable strategic plan
Board participation
Setting major objectives (2 – 3)
Data gathering
Interviewing Board Members & Key Senior Officers
Independent feedback, Outsider to the board
Review of Regulatory reports, Financials, Policies
Facilitation of retreat
Use an outsider: To ask key sensitive questions
Development of plan
Follow-up metrics
Bankers Management, Inc.

6. Introduction, Asset Quality
Today’s Safety & Soundness Examination is not your mother’s/ father’s Exam!
The credit that was a Pass loan for the last several exams, is now a Substandard loan
Given that you fell short on the above, We have to downgrade Earnings, Management, & Capital
Bankers Management, Inc.

7. Regulatory Environment
Quotes from Bankers; RE: Regulators
“UNREASONABLE”
“CONFRONTATIONAL ”
“WITH an AGENDA”
“NO COMMON SENSE”
Bankers Management, Inc.

8. The keys to higher ROA’s & ROE’s
Management and the Board are responsible to the Shareholders of the bank for enhancing the value of their investment.
Increasing value of the stock
Dividend payouts
Net Interest Margin (NIM)
Top 25 Banks: – 5.01% : 2010 – 4.58%
WV Banks: – 4.07% : 2010 – 3.98%
Bankers Management, Inc.

9. Net Interest Margin
Interest Income is driven by the Yield on your earning Assets:
Loans
40 – 50BP +, vs. Peer Group
Consumer Loans are generally 20% - 30% of total loans
Investment Securities
Yield is 20 – 25BP+ vs. Peer Group
Instruments are a mix of yield and Liquidity
Bankers Management, Inc.

10. Financial Keys A. Lower Cost of Funds B. Operating Cost
Top 10% of banks: 43 basis points lower cost of funds
Higher level of Transaction Accounts: 55% - 60% vs. 45% - 50%
B. Operating Cost
Increasing personnel cost (Compliance Officers)
Occupancy expense
Remote Capture
In-Store Branches
Loan Production Offices
Retail Store Fronts
Bankers Management, Inc.

11. Financial Keys C. Non Interest Income D. Productivity
Top 25 Banks 1.03%
Declining NSF fees
Interchange fees (24bp ?)
D. Productivity
Efficiency Ratio
Assets per FTE
Earnings per FTE
Bankers Management, Inc.

12. Non Interest Income Non Interest income has an ROA of infinity
The sources of NII include
Deposit fees (Overdraft, ATM, Debit Cards)
Loan fees (Late fees, Facility fees, Closing fees)
Services (Insurance, Safe Deposit, Travelers Checks, Wire, Check Cashing)
Prepaid Visa/MasterCard
The goal is 20% of revenue
Bankers Management, Inc.

13. Key Statistical Measures, 2009 Non-S Corp Banks $100M - $3B
Measurement Top 25 Banks WV Banks
ROAE
ROAA
Tier One
Loan/Dep
Int. Inc
Int. Exp
Bankers Management, Inc.

14. Key Statistical Measures Non-S Corp Banks $100M - $3B
Measurement Top 25 Banks WV Banks
Non Int. Income
Non Int. Exp
NIM
Non Per. Loans
ALLL
Bankers Management, Inc.

15. Conducting the Exam 1. Set aside a work space
There may be a need for space that allows confidentiality
2. Assign a staff member to retrieve files & reports
3. Set a daily meeting time to interview key staff members
It limits customer interruptions
4. Invite members of the board to attend exit
Bankers Management, Inc.

16. Responding to an Admin. Order
Form a Compliance Committee ( outside directors)
Check any promises listed in the last ROE
Nightmare opening sentence
“The Board and Management have failed to respond to the concerns raised in our last exam”
Be sure the Board minutes reflect all discussions concerning the Order
Bankers Management, Inc.

17. Avoid 2:00 Friday telephone approvals
Minimum loan package requirements
Complete analysis of financial statements
Company financial statements
Tax returns
Personal financial statements
Credit memo recommending approval
Officer assigned initial risk rating
A signed approval document
Account officer, Senior lender, Chief credit officer, Loan Com
Bankers Management, Inc.

18. Capital Old Capital levels do not apply!
If you are under an administrative action
9% Tier One
12% Risk Based
Loan Loss Reserve
FASB 5 may not be enough
“Enough reserves to cover all anticipated losses and all unanticipated losses”
What is “Economic Risk”?
Bankers Management, Inc.

19. Concentration Reports
Develop a board report that begins with Industry & Borrower Types as a percentage of Capital
Draft a policy that sets limits as a percentage of capital
Submit to the board for approval
Methods of reduction
Participation Sales
Move Loans to other Lenders
Bankers Management, Inc.

20. OREO; Other Real Estate Owned
Quarterly reports to the board
Date in inventory
Latest appraised value
Estimated holding cost
Maintenance, Taxes, Opportunity cost
Write down dollars
Insurance coverage
Marketing & Sales efforts
Bankers Management, Inc.

21. CEO Evaluations Rate on a scale of 1-5
Set Performance Management targets at the beginning of the year:
ROA , ROE, Budget
Net interest Ratio & Income
Non Interest Income
Cost of Funds
Yield; Loans & Investments
Overhead Cost; Personnel & Facilities
Bankers Management, Inc.

22. CEO Evaluations Staff Development Growth Regulatory Exams
Selection Effectiveness
Training
Performance Management System
Secession Planning
Growth
Assets, EPS, Capital,
Regulatory Exams
Composite CAMEL Rating
Bankers Management, Inc.

23. Bankers Management, Inc.
David L. Kemp
Bankers Management, Inc.
(770)
Bankers Management, Inc.