Greyson E. Tuck
Gerrish Smith Tuck, Consultants & Attorneys
Arizona Bankers Association
114th Annual Meeting & Convention
June 10, 2017
Source: FDIC Quarterly
(25%)
(24%)
(49%)
(21%)
(20%)
(34%)
(30%)
(40%)
(22%)
(37%)
(27%)
(28%)
(25%)
(31%)
(37%)
(26%)
(33%)
(25%)
(23%)
(27%)
(61%)
(30%)
(31%)
(44%)
(26%)
(43%)
(31%)
(22%)
(26%)
(32%)
(15%) (29%)
(20%)
(45%)
(19%)
(70%)
(25%)
(33%)
(23%)
(19%) (21%)
(30%)
(40%)
(48%)
(20%)
(53%)
(17%)
(11%)
* Through December 31, 2016
** Source: FDIC and SNL Financial
(33%)
(49%)
• Troubled bank
• Lack of succession
– Management
– Board
– Ownership
• Shareholders that have had all the “fun” they can
stand
• Improved currencies from larger banks / price
• Expectation of Regulatory Relief
• Optimistic Economic Outlook
• Rising Interest Rates
• Greater Profitability
–Potential Corporate Tax Cuts
Average Price / Book (%)
Average Price / Earnings (%)
240
220
200
180
160
140
120
100
80
60
40
20
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
* Through May 22, 2017
** Source: SNL Financial
2015
2016
2017
Number of Deals
292
250
90
Average Price/Book (%)
136.77
130.57
156.70
Average Price/Tangible Book (%)
141.09
136.41
167.46
Median Price/Earnings (x)
24.5
21.5
23.8
Average Price/Assets (%)
14.11
13.16
19.24
Average Price/Deposits (%)
17.05
16.73
20.71
Median Premium/Core Deposits (%)
5.52
4.84
7.78
* Through May 22, 2017
** Source: SNL Financial
• Allocate managerial (human) capital and financial
capital to enhance shareholder value
– Earnings per share
– Return on Equity
– Share Liquidity
– Cash flow (Dividends)
– Safe and Sound operations
• Can you remain independent and profitable?
• Should you buy another bank? Another branch?
Develop a Framework (a Strategic Plan) and
Know Where You Are Going!
• Restore and improve core profitability
• Expense side concerns
• Improve overall efficiency
• Eliminate unprofitable products and services
• Remove regulatory obstacles
• Bank Holding Company
• Remaining private
• Going private – JOBS Act
• Subchapter S
• Focus on Organizational Efficiency, Branches
Included
• Approximately 80% of the community banks are
in a bank holding company structure
• Advantages
– Improved Capital Planning and Financial Flexibility
– Control and Ownership Planning
– New Products and Investment Opportunities
– Additional Geographic Expansion Techniques
– Enhanced Operational Flexibility
• Public Company (SEC Reporting)
– More than 2,000 shareholders
• Private Company
– Less than 2,000 shareholders (less than 1,200 if de-registering)
• Very Private (Subchapter S)
– Less than 100 shareholders (six generations of one family
equals one shareholder)
– Introduced legislation would increase to 500
• Obtain shareholder approval of discriminatory
merger
– Majority of outstanding shares in most states
v
• Bank holding company versus bank board?
• Mandatory retirement?
• Mandatory evaluations?
• Resignation policy?
• The planning process
• Focus on substance
• Have an agenda / two agendas
• Have an open mind / willing ear to change
• Know the difference between
operational/tactical and strategic planning
• Make it enjoyable
• The sky has been falling for 30 years…
• Does size matter?
• Earnings drive value!
• Incent what you want
• You get what you incent
• Provide a path for personal development
• Incentive Plan / Equity-Based Plans
• Scope
– Executives
– Non-Executive Employees
• Structure
– Formula / Objective
– Discriminatory
– Combination of the Two
• The Wells Fargo Problem
• Employee Stock Ownership Plan (KSOP)
• Stock Options
• Restricted Stock
• Phantom Stock
• Stock Appreciation Rights
• Board of Directors
• Management
• Ownership
• Plan before it’s needed!
• Identify the need
• Establish Qualifications
– Character and Reputation
– Ability
– Time Commitment
– Relationships
– Professional Experience and Qualification
• Job Description
• Scope
– Each Executive Officer (at a minimum)
– Other Individuals Performing Key Functions
• Document Strategies
– Board Minutes
– Written Plan
• Plan for unsolicited offers
• Understand your options
– Reject Offer (Based on Detailed Financial and Legal
Analysis)
– Accept Offer (Breach of Fiduciary Duty)
– Negotiate Offer (Puts Bank in Play)
– Shop Around (Only Way to Determine Best Price)
• Occasionally think like a big bank in terms of
earnings and community involvement
• Grow when growth is needed and desired
• Understand what your shareholders expect
– Provide share liquidity
– Cash flow
– Safe and sound operations
• Continues to be one of the best uses of capital
available to community banks
• Consolidates ownership
• Provides shareholder liquidity
• Board has a lot of flexibility
• Two types
― Voluntary
― Involuntary
• Can I survive?
• Will I have to sell?
• Be opportunistic, or be aggressive
• Be a buyer
• Plan for and maximize shareholder value
• Assuming it can be done passively
• Not focusing on core profitability
• Not planning board and management succession
• Not keeping up with changing regulations
• Not creating shareholder value
• Remember your real job
• Actively pursue independence by adhering to
strategies that fit your organization
• Avoid common mistakes
Please contact us if we can be of service to you or your organization, or
if you simply have further questions where we may be of assistance.
Gerrish Smith Tuck
Consultants and Attorneys
700 Colonial Road, Suite 200
Memphis, Tennessee 38117
Telephone: (901)-767-0900
Facsimile: (901)-684-2339
Greyson E. Tuck
[email protected]
Please visit our website at www.gerrish.com.
Greyson E. Tuck
Gerrish Smith Tuck, Consultants & Attorneys
Arizona Bankers Association
114th Annual Meeting & Convention
June 10, 2017