Slide 1: Positioned for Success
POSITIONED FOR SUCCESS
Slide 2: Private Securities Litigation Reform Act of 1995
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements made during this presentation and in response to questions may constitute Forward Looking Statements within the meaning of the Private Securities Litigation Reform Act of 1995 and any such statements are subject to risks and uncertainties t
Slide 3: Turning Headwinds into Tailwinds
TURNING HEADWINDS INTO TAILWINDS Repositioning Balance Sheet Increasing Asset Yield Stabilizing Cost of Funds Stabilizing Non-Interest Expenses Maintaining Credit Quality Increasing Non-Interest Income Creating a Sustainable Culture of Success
Slide 4: Repositioning Balance Sheet
REPOSITIONING BALANCE SHEET June 30, 2017 June 30, 2019 $000's % Avg Yield % $000's % Avg Yield % Cash 21,895 4.1 0.90 12,104 1.9 2.50 Investment Securities 132,754 24.7 2.73 67,848 10.7 2.75 Loans (Net) 366,259 68.1 4.46 536,674 84.4 5.04 Other 16,573 3.1 18,996 3.0 Total Assets 537,481 100.0 635,6
Slide 5: Understanding Financial Results from Growth
UNDERSTANDING FINANCIAL RESULTS FROM GROWTH Hypothetical additional $50 MM growth in one year over peer median First year – add staff to fuel loan and deposit growth in excess of peers, estimate 1.5% of assets Year one, growth is even throughout the year, therefore only ½ of NIM is recognized
Slide 6: Understanding Financial Results from Growth Over Several Years
UNDERSTANDING FINANCIAL RESULTS FROM GROWTH OVER SEVERAL YEARS Consistent with the preceding example, a hypothetical loan growth scenario of an additional $50 MM per year over 3 years with a 4th year of peer average growth is demonstrated below This example assumes a decrease in net income due t
Slide 7: Increasing Asset Yield
INCREASING ASSET YIELD Repositioning assets tightened difference between Asset Yield and Loan Yield between 2Q17 & 2Q19 Focus on increasing average Loan Yield while maintaining credit quality includes: Targeting loans with a story, Increasing SBA & Construction lending, and Reducing Consumer &
Slide 8: Stabilizing Cost of Funds
STABILIZING COST OF FUNDS Projecting interest yields to stabilize and decrease during 2019 Better focus on increasing lower cost core deposits began in 2019
Slide 9: Loan & Deposit Growth
LOAN & DEPOSIT GROWTH Core deposit growth not staying up with loans is a concern Total loans to deposits near 100% may be a concern Contingency plans include Money Market or CD special rate promotion or selling loans
Slide 10: Loan Yield & Cost of Funds
LOAN YIELD & COST OF FUNDS The relationship reflects conservative cost and yield estimates in a declining rate environment Decrease in cost in advance of yield is reflective of a liability sensitive balance sheet Stabilizing cost at ~1.25% reflects management’s intention to lock in longer term
Slide 11: Net Interest Income & Margin
NET INTEREST INCOME & MARGIN Goal is to maintain 3.60% average over time What is better: incremental growth, or higher NIM with constraints such as capital, liquidity & core deposits? Staffing & non-interest expenses should support planned growth
Slide 12: Stabilizing Non-Interest Expenses
STABILIZING NON-INTEREST EXPENSES Beginning late 2016, added staff to improve customer service and support growth, stabilizing in Q3 2019 Improving internal processes to support growth and improve efficiencies Examples: Document imaging project took 12 months at an approximate cost of $600,000
Slide 13: Average Assets per FTE
AVERAGE ASSETS PER FTE We are currently near peer median. More projected Assets per FTE includes assumptions of larger average loan and deposit balances More Assets per FTE help drive a lower efficiency ratio More Assets per FTE also reflects technological improvements and other efficiencies
Slide 14: Maintaining Credit Quality
MAINTAINING CREDIT QUALITY Greater separation of underwriting and loan processing functions Expanded stress testing capabilities yielding positive results Parallel CECL modeling provides enhanced loan loss provision capabilities
Slide 15: Increasing Non-Interest Income
INCREASING NON-INTEREST INCOME Committed to remaining the community bank with low fees and focus on customer service Increasing gains from SBA guaranteed loans includes: Decision to sell vs. hold, and service fee income from sold loans Expanding core deposits will increase servicing income
Slide 16: Return on Average Assets
RETURN ON AVERAGE ASSETS Continues to be around peer median Continues to have costs related to higher growth than peers drag down net income
Slide 17: Return on Average Equity
RETURN ON AVERAGE EQUITY Relates directly to ROAA and leverage ratio ROAA remains steady while leverage ratio decreases in plan Projects higher than peer median beginning in late 2020
Slide 18: Shareholder's Equity & Leverage Ratio
SHAREHOLDER’S EQUITY & LEVERAGE RATIO This needs to be monitored carefully in light of growth, liquidity, volatile deposit funding, and credit quality Contingency planning needs to be robust: includes suspension of dividends, private capital raise, sale/leaseback of Bicentennial building, and sa
Slide 19: Creating a Sustainable Culture of Success
CREATING A SUSTAINABLE CULTURE OF SUCCESS Community banking is all about the people Management and Board of Directors Communication Customer Service Culture Current environment is challenging Low unemployment Interest in banking as a career is waning Training and education can be d
Slide 20: Aiming for Success
AIMING FOR SUCCESS