Case Study:
Financial Institution
Background
Privately held depository institution with over $2.0 billion in assets and 26 branches. Had been foreclosed on by the federal government and held by them for three years, then sold recently to the current owners. This was a "basket case" that was in trouble prior to being foreclosed on, then made worse by government management over three years.
Business challenges on arrival
- Operating losses of close to $1.0 million a month
- Unbalanced asset portfolio not matched with the liability portfolio as to maturity and rate, and lack of core investment and lending strategies
- Significant amounts of high risk derivatives and junk bonds in the asset portfolio
- Lack of capital to meet regulatory requirements
- As a previously government-held company, there was a total lack of financial management systems - no cash management, interest rate risk, forecasting, management reporting, etc.
- Lack of internal controls throughout the company
- Insufficient experience at various positions in the finance dept.
Actions taken
- Restructured to reduce operating costs significantly and focused on higher margin business lines, developed investment and lending strategies
- Designed and implemented with management a core strategy for lending and deposits resulting in a more balanced asset portfolio matched with the liability portfolio for maturity and rate
- Divested high risk derivatives and high yield bonds over a period of time
- Raised $48 million of capital to meet regulatory requirements
- Developed and implemented various financial management systems for cash, interest rate risk, forecasting, and internal and external reporting
- Introduced strong internal controls
- Re-organized finance dept., and upgraded personnel as required.
Results
- Grew assets 55% while reducing operating costs by 25%. Profitability of close to $1.0 million a month achieved.
- Generated lending volume of $1.5 billion annually
- Reduce interest rate risk significantly by divestiture of certain assets and implementing a lending strategy generating assets needed to balance the portfolio
- Became capital compliant by raising $48 million of capital