Strategic Consulting - Overview of Services

The landscape in the financial sector is more unpredictable than it has ever been. Financial institutions are reeling from a variety of problems, some of them self inflicted, some of them circumstantial. The strategies currently enacted by financial institutions run the gamut from "hanging on and hope this blows over" to "forging ahead while weakened competitors fall by the wayside."

LEVEL5 is dedicated to helping financial institutions develop and implement growth strategies. In recognition of these unprecedented market conditions LEVEL5 has expanded its array of services to better help its clients plan for and achieve success. The expanded array of products is briefly described below:

Acquisition analysis. Many financial institutions are taking advantage of the current market turmoil and are merging or acquiring other institutions. Often these acquisitions are FDIC-assisted transactions and the acquiring institution has little time to respond. LEVEL5 has stratified its core consulting services to help institutions make wise choices quickly and then devise a strategy for long-term success. The sequence of consulting services to aid the acquiring institutions includes:
A. Branch snapshot - Within a very brief window of time LEVEL5 will develop a forecast of the deposits and loans that each branch of the target institution should support. These forecasts will be compared to actual branch performance to identify leading, average, and lagging branches. The snapshot will also rate the branch markets based on several quantitative factors to identify relative strengths and weaknesses. Armed with this information the acquiring institution can make an informed decision about the current and future opportunities associated with the acquisition.
B. Branch rationalization - If the acquisition moves forward LEVEL5 will conduct a more incisive analysis of the acquired institution's branches and markets. The goal of this exercise is to ensure appropriate market coverage, eliminate or rescale underperforming branches, and further exploit super-performing branches.
C. Strategic retail delivery plan - This is an expansion of the branch rationalization project that sets market penetration goals and establishes the strategies and tactics for the acquiring institution to gain market share in the new markets. The strategy is qualified through a projected balance sheet and income statement to ensure that the financial objectives are met.
D. Facilities analysis - The branches gained by acquisition represent an "unknown" for the acquiring institution. In such situations LEVEL5 will conduct a facility analysis to determine the adequacy or insufficiency of the physical aspects of the acquired branches. The result is a prioritized list of activities needed to repair systems, the budget for these activities, and a recommended plan for accomplishing the needed improvements.

Operations analysis. At times, an analysis of the institution's operations is an appropriate step to ensure efficiency, identify economies in a merger/acquisition, or respond to directives from regulatory authorities. The results of such an analysis can point out opportunities for improved efficiency and/or identify organizational weaknesses that hamper performance. The operations analysis reviews the institution's organization, operational functions, and administration. The goal of this analysis is to identify opportunities to strengthen operational and/or administrative functions and evaluate the opportunity for improved efficiencies. The end result is a list of strategic objectives and tactical methods to fine tune operations. This analysis considers implications of emerging technologies, shifting regulatory requirements and in-source/out-source options to lower costs and improve performance.

Strategic planning. Strong performing institutions have a habit and discipline of strategic planning. At the other end of the scale, some boards and management teams have come under regulatory criticism for lack of oversight or poor strategies and tactics. Either way, a thoughtful strategy is needed to forward the institution's business model and consequently its financial performance. LEVEL5 facilitates strategic planning that begins with a board retreat (with the participation of senior management) to devote adequate time to discuss challenges, potential solutions, and devise the strategies and tactics to pursue the institution's goals. This planning session is supplemented with follow-up discussions to track implementation and progress. These sessions are led by LEVEL5's team with vast experience in banking, particularly in strategic planning and change management.

Financial diagnostic. Particularly in today's economy, financial institutions must be vigilant in maximizing revenue and containing costs. LEVEL5 offers a comprehensive review of client's balance sheets and income statements to identify areas of deficiency (versus a peer group of strong performing institutions) and definition of short- and long-term remedies that will strengthen the institution's performance over time. These recommendations are framed by parameters established by the board and management team to ensure that they are in line with the institution's overall objectives.

Loan review. Many institution's most pressing issues are rooted in problems in the loan portfolio. Accordingly, it may be prudent to undertake an independent review of the loan portfolio. This review identifies deficiencies in the portfolio and includes a "stress test" to determine the outcome of a variety of changing circumstances (PMI, loan-to-value, past dues, charge offs, etc.) to better estimate the future performance of the loan portfolio based on actual experience. With that accomplished, two tactical steps become appropriate. The first is to address systemic problems in the loan originating/underwriting/approval process to avoid problems in the future. The second is the "clean up" of the existing problem loans by developing specific strategies to resolve individual problem credits.

REO workout. As a result of a variety of factors many institutions have seen their real estate owned (REO) portfolios swell. Assets in the ROE portfolio usually represent non-earning assets and bring with them several layers of risk that are a further drain on the institution. LEVEL5 has developed a portfolio analysis product that, through primary and secondary research (including "feet on the street" analysis), identifies vulnerabilities within REO assets. This product comes in the form of a custom report that provides current market analysis and review of REO assets and then develops a strategy to maximize the assets' values and liquidate the asset.

LEVEL5 is uniquely positioned to analyze and understand the collateral securing real estate loans on lender's balance sheets. Our observation of market conditions, area trends, and pricing pressure allow us to quantify the value of properties if they were brought to market today. These market values are compared to the unpaid principle balances of the loans that funded the real estate acquisition and improvements. This comparison is used to identify the scope of the lender's potential for recovery. Armed with a clear understanding of market conditions and property value a course of action can be defined to maximize recovery. This can include debt restructuring or refinancing, property maintenance and management, direct sale of REO assets, packaged sale of the assets, or auction of the assets. A detailed analysis and financial forecast supports the recommended solution.

Financial institution tool (FIT). Financial institutions must continually weigh growth opportunities in new markets and compare them to opportunities in current markets, all in the face of regulatory scrutiny. The financial institution tool (FIT) is a subscription-based market analysis system that can be used to evaluate new market opportunities. In this mode, FIT tracks trends in markets to reveal opportunities and prescribes the best product sectors to pursue. In existing markets, FIT tracks market trends and alerts the institution to changes in either the market at large or specific product sectors so the institution can appropriately adjust its business emphasis and pricing strategies. Finally, FIT works at the macro level to demonstrate market analysis and scrutiny to regulatory authorities, enabling the institution to defend lending decisions in light of current market trends.

Reporting tools. Many institutions face performance or management issues due to the lack of comprehensible reports for senior managers or Board members to use in directing ongoing business activities. Once the business strategies have been established, it is imperative to have the appropriate reporting mechanisms in place. Often, the institution has the needed information "running through its fingers." LEVEL5's team will develop a sequence of reports and the tools needed to gather this information from the institution's data processing system. Further, training will be provided to the management team and/or Board on the use and interpretation of these tools to enable these groups to make the best use of the available information.

Strategic retail delivery plan. Many financial institutions are poised to take advantage of the chaos in the financial services sector and are developing and executing growth strategies. LEVEL5 works with these institutions to identify market opportunities and develop plans to seize these opportunities. The resulting strategy identifies redundancies or inefficiencies in existing branch networks and defines adjustments that would increase efficiency or growth potential. The strategic retail delivery plan also identifies opportunities to extend the institution's trade area, fueling growth. A well-developed strategy will position the institution as a true community institution, offering convenient access to customers and potential customers. The retail strategy is qualified through financial projections to verify that the institution's performance goals are achieved while maintaining appropriate safety and soundness.

Product mix. Given the results of the loan review and the strategic retail delivery plan it is wise to reexamine the institution's product mix. This is needed to help diversify product lines to dilute the reliance on single products and ensure that the deposits are primarily low-cost funds gathered from the institution's primary market. A good understanding of market demand for financial products and services, along with an appreciation for how competitors are meeting this demand, is needed to enable the institution to make prudent choices in redefining its product mix.

E-commerce strategies. Financial institutions operate in a fast-paced and dynamic environment. Reviewing and ensuring that the institution is taking full advantage of the changes in e-commerce is an important step in planning for the institution's future success. Regardless of the institution's technological prowess, a review of current e-commerce activities will enable a plan to be developed. The goal of the plan is to allow the institution to enjoy the efficiencies and market appeal of these high-tech delivery channels.

Capital formation. This is an "obvious" solution that is appropriate for some institutions, depending on their financial condition and election to accept or decline TARP funds. LEVEL5 is aligned with a law firm that specializes in financial institutions. This firm has extensive experience in capital formation, regulatory issues, and a host of other issues that are faced by financial institutions.

S-Corporation conversion. S-Corporations enjoy the benefit of "eliminating" a layer of taxation by passing net income along to the shareholders, who are taxed at their individual tax rates. By converting to an S-Corporation institutions can retain more net income in the organization. Through its legal affiliates LEVEL5's offers consultation about the ramifications of the S-Corporation conversion, including the option of making a tender offer to recover some of the outstanding shares to meet the criteria for the number of shareholders.