Following The Money
Checking In With Some Top Georgia CFOs
It’s no secret that times are tough, and the economy has taken a toll on Georgia businesses.
Georgia Trend sought out three CFOs – one from a bank, one from a food products company and one from a member-owned power company – to see how their businesses are faring and how their own roles are changing.
CFOs typically have responsibility for accounting, budgeting, regulatory compliance, internal audit and, increasingly, are involved in corporate strategy. At public companies, the CFO is likely to be involved in investor relations.
Read what Rex Schuette, United Community Banks; Steve Kinsey, Flowers Foods, Inc.; and Elizabeth Higgins, Oglethorpe Power, have to say.
United Community Banks
UCB is the third largest holding company in Georgia. Schuette, who came from Boston’s State Street Bank, has been CFO for nine years. As of June 4, bank stock was selling for $4.26 a share.
GT: How have your duties as a banking CFO changed?
Schuette: Roles are different for all CFOs today, where we’re in a fairly deep recessionary environment, both in the context of local unemployment as well as its impact on residential construction, which was a major line of business for us. We had several quarters of losses, so that makes a difference in what we have to manage and work through. Back in ’08 we went through a lot of change where we had kind of a meltdown on Wall Street as well as an impact on liquidity in the banking environment in particular. It’s the first time in my 30-plus years in banking I’ve seen such extreme impact on liquidity – banks being able to borrow from banks. It’s had an impact on the retail side also.
GT: How has the recession affected UCB?
Schuette: It had a big impact on earning and operations and the loss positions. It changes your strategy, how you look at earnings, what you need to do to continue to drive earnings and build core earnings – which is really the engine of the banks, being able to have earning power to continue through this environment as you work through credit issues.
GT: What’s been your response?
Schuette: Expense management – that’s a key part of it. Coming into early 2009 [we focused] on building core earnings, improving the net interest margin, which improved 78 basis points in a year, which is really dramatic. We were able to reduce our workforce by 10 percent last year, which helps the expense phase, then [we had] another focus just on growing core customer deposits, essential for a community bank. They grew by more than 10 percent for 2009 and [are growing] at that pace again for this year.
GT: What’s the mood of the shareholders?
Schuette: Obviously with losses over the last several quarters, it’s a concern for everybody. We’ve been focused on working through credit issues diligently and working on them in a very aggressive manner at the same time. We have looked at it in the context of institutional investors. We have addressed them head on, and our investors support us.
GT: How did you address those issues?
Schuette: We had a common offering last September in which we added over $220 million in common stock. We had very strong support, strong interest. That continues. We have a very strong capital position. With a recently completed transaction, announced April 1, with a private equity firm [Fletcher International, based in New York and San Francisco], we were able to sell off $103 million of our more illiquid properties [slow to move, difficult to sell] in our more rural markets – residential land in particular. Large tracts and real estate we haven’t been able to sell basically at our book value. The transaction closed recently, and we have a continuing capital commitment from that firm to add $65 million in capital down the road when it’s needed. It was a very unique transaction, probably the first one in the banking community and probably something of a trendsetter.
GT: How are things on the customer side?
Schuette: We’ve had very strong customer service. We have a community banking model that focuses on customer service – 27 banks, 27 bank presidents and local boards. We operate in the context of what we call the golden rule of banking: to have strong service. We use an outside service to look at this. They rate us. We’ve been above 90 percent for the past several years – the industry average in their book is about 75 percent. This quarter we hit a record at 95 percent. Just recently J.D. Powers ranked us No. 1 in the southeast in customer service. That’s pretty significant.
GT: Is the worst over?
Schuette: It’s been a difficult six or eight quarters for most banks. The southeast was hit probably harder than other areas. Banks here were really focused on residential construction, starter homes. When that slowed down, it rippled through the community banks and even regional banks. Most are thinking we’re through the biggest part of that. There are some indications home sales are improving, and retail sales are starting to improve. Unemployment is the real key in this environment.
Flowers Foods, Inc.
Flowers is a publicly traded company headquartered in Thomasville that prepares and sells baked goods. Kinsey has been with the company 21 years, three in his current position. As of June 4, the company’s stock price was $29.96 a share.
GT: How has the CFO’s role at Flowers changed?
Kinsey: I’m much more involved than I would have been 15 years ago in the strategic side of the business. Overall the profession has moved more from [just] regulatory oversight to a strategic position in the company.
GT: But you do have to contend with regulations?
Kinsey: We are a very heavily regulated society. As a publicly traded company, we have a tremendous amount of regulation and oversight. I’m not saying it’s bad. I do think you have to make sure the public is well informed, and they can make the right investment.
GT: Is a significant portion of this regulation a fallout from the Enron scandal?
Kinsey: A lot of it was driven post-Enron. But if you were a company that was doing the things you should have been doing, it was almost a non-event. There were already quite a bit of accounting rules and regulations in place, and if you had the right internal controls, you really were doing the right things. Post-Enron, there were some new compliance initiatives that took some time, but overall that was not significant in my role here at Flowers.
GT: It seems that a food business might be almost recession-proof. How has the economy affected you?
Kinsey: It’s nice to be in a business that has some stability about it. We are primarily a baked goods company – the baked goods aisle in stores is 98 percent penetrated. For the most part, we don’t say it’s recession-proof, but we’re glad to be in this industry.
The current economic downturn has put some pressure on the company as well as all consumer product goods companies. Consumer confidence is at an all-time low. I don’t see that confidence coming back until you see more stability in the job market. What that really has done is put some pressure on top-line revenue. Most companies, including Flowers, have done a very good job on cost containment, allowing us to deliver a good earnings result. Until you see some confidence return, growing the top line will be a bit more challenging.
GT: What’s the mood of your shareholders?
Kinsey: Overall our growth has been good. The total shareholder return has been in the top quartile over the last several years. We’re a good growth story. Historically, we were pretty much a southeast regional type of bakery. Our strategy over the last four or five years has been to grow and expand our boundaries. We’ve been able to reach significantly more of the population or have access to the population. We have a very good brand. We still have room to grow, and I think the marketplace appreciates that.
GT: What’s your take on the recession?
Kinsey: I think we’re at the bottom, maybe, of a “bathtub” recovery, not a steep recovery. Like most recoveries we have to be led out by consumers, and I don’t think that happens until there is confidence in the job market.
GT: Did you make cuts to your workforce?
Kinsey: We were very fortunate that our business was stable. We’ve not had any layoffs because of the recession.
Oglethorpe Power is a membership cooperative, owned by 39 electric membership corporations, which supplies power to more than four million Georgians. It is not subject to Public Service Commission regulation. Higgins has been with the company since 1997.
GT: How is an electric membership cooperative different in terms of reporting requirements?
Higgins: Even though we are classified as a private company, that is because we have no public equity. We are owned by our 39 members that we serve, but we do have a significant amount of public debt that we issue. Until this year we were not required to be in compliance with all the Sarbanes-Oxley [reporting requirements] that come with being an SEC filing company. We have voluntarily been an SEC filer for a long time. We thought it was important, given the size of company that we are and the amount of money that we were looking to raise in the public debt market in the future, that we be able to check that box and investors be comfortable with us. It puts the microscope on all of your internal controls and financial reporting.
GT: How big is Oglethorpe?
Higgins: This company is very large in terms of assets – the balance sheet is now over $6 billion and annual revenues are over a billion dollars. In terms of people, we only have a little over 200, so I’m very hands-on. I have a broad scope.
GT: Would you explain your relationship with your members?
Higgins: On the equity side we are owned by our members, and we are a significant portion of their costs. We sell wholesale first, and they add on some additional costs for their operations and for power they get elsewhere. We’re not their sole supplier of power. We’re still this huge component of their retail power cost they have to charge their customers. So there’s another reason to be transparent with them. We have monthly meetings with our members where we talk about our financials.
GT: Are there additional reporting requirements because you are a utility?
Higgins: We’ve got compliance requirements that the utility industry has been imposing, not so much over financial reporting but over things utility companies need to do to maintain reliability delivering the power. There’s a lot of attention on what terrorist attacks could happen in some of your power plants. It’s not really that you haven’t been doing the right things, it’s having to prove it to somebody.
GT: What particular challenges has the recent economy brought?
Higgins: We are very cost conscious. We receive a lot of pressure from our members to make sure we scrub our costs that we pass along to them. They’ll tell us stories of how the economy is impacted, especially in poor areas of the state, because we serve a lot of the more rural areas, where people are really struggling. We took measures this year to freeze executive salaries – for the bottom line number [you] may not see it, but it was a sympathetic gesture to let them know we understand.
GT: In terms of the economy, is the worst behind us? What are you hearing from your members?
Higgins: We have to forecast what we think demand is going to be for power. I think we see that growth will return – we aren’t that sophisticated to know if that is going to be by the end of this year or next year. Members still say people out there are hurting, they don’t have jobs, unemployment is at an all-time high. But now they’re not losing as many customers – they’re at a net-even number.