First Quarter 2017:Community Banking Trends
Get This Quarterly Report
http://csbcorrespondent.com/blog
Want your own copy as fast as possible? Subscribe at:
This report is the fastest and easiest way to get you a snapshot of what is going on in the banking industry. This report is free and available online.
The Analysis
This analysis is presented to highlight the trends in community banking compared to the entire banking industry.
Analysis Covers Three Bank Cohorts:• Total Industry (Blue)• Community Banks – Banks Under $25B in assets (Green)• Community Banks below $1B in total assets (Gold)
Past five quarters are presented. All rate changes are quarter over quarter.
Source: FDIC Call Report Data as of May 5, 2017.
General Trends Summary
For 2017, the industry’s ROE increased from 7.61% to 8.32%. However, community bank ROE went from a 8.52% to 8.86%.
Community bank ROE increased mainly due to:
• Improved efficiency• Lower delinquencies/ Less loan loss reserves• Higher net interest margin (NIM)• Lower equity capital to assets• Increased gain on asset sales
10 Things You Should Know
Here are some other community bank trends of note:
1. ROE: ROE increased for the industry from 7.90% to 8.32%. This was mainly due to improved efficiency, lower delinquencies, less loanloss reserves, higher net interest margin (NIM), lower equity capital to assets and an increased gain on asset sales
2. Cost of Funds:Most banks moved CD rates up, increasing the industry’s cost of funds by four basis points. Banks below $1B were able to hold deposit rates flat. Look for more pressure on funding costs going forward as the larger banks will not only increase CD rates further but will start to move interest checking rates by August.
3. Yield on Earning Assets:While this decreased for banks below $1B (part of the reason for the lower ROE), it increased for larger banks as they have a larger percentage of assets that are floating. The yield on earning assets increased eight bps. to 3.84%.
4. Net Interest Margin: For the industry, NIM increased 3bps to 3.39%. For banks below $1B, NIM contracted 4 bps. to 3.68%. 5. Efficiency:While banks below $1B were able to cut costs and improve efficiency from 69.0% to 68.7%, the rest of the industry had
higher overhead costs as the efficiency ratio went up from 58.6% to 59.1%. Most of this increase was driven by greater hiring as both compensation and headcount increased for the industry.
6. Deposits: The rate of deposit growth has been cut in half in the last couple quarters and is now down to 1.6% quarter‐over‐quarter for a 2017 projected growth rate of just over 5%. Community banks still had growth rates of approximately 2% quarter‐over‐quarter. While this is also slower, we expect a greater slowdown in the future due to rising market rates and stronger alternative asset returns.
7. Loan Pricing: Higher interest rates increased both the average spread on loans and higher fixed loan pricing as banks take into account greater future expected rates. In addition, the increase in C&I delinquencies also had many banks moving up their pricing. CRE on the other had done better in most subsectors (except hospitality and multifamily). On a net basis, CRE spreads tightened and averaged 2.43% for new origination and 2.55% for renewals.
8. Loan Growth: Loan growth slowed in 1Q as quarter‐over‐quarter growth was a scant 0.2%, for a projected increase of less than 3%. Community banks did a little better and should see loan growth in the 6% range for the year. For the first four months of 2017, competition from securitizations and insurance companies have remained strong, particularly for smaller credits while loan demand has dropped sharply.
9. Credit Quality: Non‐accrual loans fell two basis points to 0.77%, delinquencies decreased slightly and allowance for loan loss reserves remained stable.
10. Other: Greater deposit than loan growth, decreased funding leverage as loans‐to‐deposits fell slightly from 81.0% to 80.2%. Core capital leverage increased (but Tier 1 decreased), branches became more efficient, investment portfolios as a percent of assets decreased, deposit service charges dropped, and dividends decreased.
Commercial Loan Pricing Trends
Loan Class Performance:
Commentary • Bank credit quality improved
quarter‐over‐quarter.• Residential housing and multifamily
performed the best.• Ag and credit cards performed the
worst• The increase in C&I has start to
move some banks to increase risk monitoring.
• CRE remains near a record low
Loan delinquencies by sector:
Heat Map - ROE:
Avg. ROE Ranked By State:
Heat Map – Yield on Earning Assets:
Heat Map – Cost of Funds:
Heat Map – Net Interest Margin:
Heat Map – Loans To Deposits:
Heat Map – Credit Quality:
Heat Map - Delinquencies:
Heat Map – County Level Expected PDs:
Heat Map – Capital:
Return on Equity:
Return on Assets:
Net Interest Margin:
Yield On Earnings Assets:
Cost of Funds:
Loans To Deposits:
24
Loans‐to‐Deposits (Annual)
Dividends To Net Income:
Non-Interest Income:
Fee Income:
Efficiency:
Deposits Per Branch:
Capital:
Capital:
Credit Quality – ALLL To Loans:
Credit Quality:
Credit Quality:
Credit Quality:
Total Asset Growth:
Loan Growth:
Deposit Growth:
Investment Portfolios:
Loan Mix:
Disclaimer:
This presentation is for general strategic information only and should not be relied upon as a substitute for independent research before making a material management decision. This presentation does not take into account any particular bank’s performance objectives, financial situation or needs. All banks should obtain advice based on their unique situation before making any decision based upon this presentation or any information contained within. In addition, any implied projections or views of the bank market provided by the authors may not prove to be accurate. While all the information contained herein is believed to be accurate as of the date of source or publication, the information is subject to change and constant revision.