![Page 1: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/1.jpg)
Second Quarter 2016:Community Banking Trends
![Page 2: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/2.jpg)
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.
![Page 3: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/3.jpg)
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 August 4, 2016.
![Page 4: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/4.jpg)
General Trends Summary
The industry’s ROE rose from 8.27% to 8.66%, as did community banks that went from a 8.44% to 8.53%.
Community bank ROE increased mainly due to:
• Improved efficiency• Higher funding and core capital leverage• Lower delinquencies/ Less loan loss reserves• Unchanged cost of funds, yield on earning assets and net interest
margin• Increase in deposit service charges
![Page 5: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/5.jpg)
10 Things You Should Know
Here are some other community bank trends of note:
1. M&A:While whole bank M&A remained the same, prices increased . In similar fashion, branch sales slowed, but premiums increased.
2. Deposits: Community banks posted a 1.1% deposit growth rate for 2Q, a pace decidedly slower than 1Q. Households appear to be adjusting to lower energy prices and have increased spending instead of savings. Deposit mix was largely unchanged with a slight increase in longer term CDs.
3. Loan Pricing: Loan spreads decreased in 2Q due to greater competition and improved quality.
4. Asset Growth: The pace of asset growth increased in 2Q and came in at 1.8%, for a YTD annualized rate of 7.9%. Community banks grew at a faster pace at 1.9% for the quarter.
5. Loan Growth: Loan growth for the industry was impressive at 4.2% for 2Q, equating to a 11.4% annualized pace. Community banks were a bit slower with a 3.3% quarterly rate.
6. Cost of Funds: While rates remained unchanged for the quarter, higher loan growth and a higher forward curve portend higher rates over the next 6 month for bank funding.
7. Credit Quality: Construction and CRE had the most improved credit quality while ag and consumer did the worst. Non‐accuring and non‐current loans decreased. ALLL as a percent of loans decreased slightly.
8. Loan Mix: Community banks increased their mix in construction, but decreased holdings of residential mortgages and C&I.
9. ALM: The increase in asset duration slowed, but continued to increase (also more floors), while deposit duration remained unchanged.
10. Fee Income: After a dip last qtr., banks increased fee income (see back slides for details).
![Page 6: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/6.jpg)
General Trends – Fees and Expenses
• Banks became more efficient due to increased earnings relative to costs.
• Banks increased deposit service charges (mostly on checking) which offset decreases in insurance, advisory and brokerage. Wealth management increased for most banks.
• Compensation expense increased slightly for the quarter due to a slight increase in staff at mot banks.
• Most banks increased their marketing spend• Legal expenses, Director’s fees, consulting costs, data processing costs, ATM costs and telcommunication charges all increased relative to total expenses.
![Page 7: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/7.jpg)
General Trends
Number of Banks: 6,047 (Down 1.2%)Bank Failures: 2 (vs. 1 for 1Q)New Bank Charters: 0Banks Currently In Organization 8Mergers And Acquisitions: 65 (same as 1Q)Avg. Price Per Book: 1.39x (vs. 1.21x for 1Q)Price To Earnings: 19.4x (vs. 24.9x for 1Q)
Branches Sold: 441 (compared to 760)Median Premium To Core: 5.0% (compared to 4.6%)
![Page 8: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/8.jpg)
General Trends
Funding:
• Cost of funds remained unchanged at 0.35% for the industry and 0.41% for community banks.
• Money market and savings accounts decreased as a percent of total deposits, but still compose 52.7% of bank’s funding base.
• Due to loan growth, the use of FHLB advances and brokered CDs increased.
• While core funding increased at large banks as a percentage to total deposits, community banks had a slight decrease.
![Page 9: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/9.jpg)
General Trends
Credit Quality:
• After slipping asset quality in 1Q increased ALLL in 1Q, 2Q saw an improvement in quality and slight decrease in ALLL as a percent of loans from 1.26% to 1.25% for community banks and 1.33% to 1.31% for the industry.
• Non‐current loans decreased as a percent of total loans from 1.55% to 1.46% for the industry and dropped for community banks from 1.07% to 1.02%.
• The Texas Ratio dropped from 12.95% to 12.37% for the industry and 12.37% to 11.51% for community banks.
![Page 10: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/10.jpg)
Loan Class Performance:
Commentary • Bank credit quality improved
quarter‐over‐quarter.• Construction and CRE performed
the best• Ag and Consumer performed the
worst• CRE remains near a record low• The improvement caused credit
spreads to tightened by 1 to 2 basis points in 2Q.
• Average Upfront Loan Fees:Last Qtr. This Qtr.
• New Loans 53bp 51bp• Renewed 26bp 23bp
Loan delinquencies by sector and pricing.
![Page 11: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/11.jpg)
CRE Performance
Source: Moody’s / Real Capital Analytics
![Page 12: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/12.jpg)
Loan Pricing:
Here, we tracked some 580 loans from a variety of community banks over the course of 2013 and now into 2016 in order to look at spreads to Libor on new and renewed loans that are between $1mm and $5mm with maturities between five and ten years. We looked at closed new loans and compared them to similar credit loan renewals. All the loans were either on commercial real estate or to commercial borrowers. Debt service coverage was above 1.30 times in every case making these high quality borrowers with probabilities of default all less than 60bp.
![Page 13: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/13.jpg)
Heat Map - ROE:
![Page 14: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/14.jpg)
Avg. ROE Ranked By State:
![Page 15: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/15.jpg)
Heat Map – Yield on Earning Assets:
![Page 16: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/16.jpg)
Heat Map – Cost of Funds:
![Page 17: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/17.jpg)
Heat Map – Net Interest Margin:
![Page 18: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/18.jpg)
Heat Map – Loans To Deposits:
![Page 19: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/19.jpg)
Heat Map – Credit Quality:
![Page 20: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/20.jpg)
Heat Map – Capital:
![Page 21: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/21.jpg)
Return on Equity:
![Page 22: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/22.jpg)
Return on Assets:
![Page 23: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/23.jpg)
Net Interest Margin:
![Page 24: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/24.jpg)
Yield On Earnings Assets:
![Page 25: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/25.jpg)
Cost of Funds:
![Page 26: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/26.jpg)
Loans To Deposits:
![Page 27: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/27.jpg)
Dividends To Net Income:
![Page 28: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/28.jpg)
Fee Income:
![Page 29: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/29.jpg)
Fee Income:
![Page 30: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/30.jpg)
Efficiency:
![Page 31: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/31.jpg)
Deposits Per Branch:
![Page 32: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/32.jpg)
Capital:
![Page 33: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/33.jpg)
Capital:
![Page 34: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/34.jpg)
Credit Quality – ALLL To Loans:
![Page 35: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/35.jpg)
Credit Quality:
![Page 36: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/36.jpg)
Credit Quality:
![Page 37: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/37.jpg)
Credit Quality:
![Page 38: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/38.jpg)
Total Asset Growth:
![Page 39: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/39.jpg)
Loan Growth:
![Page 40: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/40.jpg)
Deposit Growth:
![Page 41: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/41.jpg)
Investment Portfolios:
![Page 42: Second Quarter 2016: Community Banking Trends](https://reader034.vdocument.in/reader034/viewer/2022052607/58a1a3451a28ab88438b9485/html5/thumbnails/42.jpg)
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.