ernie knott northeastern district financial analyst · 3/21/2018 · advisory committee meeting...

Mutual Savings Association Advisory Committee Meeting

March 21, 2018

Mutual Overview and Trends

Ernie KnottNortheastern District Financial Analyst

2

Mutual Overview and Trends

1. Portfolio Demographics• Federal Savings Associations (FSAs) trends by form of organization, lender

peer, state, asset distribution, and charter age.

2. Financial & Rating Metrics• Composite Rating, Capital (including PCA categories), Asset Quality

(including loan mix and loan growth), Management, Earnings (including efficiency ratio detail), Liquidity, Sensitivity to Market Risk, and Specialty areas. Some breakouts by mutual peer groups.

3. Supervisory Information• Risk Assessment Information, Examination Cycle, Matters Requiring Attention

(MRAs), Violations of Law (VOLs), and Supervisory Rating Changes.

4. OCC Supervisory Tools• Canary FSA Benchmarks, Thrift Analysis Report, Mutual Peer Bank

Performance Report, Quarterly FSA Briefing Package, and Customized Mutual Q Book.

Agenda

3

OCC Supervised Institutions by TypeOCC supervised 1,419 institutions as of December 31, 2017. Federal

Savings Associations represent 24 percent of OCC charters.

Portfolio Demographics

4

OCC and MCBS Supervised AssetsFederal Savings Associations (FSAs) represent 7 percent of OCC supervised assets and 28 percent of Midsize and Community Bank

Supervision (MCBS) supervised assets. All mutual FSAs are supervised by MCBS.


5

Trends in OCC Supervised FSAsThe number of mutual FSAs continue to decline but not as rapidly as

stock FSAs. Aggregate assets held by mutual FSAs of $45 billion remained fairly stable over the last year.


$0

$200

$400

$600

$800

$1,000

0

100

200

300

400

500

600

700

2Q11(649)

4Q11(619)

2Q12(573)

4Q12(546)

2Q13(521)

4Q13(497)

2Q14(468)

4Q14(448)

2Q15(429)

4Q15(403)

2Q16(390)

4Q16(373)

2Q17(357)

4Q17(344)

# Stock 430 406 370 352 333 312 293 277 260 243 237 226 216 209# Mutual 219 213 203 194 188 185 175 171 169 160 153 147 141 135Stock $ (B) 853 864 749 668 668 655 646 660 646 634 664 697 710 724Mutual $ (B) 57 54 54 51 50 48 48 47 48 45 45 45 45 45

6

FSAs by Charter TypeMutual FSAs and stock FSAs mutually-owned (that have not issued

shares) represent 45 percent of OCC-regulated FSAs.


FSAs by Lender Peer

Portfolio Demographics 7

Most mutual FSAs are classified as residential real estate lenders followed by diversified lenders.

8

Mutual FSAs by StateMutual FSAs are concentrated in the Midwest and Northeastern states. There are three states with 10 or more mutual FSAs: Ohio (17); Illinois

(11); and Pennsylvania (10).


9

FSAs by Asset BucketsMutual FSAs are typically smaller in size than their stock counterparts. Only 4 percent of mutual FSAs have total assets greater than $1 billion

versus 22 percent of stock FSAs.


2527

37

30

106

15

25

55

41

27

46

40

52

92

71

37

52

0%

6%

12%

18%

24%

30%

Less Than$50MM

$50MMTo

$100MM

$100MMTo

$250MM

$250MMTo

$500MM

$500MMTo $1B

GreaterThan $1B

Mutual FSAs 19% 20% 27% 22% 7% 4%Stock FSAs 7% 12% 26% 20% 13% 22%All FSAs 12% 15% 27% 21% 11% 15%

0 0

14

66

55

49

29 29

49 53

49

2943

115 108

0%

10%

20%

30%

40%

50%

< 25 Yrs 25 to 50 Yrs 50 to 75 Yrs 75 to 100Yrs > 100 Yrs

Mutual FSAs 0% 0% 10% 49% 41%Stock FSAs 23% 14% 14% 23% 25%All FSAs 14% 8% 13% 33% 31%

10

FSA Age DistributionMutual FSAs represent some of the oldest financial institutions in the

United States. 41 percent of mutual FSAs were formed more than 100years ago. 90 percent have operated for 75 years or more.


11

Mutual FSA Composite RatingsComposite ratings at mutual FSAs improved since last year. 95 percent

of all mutual FSAs are satisfactorily rated with a composite 1 or 2.

Financial & Rating Metrics

23% 24% 25% 27%

67% 67% 69% 68%

10% 8% 6% 5%

0%

20%

40%

60%

80%

100%

2014Q4 2015Q4 2016Q4 2017Q4

1 Rated 2 Rated 3/4/5 Rated

12

Mutual FSA Peer GroupsMutual FSAs are placed into four peer groups and four supplemental peer groups based on quarterly average assets from the call report.


Peer Group

Number101102103104

Peer Group

Number101M102M103M104M

Ownership Type and Assets*

Mutually-owned savings banks in excess of $1 billionMutually-owned savings banks between $300 million and $1 billionMutually-owned savings banks between $100 million and $300 millionMutually-owned savings banks less than $100 million

*Asset figure used in latest quarterly average assets (from FFIEC Call Report Schedule RC-K)

FDIC insured savings banks in excess of $1 billionFDIC insured savings banks between $300 million and $1 billionFDIC insured savings banks between $100 million and $300 millionFDIC insured savings banks less than $100 million

Institution Type and Assets*

13

Tier 1 Leverage Capital RatioMutual tier 1 capital levels continue on an upward trajectory under OCC

supervision.


12.50

13.00

13.50

14.00

14.50

15.00

15.50

16.00

2013Q4 2014Q4 2015Q4 2016Q4 2017Q4101M 12.76 12.96 13.19 13.35 13.50102M 12.79 13.04 13.63 14.00 14.29103M 13.35 13.52 13.86 13.71 13.75104M 14.44 14.30 14.33 14.70 15.36Mutual 13.35 13.52 13.87 14.15 14.53

Leverage Ratio for

State Mutuals:

12.12 as of 2017Q4

14

Total Risk-based Capital RatioMutual total risk-based capital levels remain strong and stable, hovering

around 28 percent.


12.50

17.50

22.50

27.50

32.50

37.50

42.50


15

FSA PCA Categories99 percent of all mutual FSAs are well-capitalized per the Prompt

Corrective Action (PCA) provisions of FDICIA.


134

1 0 0

197

110 1

331

12 0 10%

20%

40%

60%

80%

100%

Well Adequate Under Sig UnderMutual FSAs 99% 1% 0% 0%Stock FSAs 94% 5% 0% 0%All FSAs 96% 3% 0% 0%

55% 57% 58% 60%

40% 39% 39% 37%

5% 4% 4% 3%

0%

20%

40%

60%

80%

100%

2014Q4 2015Q4 2016Q4 2017Q4


16

Mutual FSA Capital RatingsMutual FSA capital ratings improved in 2017. 97 percent of mutual FSAs

are rated 1 or 2 for capital.


17

Classified Assets to Tier 1 Capital + ALLLClassified levels continue to decline for mutual FSAs.


0.00

5.00

10.00

15.00

20.00

25.00


18

Net Loans & Leases - 1 Year Growth RateMutual FSA loan growth continues to be slow but in positive territory for

2017. Loan growth is strongest for the 102M peer group.


‐4.00

‐2.00

0.00

2.00

4.00

6.00

2013Q4 2014Q4 2015Q4 2016Q4 2017Q4101M 0.74 3.65 5.25 5.87 3.50102M 1.52 3.41 2.16 3.94 6.45103M ‐2.37 ‐0.88 0.03 2.74 4.05104M ‐2.57 ‐0.13 ‐0.72 ‐0.05 1.44Mutual ‐1.71 0.39 0.36 2.16 3.69

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Mutual FSA Loan Distribution


Loan portfolios held by mutual FSAs are heavily concentrated in residential mortgages.

1-4 Family 1st Liens

1-4 Fam Jr. Liens + HELOCS

Comm'l Real Estate

Comm'l & Industrial Consumer Other

Loans

Mutual 31,871,025 71% 5% 17% 2% 3% 3%Stock 367,007,896 49% 6% 30% 6% 6% 3%All FSAs 398,878,921 58% 5% 25% 5% 5% 3%

Loan Distribution by FSA Type-Straight Average

Charter Type $ Loans (000's) 12/31/2017

% of Total Loans

20

Mutual Growth Rates by Loan CategoryThe highest loan growth for mutual FSAs has been in the land and

development loan category.


Loan Category % of Total Loans

% of Mutuals

That Offer Product

Median Year-over-

year Growth

Rate

# with growth rates > 10% (a)

1-4 Family 1st Lien Loans 71% 100% 1.70 201-4 Family Jr Lien Loans 87% -4.32 2Home Equity Lines of Credit 79% 1.15 11CRE: Multifamily Loans 79% -1.19 15CRE: Land & Development Loans 87% 9.76 23CRE: NonFarm Nonresi Loans 93% -1.14 26Commercial & Industrial Loans 2% 56% 4.17 14Lns to Indivs: Other Revolving 93% 3.45 0Lns to Indivs: Auto Loans 67% 1.63 5Lns to Indivs: Other Consumer Loans 27% -3.03 0Lns to Indivs: Credit Cards 9% 6.44 0Other: Lns to Finance Ag Production 19% -2.00 0Other: Lns Secured by Farmland 44% -2.91 12Other: Other Loans in Domestic Offices 41% -16.94 0

(a) - for mutual FSAs that have exposure to capital > 25% for the loan category

5%

17%

3%

2%

21

Allowance for Loan and Lease LossesALLL levels for mutual FSAs have been decreasing in recent years and

now represent 0.91 percent of total loans.


0.40

0.60

0.80

1.00

1.20

1.40


34% 33% 38% 39%

53% 57%56% 56%

13% 10% 7% 4%

0%

20%

40%

60%

80%

100%

2014Q4 2015Q4 2016Q4 2017Q4


22

Mutual FSA Asset Quality RatingsAsset quality ratings continue to improve for mutual FSAs. 95 percent

are rated 1 or 2 for asset quality.


23% 21% 23% 23%

64% 69% 70% 70%

13% 10% 7% 7%

0%

20%

40%

60%

80%

100%

2014Q4 2015Q4 2016Q4 2017Q4


23

Mutual FSA Management RatingsManagement ratings remain very positive. 93 percent of mutual FSAs

are rated 1 or 2 for management.


24

Return on Average AssetsMutual earnings remain flat overall. The larger the mutual, the better the

ROAA.


0.00

0.20

0.40

0.60

0.80

1.00


0.20

0.30

0.40

0.50

0.60

0.70

2013Q4 2014Q4 2015Q4 2016Q4 2017Q4Res. RE 0.40 0.36 0.37 0.40 0.37Diverse 0.33 0.46 0.46 0.46 0.50

25

Return on Average Assets by Lender PeerDiversified lenders have higher ROAAs since 2014.


26

Efficiency RatioMutual efficiency ratios remain elevated, hovering around 82 percent

since 2014. The larger the mutual, the better the efficiency ratio.


70.00

74.00

78.00

82.00

86.00

90.00


$ YE 17 YOY Δ % of AA $ YE 17 YOY Δ % of AA

NONINT EXPENSE 1,050,173 5.18 2.50 389,169 1.43 3.01 NONINT EXPENSENONINT INCOME 225,710 ‐3.95 0.48 60,459 0.02 0.40 NONINT INCOME

NET INT INCOME (TE) 1,221,151 6.99 2.84 407,003 3.36 3.05 NET INT INCOME (TE)

Efficiency Ratio Efficiency Ratio

Efficiency Component

101M & 102M 103M & 104M

72.58 83.25

Efficiency Component

Peer Groups Peer Groups

27

Efficiency Ratio BreakdownSmaller mutual FSAs (peer groups 103M & 104M) have higher net interest margins, lower fee income, and higher overhead expenses.


Green shaded cells indicate the most favorable components in relation to average assets

15% 16% 17% 14%

51%56% 61% 66%

34% 28% 22% 20%

0%

20%

40%

60%

80%

100%

2014Q4 2015Q4 2016Q4 2017Q4


28

Mutual FSA Earnings RatingsEarnings ratings continue to improve but lag ratings in other safety and soundness areas. Only 80 percent of mutual FSAs are rated 1 or 2 for

earnings.


29

Net Non-core Funding Dependence RatioLevels of net non-core funding dependence remain low and stable for

mutual FSAs.


‐20.00

‐15.00

‐10.00

‐5.00

0.00

5.00

2013Q4 2014Q4 2015Q4 2016Q4 2017Q4101M ‐2.84 ‐2.88 ‐2.53 ‐2.10 ‐0.87102M ‐2.08 ‐0.54 ‐0.28 1.35 ‐0.36103M ‐7.88 ‐4.72 ‐6.49 ‐2.22 ‐2.67104M ‐7.17 ‐8.14 ‐6.51 ‐8.71 ‐8.07Mutual ‐5.91 ‐4.32 ‐4.31 ‐4.65 ‐1.91

75.00

80.00

85.00

90.00

95.00

100.00


30

Net Loans & Leases to Total Deposits RatioLoan to deposit ratios continue to rise. This ratio is usually higher for

FSAs due to more reliance on FHLB borrowings and the Qualified Thrift Lender (QTL) test.


58% 57% 58% 57%

41% 40% 39% 42%

1% 3% 3% 1%

0%

20%

40%

60%

80%

100%

2014Q4 2015Q4 2016Q4 2017Q4


31

Mutual FSA Liquidity RatingsLiquidity ratings for mutual FSAs improved in 2017. 99 percent are rated

1 or 2.


32

Long-term Assets to Total Assets RatioLong-term assets for some mutual peer groups are increasing. About

half of mutual FSA assets are considered long-term.


30.00

40.00

50.00

60.00

70.00

80.00


33

Sensitivity to Market Risk RatingsSensitivity to market risk ratings for mutual FSAs improved in 2017. 97

percent are rated 1 or 2.


55%

23% 27% 27%

40%

73% 68% 70%

5% 4% 4% 3%

0%

20%

40%

60%

80%

100%

2014Q4 2015Q4 2016Q4 2017Q4


34

Mutual FSA Specialty RatingsSpecialty ratings are good. Only 5 mutual FSAs have trust powers.


35

OCC Supervisory Tools/Products

OCC Supervisory Tools

• Canary System Benchmarks

• Thrift Analysis Report

• Mutual Peer Bank Performance Report

• Quarterly FSA Briefing Package

• Customized Mutual Q Book

36

Questions ?

ernie knott northeastern district financial analyst · 3/21/2018 · advisory committee meeting...

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