Second Quarter 2014: Community Banking Trends

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Sharlene Thornton
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1 Second Quarter 2014: Community Banking Trends

2 Get This Quarterly Report 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.

3 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 1, 2014.

4 General Trends Summary Performance increased at community banks as ROE rose slightly in 2Q compared to 1Q. Net interest margins increased slightly and expenses were stable. Asset quality gains continued their trajectory which caused a reduction in allowance for loan and lease loss. Both interest income and non interest income increased. Better loan pricing and slower prepayments helped.

5 General Trends Performance at community banks was supported by: Increase in credit quality 13.3% total asset growth and 9.8% annualized loan growth Cost of funds were flat and core deposits stable Increase in real estate concentrations Large banks seeing strong C&I loan growth Asset duration increased, while deposit duration remained unchanged Balances per branch increased slightly due to fewer branches Delinquencies decreased in all categories and all loan types with the exception of residential and home equity.

6 General Trends Service charges in interest bearing deposits increased Insurance and investment fees decreased Advertising and marketing expenses increased Interchage fees increased Legal fees decreased Accounting fees increased for banks below $1B Deposits per branch increase due to branch reduction Banks increased staffing Employee & premise cost was stable

7 General Trends Number of Banks: 6,663 (Down 1.6%) Bank Failures: 9 New Bank Charters: 0 Completed Mergers: 76 Announced Mergers: 81 (near record) Avg. Price per Book: 1.41x Price to earnings: 27.6x Branches Sold: 582

8 General Trends Balance Sheet Growth: Driven by loan growth, the average community bank grew at a 3.1% rate for an annualized 9.8% growth rate. This quarterly rate of growth was faster than last quarter s 2.0% rate Investment holdings to earning assets remained largely unchanged at 24.0% (down from 24.1%) Deposits lagged loan growth as total deposits grew at a 1.6% pace or 8.7% annualized. Loansto deposits increased from 77.7% to 79.9%.

9 General Trends Funding: Cost of funds was unchanged for community banks at 45bp Interest bearing deposits to total deposits decreased from 78.9% to 78.5%. Core deposit decreased slightly from 90.0% to 89.9% of total deposits.

10 General Trends Credit quality: Loan loss reserves as a percent of loans continue to drop and now average 1.46% of total loans at community banks (down from 1.54%) Non current loans decreased as a percent of total loans from 1.6% to 1.5% Non performing assets to total assets dropped to about 1.4% down from 1.5%

11 Loan Class Performance: Loan delinquencies by sector and pricing. Improving credit quality Average Upfront Fees: Last Qtr. This Qtr. New Loans 46bp 46bp Renewed 16bp 18bp

12 Loan Pricing: Here, we track some 270 loans from a variety of community banks over the course of 2013 and 2014 and 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.

13 Heat Map - ROE:

14 Avg. ROE Ranked By State:

15 Heat Map Yield on Earning Assets:

16 Heat Map Cost of Funds:

17 Heat Map Credit Quality:

18 Heat Map Credit Quality:

19 Heat Map Credit Quality:

20 Heat Map Credit Quality:

21 Heat Map Capital:

22 Metrics Of Other Selected States: What to see other states or metrics? Let a CenterState representative know or contact cnichols@centerstatebank.com

23 Return on Equity:

24 Return on Assets:

25 Net Interest Margin:

26 Yield On Earnings Assets:

27 Cost of Funds:

28 Loans To Deposits:

29 Dividends To Net Income:

30 Fee Income:

31 Fee Income:

32 Efficiency Improvement:

33 Deposits Per Branch:

34 Capital:

35 Capital:

36 Credit Quality ALLL To Loans:

37 Credit Quality:

38 Credit Quality:

39 Credit Quality:

40 Total Asset Growth:

41 Loan Growth:

42 Deposit Growth:

43 Investment Portfolios:

44 Loan Repricing:

45 Funding Mix:

46 Funding Repricing:

47 Graphics provided by: trends.com Didn t see a metric that you want to track? Let us know and we can see if we can add it.

48 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.

Second Quarter 2015: Community Banking Trends

Second Quarter 2015: Community Banking Trends Get This Quarterly Report Want your own copy as fast as possible? Subscribe at: http://csbcorrespondent.com/blog This report is the fastest and easiest way