Deciding Who Your Peers Are

Transcription

1 Deciding Who Your Peers Are Special Instructions: Peer Analysis There are a lot of factors that go into the decision about who to include as your peer. We will cover some of them here but ultimately, the decision is yours. You know more about your market than we ever can by looking at reports. So, in the end, use your best judgment and as long as you feel confident in defending your process to your examiner, choose the institutions that make the most sense for you. There are a couple of factors that won t change and that you must consider when deciding which institutions to include: Institutions change: just because an institution was a suitable peer 5 years ago doesn t mean they still are. Institutions go away: as banks merge and get acquired all of the time, be sure to review your list annually and update as needed. Geography matters: if you have multiple assessment areas then you will likely have more than one set of peers. Institutions that overlap with you in one market may not have a presence in another. Your last Public Evaluation may list peers your examiner used at that time. You could certainly start with that list. However you get to your final list, you can always ask your examiner to take a look and see if they agree before you go too far in your analysis. Here s where we would start. FDIC Market Share of Deposits The FDIC website has an annual report called the Deposit Market Share Report. First, decide on a geography. In this example we are using MSA and will look for peers in the El Paso market. We change the toggle to Metropolitan Statistical Area and select the desired area. Select a date for the report (this matters as we will see in a moment). Leave the other settings as they are and click Continue. The institutions are displayed. Keep in mind that credit unions are not on this list. You may want to choose one as your peer for other reasons but you won t see them on this list. The principal is the same for mortgage companies and other types of lenders. In this example, our bank is going to be Pioneer Bank. 1

2 Compare the report above to the one here. The one above is for Deposits as of June 30, This one is for June 30, In 2015 there were 17 institutions, in 2014 there were 18. Southwest Securities, FSB is no longer on the list in 2015 (they were acquired). Also, if you compare the order, the 3rd and 4th position banks swapped. Bank of America surpassed WestStar Bank. We (Pioneer) moved from 13th to 12th. Just being on this list alone could be the way you do it. Grab them all and then see what you find when you compare their HMDA and CRA lending using the Peer Analysis tools in CenTrax. Or you could decide to look a little deeper now and/or to eliminate institutions based on what you see right here. 2

3 There was a suggestion made at a conference we attended where the speaker suggested you select institutions that have a Market Share 100% higher than yours and 50% less. This makes some sense when you see the report above. Wells Fargo has 15 branches in this market and accounts for 30% of the Market Share. Can you call them your peer? In 2014 Pioneer s Market Share was 0.52%. If we use the idea above we are looking for anyone with a share between 1.04% (100% higher) and.26 (50% lower). This would result in the following group of peers: City Bank First National Bank of Texas Bank of Texas Armed Forces Bank First Savings Bank Note that the jump from City Bank to the next higher market share is significant: 0.98% to 2.33% for United Bank of El Paso Del Norte. The drop from the last in the list to the next isn t very large: 0.25% to 0.20% to PlainsCapital Bank. Let s start with the State column. This is where the bank is headquartered. Pioneer is headquartered in New Mexico but we claim the El Paso MSA as an assessment area as we have 3 branches Inside of Market. Several of the other banks are also headquartered outside of Texas but to be on this report, they all have at least one branch in the market. Compared to our 3 branches, Wells Fargo, JP Morgan, Bank of America and First National Bank of Texas far exceed that with more than 10 each. The math won t always be so neatly 2 above and 2 below your institution. You could have 1 below and 10 above and it will vary from market to market. It is also possible that you could find that you have no true peers. Once again, the decision is ultimately yours. We are going to make the command decision to start with those listed above and to include PlainsCapital Bank, at least for now. If we don t know very much about these institutions, we can look at more details by clicking them from the list. 3

4 Clicking Bank of Texas brings us to this page. From here we change the ID Report Selections to All Summary Information. This report shows us two years side-byside. This would allow us to note any major changes in asset size. We want to see what the strategic focus of this bank is from a lending perspective so we click Net Loans & Leases. We changed the toggle at the top to Ratios. This institution is strongly commercial lending driven. Their 1-4 residential was only 3.18% of their activity and consumer loans are even lower at 0.16%. If we are a residential mortgage focused institution, this bank might not be a suitable peer. 4

5 We can also review the HMDA Market Share and CRA Market Share reports from CenTrax to further groom our list. Remember, these reports come from the aggregate information that is published approximately 6 months after submissions were due in March. Other Bank Information You may also want to explore more about institutions you have questions about through their website. In this case, one of the institutions on the list seems like they may be targeting a specific segment of the population: the military. This is from the Armed Forces Bank website in their About Us link. It doesn t appear you are required to be in the military or a family member or veteran, as with USAA, but they specialize their products and services to that population. Do we? El Paso has a large military community so maybe we are and certainly we wouldn t discourage those in the military from being part of our institution. But the point of this exercise is to decide on peers. So, do we keep them or not? Your decision. This holding company website (Glacier Bancorp) handed us their peer list right on their website. If we were looking to them as a peer then we could look at these institutions to see if they fit us as well. You may also want to consider only including institutions who have the same regulator as you. In this example, the list would be too small but in markets where the list of potential peers is long, that would be a reasonable way to limit the list. 5

6 HMDA Market Share The HMDA Market Share report will allow us to see where our institution is in relation to other institutions who filed a HMDA LAR in the same year, whether this assessment area is also theirs or not and whether they are a FDIC insured institution. From the main menu in CenTrax, select Discovery>HMDA Peer Reports. Click Market Share. To look at all possible institutions, choose All Institutions as Criteria Set. Increase the Top (n) Lenders to a number greater than the total expected lenders. If you aren t sure, make it as high as possible. Choose your Analysis Area, continuing our example, we have chosen MSA and then El Paso (21340). Keep in mind that HMDA includes all application activity. You may want to adjust the report to consider only loans. To do this click Data Filters. Remember, this is an option only, you may want to include everyone at first before deciding to limit the list. To isolate loans you will check Originated and Purchased from the Action Codes section. Click Save. 6

7 There we are at #41. The institutions on the FDIC s list are highlighted (manually). Of the 18 institutions on the original FDIC report, only 8 are on 7

8 One more on page 2, we are up to half of the original 18. This report is 8 pages in total. 8

9 If we continued through the report we would find the remaining institutions on pages 3, 4 and 5. One institution wasn t on the report at all: Southwest Securities, FSB. That tells us they didn t have even one HMDA application in In our case that doesn t matter, we wouldn t select them anyway as they have since been acquired. Because the original list of institutions is spread out, this is where setting up the original list from the FDIC list could help but remember, that list was limited to FDIC insured institutions, no credit unions, no mortgage companies. Going back to the idea of taking those with Deposit Market Share 100% above and 50% below (plus the close one), here is the list (in order of Deposit Market share high to low) and their 2014 HMDA Market Share: City Bank 1.21% First National Bank of Texas 1.65% Bank of Texas 0.04% Pioneer Bank 0.47% Armed Forces Bank 0.04 First Savings 0.04 PlainsCapital Bank 0.01 If we reordered these by HMDA Rank we would have: First National Bank of Texas 1.65% City Bank 1.21% Pioneer 0.47% First Savings 0.04% Bank of Texas 0.04% Armed Forces 0.04% PlainsCapital Bank 0.01% CenTrax uses balance as a tie breaker. With three of the bottom banks having identical market share, we did the same here. Using the same idea of 100% above and 50% below we would include institutions with Market share between 0.94% and 0.235% and no one would make the cut. The difference in the number of loans by our institution Pioneer and the next lowest market share at Armed Forces Bank is 117 and 10 applications, from Pioneer to the next highest at City Bank is 117 to 303, a pretty large difference in both cases. The other interesting thing we learn from this that Compass Bank actually falls between Pioneer and City Bank in HMDA Market Share with 1.04 (260 applications). On the FDIC Market Share report their share was 7.33 versus Pioneer s Does this mean you include them? And what about all of those other institutions that weren t on the FDIC s report. Again, this is a personal decision that you will need to make using what you know about your institution and your market. Remember, these are things we don t know sitting in a different location looking at reports. The same holds true of your examiner. These same principles can be applied to the Market Share reports for small business and farm with a few important reminders. 9

10 CRA Market Share To run a CRA Market Share report from the main menu in CenTrax go to Discovery>CRA Peer Reports. Select a Geographic Area, following our example we select MSA and the El Paso MSA. For Action, decide if you want to include the loans institutions purchased, if so choose Both. You can limit the list by Agency but at this point, we are going to take a look at everyone. Here is the problem with this report: less institutions report CRA than HMDA due to the difference in requirements. Of the 18 original institutions only 8 are on the report and Pioneer is not one of them. We highlighted the 7 that made the first page of this two page report. In fact, of the 5 institutions we were focused on in parts of this exercise, only City Bank is listed. 10

11 Institution Groups - Creating New Groups Once a list of institutions is selected, you will want to set them up in CenTrax. Keep in mind that this list can be changed at any time. You will want to have Institution Groups for different years and different areas. From the main menu, select Setup>Insitution Groups. Click New. Enter a group Name. We recommend the year and the geography. 11

12 In the Available Institutions list, locate one of the peers you want to include and click to highlight. To move the institution to the Selected Institutions list either double-click or use the single arrow pointing down. 12

13 Locate another institution (the order you add them in does not matter). If you know the regulatory agency of the institution, you can limit the list by selecting the appropriate Agencies option. You can also adjust the Sort by order. If you can t find an institution by name but have the overall Market Share report for HMDA, you can use the Resp. ID option to order them by Respondent ID. 13

14 There are many duplicate names in the list. Sometimes these are the same institution where they changed regulator or had some other change to their respondent information. More often, it is simply a bank with the same name as another bank. If you aren t sure which one to pick, you can refer to the overall HMDA Market Share report to verify the Respondent ID of the institution you want to select. Continue to add institutions until all peers are added. Click Save. To run a new HMDA Market Share report using this information, from the main menu select Discovery>HMDA Peer Reports. Click Market Share. 14

15 Choose Peer Group for your Criteria Set. Select Criteria Year and Institution Group. Select your Analysis Area. Choose any other report settings such as Data Filters as desired. This report removes all of the other institutions and allows us to focus on those we selected. In this report, the %Mrkt (Market) is the Market Share from the original report, when all institutions (even those not on this report) are included. The %Grp (Group) is your share of the applications taken by this list of institutions only. For Pioneer 117/854 (the total for these 5 entities) is 13.70%. When using this report for analysis purposes, some of our staff here advocate adding the top institutions to this report for context. 15

16 Institution Groups - Copying an Existing Group From the main menu go to Setup>Institution Groups. Special Instructions: Peer Analysis On the Detail tab, click New. Name the new group and drop down the Existing Groups option and select the group to copy. The existing list is displayed as the Available Institutions. To move individual institutions, highlight and click the single down arrow. To move all institutions in this group, click the double down arrow. The institutions are moved to the Selected Institutions list. To remove an institution, such as Pioneer (to keep us from being double counted on other reports later), highlight and click the single up arrow. 16

17 In this example, we want to add additional institutions to the original list. Click the Existing Groups dropdown box and return it to NA to refresh the list of Available Institutions. Locate the institution to add and click to highlight. Use the single down arrow to move them to the Selected Institutions list. Continue adding until all institutions are selected. Click Save. 17

18 To run a new Market Share report, select Discovery>HMDA Peer Reports from the main menu. Set the report up as before, selecting the new Peer Group. The %Mrkt (Market) and %Grp (Group) work as they did in the previous report. This change can help give you context if an institution or institutions are dominating your market. Currently, the CRA Market Share report cannot be run in this manner. You can limit by regulatory agency but you cannot create a custom list of institutions. 18