Join Together. Consolidation and Business Evolution in the Banking Industry Since Presentation By: Rob Hajduch Principal Credit Analyst

Transcription

1 Join Together Consolidation and Business Evolution in the Banking Industry Since 2008 Presentation By: Rob Hajduch Principal Credit Analyst NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE

2 Evolution of the U.S. Financial System First Bank of the United States ( ) Second Bank of the United States ( ) National Banking Acts of 1863 & 1864 ~ Includes the first national paper currency Savings & Loans Crisis ( ) Glass-Steagall Act (1933) Banking Act of 1933 establishes the FDIC McFadden Act (1927) Dodd-Frank Wall Street Reform Consumer Protection Act Gramm-Leach-Bliley Act (1999) Federal Reserve System ( ) Federal Housing Enterprises Financial Safety & Soundness Act (1992) ~ 1995, HUD begins requirement for GSE's to promote affordable housing. 2

3 FDIC Revenue Components Non-interest Income and Net Interest Revenue ($mm) 800,000 Net Interest Revenue Trading & Securities Gains / (Losses) Non-interest Income 700, , , , , , , Source: FDIC 3

4 FDIC Insured Institution Earnings In Millions, Source: FDIC 4

5 Non-Performing Assets As a Percent of Total Assets, Source: FDIC 5

6 Net Income Against Provisions / Pre-tax Income Source: FDIC 6

7 Federal Reserve Net Charge-off Trends By Category Farm Aid S&L Crisis Lehman Fallout Source: Federal Reserve Bank 7

8 FDIC Insured Banks Loss Provisions vs. Net Charge-offs ($mm) Source: FDIC 8

9 Loan Loss Reserve Coverage Source: FDIC 9

10 FDIC Income Statement ($mm) 10

11 Net Interest Margins FDIC Insured Institutions, Source: FDIC 11

12 Yield on Earning Assets vs. Cost of Funding FDIC Insured Institutions, Source: FDIC 12

13 FDIC Insured Institutions Loan Portfolio ($mm) Source: FDIC 13

14 FDIC ROA and ROE Source: FDIC 14

15 FDIC Operating Overhead Ratio Source: FDIC 15

16 U.S. Banking System Structure FDIC Insured Commercial Banks vs. Branches Source: FDIC 16

17 U.S. Banking System Structure FDIC Commercial Bank Charters Granted vs. Failures by Year Source: FDIC 17

18 U.S. Banking System Structure FDIC Commercial Bank Charters Granted vs. Failures by Year Source: FDIC 18

19 FDIC Insured Institutions Asset Summary Source: FDIC 19

20 FDIC Insured Institutions Liabilities and Equity Summary Source: FDIC 20

21 Primary Dealer Net Corporate Security Positions Maturity >1 Year $250,000 $200,000 $150,000 $100,000 $50,000 $0 7/11/ /11/2001 3/11/2002 7/11/ /11/2002 3/11/2003 7/11/ /11/2003 3/11/2004 7/11/ /11/2004 3/11/2005 7/11/ /11/2005 3/11/2006 7/11/ /11/2006 3/11/2007 7/11/ /11/2007 3/11/2008 7/11/ /11/2008 3/11/2009 7/11/ /11/2009 3/11/2010 7/11/ /11/2010 3/11/2011 7/11/ /11/2011 3/11/2012 7/11/ /11/2012 3/11/2013 7/11/ /11/2013 3/11/2014 7/11/ /11/2014 3/11/2015 7/11/ /11/2015 3/11/2016 7/11/ /11/2016 3/11/2017 Source: Federal Reserve 21

22 Primary Dealer Corporate Securities Maturity <1 Year $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 7/11/ /11/2001 3/11/2002 7/11/ /11/2002 3/11/2003 7/11/ /11/2003 3/11/2004 7/11/ /11/2004 3/11/2005 7/11/ /11/2005 3/11/2006 7/11/ /11/2006 3/11/2007 7/11/ /11/2007 3/11/2008 7/11/ /11/2008 3/11/2009 7/11/ /11/2009 3/11/2010 7/11/ /11/2010 3/11/2011 7/11/ /11/2011 3/11/2012 7/11/ /11/2012 3/11/2013 7/11/ /11/2013 3/11/2014 7/11/ /11/2014 3/11/2015 7/11/ /11/2015 3/11/2016 7/11/ /11/2016 3/11/2017 Source: Federal Reserve 22

23 Federal Reserve System Total Assets by Bank Size ($mm) Source: Federal Reserve 23

24 Total System Assets Top Six Banks Source: Federal Reserve, Company Filings (FDIC) 24

25 Federal Reserve System Total Assets Percent Share Source: Federal Reserve, Company Filings (FDIC) 25

26 Federal Reserve System Total Gross Loans ($mm) Source: Federal Reserve, Company Filings (FDIC) 26

27 Federal Reserve System Gross Loans Percent Share Source: Federal Reserve, Company Filings (FDIC) 27

28 Federal Reserve System Total Deposits ($mm) Source: Federal Reserve, Company Filings (FDIC) 28

29 Federal Reserve System Total Deposits Percent Share Source: Federal Reserve, Company Filings (FDIC) 29

30 Asset Composition - Domestic Banking System In Millions, Source: Federal Reserve 30

31 Asset Composition - Foreign Banks Operating in the U.S. In Millions, ,000, ,500, ,000, ,500,000.0 $867 bn in cash, tsy & agy versus $861 bn in borrowed funding. 1,000, , Source: Federal Reserve Deposits Loans Total Assets Cash Tsy / Agy Securities Borrowed Funds 31

32 Federal Reserve Banks Total Assets 2006 vs 2016 ($mm) 5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 - Source: Federal Reserve Annual Reports

33 Federal Reserve Banks Net Holdings of U.S. Government and Agency Securities 2006 vs ($mm) 5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 - Source: Federal Reserve Annual Reports

34 Federal Reserve Banks Depository Institution Deposits 2006 vs ($mm) 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 - Source: Federal Reserve Annual Reports

35 Appendix 35

36 Global System Banking Crises Quantifying by Country Country # of Crises Argentina 4 Democratic Republic of the Congo 3 Chad 2 Nigeria 2 Central African Republic 2 Cameroon 2 Kenya 2 The Philippines 2 Thailand 2 Turkey 2 Bolivia 2 Ecuador 2 Brazil 2 Mexico 2 Colombia 2 Costa Rica 2 Chile 2 Uruguay 2 Spain 2 Sweden 2 United States 2 Crisis Free Countries with Abundant Bank Credit Australia Canada Hong Kong Malta New Zealand Singapore Crisis Free Countries with Average Bank Credit Bahamas Barbados Belize Brunei Darussalam Macao Mauritius South Africa Source: Calomiris & Haber 36

37 Interconnected From Top to Bottom The Money Multiplier Function 10% Required Reserves 15% Required Reserves Lent Lent Bank Deposit Reserves Out Bank Deposit Reserves Out A A B B C C D D E E F F G G H H I I J J K K B - K $100 of collateral backs created money "Created money" 37

38 FDIC Insured Depository Institutions Income Statement ($ mm) Interest Income Interest & Fees on Loans / Leases 426, , , , , , , , , , ,576 Interest & Dividends on Securities 86,822 83,374 82,100 82,086 87,121 96, , , , , ,880 Other 2,315 3,140 2,783 2,449 2,755 2,679 2,491 2,789 4,026 5,354 4,033 Gross Interest Revenue 515, , , , , , , , , , ,489 Interest Expense Deposits (33,837) (28,966) (29,625) (33,570) (41,901) (53,499) (67,332) (98,853) (166,265) (251,789) (204,621) Borrowings (20,560) (17,503) (17,501) (20,044) (24,032) (31,278) (39,507) (46,606) (79,342) (120,523) (108,731) Total Interest Expense (54,397) (46,469) (47,126) (53,614) (65,933) (84,777) (106,839) (145,459) (245,607) (372,312) (313,352) Net Interest Income 461, , , , , , , , , , ,137 Non-Interest Income Trust & Fiduciary Fees 33,394 32,886 32,522 30,991 28,861 27,112 25,553 24,554 28,585 28,234 25,321 Service Charges on Deposits 35,126 34,591 34,086 33,752 34,089 34,059 36,210 41,676 39,526 39,213 36,300 Trading Account Gains & Fees 25,064 22,814 22,710 22,246 17,988 25,783 23,534 24,926 (1,774) 4,111 19,036 Investment Banking Fees 11,234 10,531 11,256 10,735 9,768 9,796 9,865 12,001 12,638 14,211 12,003 Venture Capital Revenue (135) Net Servicing Fees 9,716 10,489 8,992 17,844 14,003 8,480 16,497 29,667 13,568 15,250 14,476 Net Securitization Income 899 1,221 1,312 1,404 1, ,760 15,339 21,118 22,169 Insurance Commissions & Fees 3,649 3,449 3,158 3,442 3,097 3,572 3,061 3,882 3,975 4,460 4,438 Loan Sales Gains / (Losses) 15,185 13,297 11,885 13,383 17,560 6,325 11,055 10,390 (600) 2,363 7,527 Gains / (Losses) on Real Estate S (287) (349) (2,239) (4,491) (4,543) (4,169) (1,659) (391) 115 Gains / (Losses) on Other Asset S 1,185 2,045 1,748 2, ,107 4,569 2,426 4,602 2,969 Securities Gains / (Losses) 3,792 3,636 3,201 4,482 9,679 5,518 9,138 (3,787) 83,351 (1,331) 1,995 Other 116, , , ,072 61, , , ,622 2,575 98,336 98,529 Total Non-Interest Income 256, , , , , , , , , , ,140 Total Net Revenue 717, , , , , , , , , , ,277 Loan Loss Provision (47,836) (36,972) (29,739) (32,124) (58,244) (76,930) (156,901) (249,501) (174,265) (68,164) (29,496) Operating Expenses Personnel (199,227) (192,940) (189,673) (187,727) (185,419) (176,972) (169,078) (163,284) (151,944) (159,899) (150,733) Occupancy & Equipment (45,181) (44,977) (44,759) (43,871) (44,221) (44,833) (44,606) (45,644) (43,346) (44,175) (41,853) Other (177,754) (179,379) (187,472) (185,164) (191,085) (189,827) (178,980) (196,342) (163,419) (158,466) (139,721) Total Operating Expenses (422,162) (417,296) (421,904) (416,762) (420,725) (411,632) (392,664) (405,270) (358,709) (362,540) (332,307) Pre-Tax Net Income 247, , , , , , ,986 (4,141) 22, , ,474 Income Taxes (75,741) (70,652) (67,493) (69,376) (58,524) (50,580) (37,834) (5,677) (6,750) (47,019) (68,118) Net Income 171, , , ,198 79, ,330 88,152 (9,818) 16, , ,356 Ratios: Net Interest Margin 3.13% 3.07% 3.14% 3.26% 3.42% 3.60% 3.76% 3.47% 3.18% 3.29% 3.31% Net Interest Revenue / Total Net Re 64.32% 62.70% 62.85% 61.94% 68.29% 64.07% 63.66% 60.81% 64.37% 60.50% 57.39% Overhead Ratio 58.85% 60.56% 62.74% 61.88% 68.20% 62.42% 58.12% 62.29% 64.54% 62.16% 57.76% Loss Provision / Pre-Provision Inco 16.20% 13.60% 11.87% 12.51% 29.69% 31.04% 55.46% % 88.42% 30.89% 12.14% % Change Net Income 4.56% 7.08% -1.21% 95.46% % 36.50% % % % 5.01% 8.55% % Change Net Revenue 4.11% 2.47% -0.15% 9.17% -6.46% -2.38% 3.83% 17.06% -3.39% 42.53% 5.44% Return on Average Assets 1.05% 1.05% 1.02% 1.07% 0.56% 0.89% 0.67% -0.07% 0.12% 0.86% 1.28% Return on Average Equity 9.34% 9.34% 9.07% 9.59% 5.01% 7.92% 6.03% -0.71% 1.23% 8.18% 12.31% Tax Rate 30.61% 30.09% 30.57% 30.89% 42.43% 29.59% 30.03% % 29.58% 30.83% 31.91% Pretax Interest Coverage % % % % % % % 97.15% % % % Compensation / Noninterest Expen 47.19% 46.24% 44.96% 45.04% 44.07% 42.99% 43.06% 40.29% 42.36% 44.11% 45.36% Compensation / Net Revenue 27.77% 28.00% 28.21% 27.88% 30.06% 26.84% 25.03% 25.10% 27.34% 27.42% 26.20% Total Net Revenue / Employee Net Income / Employee (4.76)

39 FDIC Insured Depository Institutions Balance Sheet ($ mm) Assets Cash & Equivalents 1,810,010 1,757,585 1,921,635 1,705,383 1,426,195 1,289, ,184 1,049,159 1,105, , ,028 Securities 3,559,470 3,353,552 3,219,058 3,001,952 3,009,948 2,850,345 2,667,707 2,500,427 2,035,900 1,954,086 1,980,484 Repurchase Agreements 400, , , , , , , , , , ,636 Loans & Leases 9,307,539 8,841,647 8,311,461 7,894,821 7,697,660 7,467,424 7,378,059 7,285,568 7,881,135 7,908,671 7,236,032 Unearned Income (2,174) (2,079) (1,991) (1,898) (1,835) (1,696) (2,438) (3,766) (5,200) (2,313) (2,401) Allowance for Credit Losses (121,425) (118,555) (122,630) (135,891) (162,036) (190,974) (230,762) (228,461) (173,010) (101,715) (77,666) Net Loans & Leases 9,183,940 8,721,013 8,186,840 7,757,032 7,533,789 7,274,754 7,144,859 7,053,341 7,702,925 7,804,643 7,155,965 Trading Accounts 562, , , , , , , , , , ,701 Premises and Equipment 120, , , , , , , , , , ,918 OREO 10,936 14,703 21,979 30,216 38,512 46,153 52,927 41,380 27,576 13,242 7,148 Goodwill & Other Intangibles 369, , , , , , , , , , ,450 Other 763, , , , , , , , , , ,924 Total Assets 16,780,224 15,967,923 15,553,660 14,722,801 14,450,671 13,883,363 13,321,383 13,107,522 13,853,232 13,038,765 11,860,254 Liabilities Deposits 12,894,726 12,189,838 11,763,885 11,192,032 10,817,353 10,183,395 9,422,943 9,226,773 9,035,669 8,414,356 7,825,219 Borrowings: Other Borrowed Funds 1,087,029 1,036, , , ,567 1,330,161 1,625,812 1,695,283 2,488,226 2,379,410 1,998,846 Subordinated Debt 83,905 91,597 98,083 99, , , , , , , ,547 Trading Liabilities 244, , , , , , , , , , ,382 Other Liabilities 600, , , , , , , , , , ,157 Total Liabilities 14,910,418 14,166,544 13,811,436 13,068,039 12,821,398 12,312,423 11,807,722 11,642,270 12,550,539 11,686,506 10,612,151 Equity Preferred 10,159 9,476 5,597 5,851 5,777 6,139 8,573 8,267 9,778 8,016 5,814 Common 1,859,647 1,791,903 1,736,627 1,648,911 1,623,496 1,564,801 1,505,088 1,456,985 1,292,915 1,344,243 1,242,289 Total Equity 1,869,806 1,801,379 1,742,224 1,654,762 1,629,273 1,570,940 1,513,661 1,465,252 1,302,693 1,352,259 1,248,103 Total Liabilities & Shareholders E16,780,224 15,967,923 15,553,660 14,722,801 14,450,671 13,883,363 13,321,383 13,107,522 13,853,232 13,038,765 11,860,254 Average Assets 16,398,526 15,675,286 15,098,316 14,480,150 14,060,313 13,522,828 13,223,808 13,294,333 13,273,339 12,312,345 11,358,449 Average Equity 1,838,625 1,758,664 1,690,590 1,618,058 1,583,954 1,520,156 1,461,663 1,387,865 1,301,947 1,289,596 1,180,637 Risk-Weighted Assets 11,956,548 11,655,764 10,962,839 10,184,114 9,647,547 9,350,594 9,141,745 9,509,738 10,007,258 9,808,719 8,880,821 Tier I Capital 1,556,885 1,488,955 1,421,416 1,337,836 1,263,266 1,219,291 1,162,334 1,108, , , ,015 Tier II Capital 158, , , , , , , , , , ,638 Total Regulatory Capital 1,715,474 1,656,413 1,581,583 1,523,221 1,460,376 1,435,568 1,398,854 1,362,026 1,279,462 1,254,217 1,152,653 Tangible Equity 1,500,575 1,440,876 1,382,010 1,286,308 1,262,947 1,202,907 1,119,808 1,036, , , ,653 Tangible Common Equity 1,490,416 1,431,400 1,376,413 1,280,457 1,257,170 1,196,768 1,111,235 1,028, , , ,839 Number of Institutions 5,913 6,182 6,509 6,812 7,083 7,357 7,657 8,012 8,305 8,533 8,680 Total Employees (K) 2,053 2,034 2,048 2,069 2,110 2,109 2,089 2,063 2,152 2,215 2,207 Ratios: Gross Loans / Total Assets 55.47% 55.37% 53.44% 53.62% 53.27% 53.79% 55.39% 55.58% 56.89% 60.66% 61.01% Gross Loans / Total Deposits 72.18% 72.53% 70.65% 70.54% 71.16% 73.33% 78.30% 78.96% 87.22% 93.99% 92.47% Total Deposits / Total Borrowings + De 91.68% 91.53% 91.57% 92.15% 92.20% 87.44% 84.17% 83.28% 77.16% 76.64% 78.37% ST Debt / Total Debt 92.83% 91.88% 90.95% 89.56% 87.10% 90.91% 91.72% 91.53% 93.05% 92.77% 92.57% ST Debt / Total Capital 35.75% 35.37% 34.87% 32.75% 31.31% 43.84% 49.47% 51.10% 62.57% 60.74% 58.66% Reserves / Gross Loans 1.30% 1.34% 1.48% 1.72% 2.11% 2.56% 3.13% 3.14% 2.20% 1.29% 1.07% Tier I Ratio 13.02% 12.77% 12.97% 13.14% 13.09% 13.04% 12.71% 11.65% 9.96% 10.11% 10.51% Total Capital Ratio 14.35% 14.21% 14.43% 14.96% 15.14% 15.35% 15.30% 14.32% 12.79% 12.79% 12.98% Total Equity / Total Assets 11.14% 11.28% 11.20% 11.24% 11.27% 11.32% 11.36% 11.18% 9.40% 10.37% 10.52% Tangible Common Equity / Tangible A 9.08% 9.17% 9.06% 8.92% 8.93% 8.85% 8.60% 8.11% 6.43% 6.99% 7.24% Intangible Assets / Total Assets 2.20% 2.26% 2.32% 2.50% 2.54% 2.65% 2.96% 3.27% 3.10% 3.57% 3.49% Intangible Assets / Total Equity 19.75% 20.01% 20.68% 22.27% 22.48% 23.43% 26.02% 29.23% 33.02% 34.44% 33.13% Tangible Equity / Total Assets 8.94% 9.02% 8.89% 8.74% 8.74% 8.66% 8.41% 7.91% 6.30% 6.80% 7.04% Tangible Equity / Tangible Assets 9.14% 9.23% 9.10% 8.96% 8.97% 8.90% 8.66% 8.18% 6.50% 7.05% 7.29% Tangible Equity / RWA 12.55% 12.36% 12.61% 12.63% 13.09% 12.86% 12.25% 10.90% 8.72% 9.04% 9.40% Loan Loss Reserves / Total Gross Loa 1.30% 1.34% 1.48% 1.72% 2.11% 2.56% 3.13% 3.14% 2.20% 1.29% 1.07% RWA / Total Assets 71.25% 72.99% 70.48% 69.17% 66.76% 67.35% 68.62% 72.55% 72.24% 75.23% 74.88% Average Assets / Institution ($ mm) 2,838 2,583 2,390 2,161 2,040 1,887 1,740 1,636 1,668 1,528 1,366 Gross Loans / Assets % 55.47% 55.37% 53.44% 53.62% 53.27% 53.79% 55.39% 55.58% 56.89% 60.66% 61.01% Gross Loans / Deposits % 72.18% 72.53% 70.65% 70.54% 71.16% 73.33% 78.30% 78.96% 87.22% 93.99% 92.47% Loan Growth % 5.27% 6.38% 5.28% 2.56% 3.08% 1.21% 1.27% -7.56% -0.35% 9.30% 7.67% Deposit Growth % 5.78% 3.62% 5.11% 3.46% 6.23% 8.07% 2.13% 2.11% 7.38% 7.53% 9.58% Cash / Total Assets % 10.79% 11.01% 12.35% 11.58% 9.87% 9.29% 7.44% 8.00% 7.98% 4.02% 3.95% Securities / Total Assets % 21.21% 21.00% 20.70% 20.39% 20.83% 20.53% 20.03% 19.08% 14.70% 14.99% 16.70% 39

40 Disclosure This information represents the opinion of U.S. Bancorp Asset Management, Inc. and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. It is not intended to provide specific advice or to be construed as an offering of securities or a recommendation to invest. The factual information has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bancorp Asset Management, Inc. is a registered investment advisor and subsidiary of U.S. Bank National Association. U.S. Bank Association is a separate entity and wholly owned subsidiary of U.S. Bancorp. U.S. Bank is not responsible for and does not guarantee the products, services, or performance of its affiliates and third parties

41 Sources C. Calomiris and S. Haber, Fragile by Design: Banking Crises, Scarce Credit, and Political Bargains, Princeton University Press, 2012 FDIC.gov federalreserve.gov 41