SWOT Your Competition:

Transcription

1 SWOT Your Competition: Leveraging Peer Data to Empower Your Strategic Plan June 27, :30pm -3:30 pm Presented by: Greg Dingens Monroe Financial Partners, Inc. (EVP) Siena Capital Management (Partner) QwickRate LLC (Director) Chicago, IL P: E:

2 TODAY: Strategic Toolbox Use Peer Data To Comparatively Assess Your Financial Performance And Inform Strategic Directions: S W O T

3 SWOT: Huh?? Strengths Weaknesses Opportunities Threats

4 Bank Constituents: Interdependent Shareholders Management Regulators

5 Constituents: Competing Goals? Shareholders: Return Management: Career Regulators: Safety & Soundness

6 SWOT: Competing Goals? Return / Profitability Safety / Soundness Management

7 SWOT Analysis: Returns Return / Profitability Avoid Regulator Inspired Mediocrity

8 TODAY: Competition Intense Higher Capital Increased Compliance Costs

9 Strategic Plan? Budget Short Term Point-Point (M/M) Perfunctory Internal / Self-focused Yardstick: Self created Strategic Plan Long Term / Trends Analytical External / Comparative Yardstick: Competition Must Measure to Manage!

10 Regulated = GOOD! = Exact # Of Benefits to Being Regulated: Free, Voluminous Competitive Data!

11 Measure Up! BECAUSE YOU CAN: Reams of public data available on EVERY competitor in the nation published quarterly! BECAUSE YOU CAN : Common sizing the data permits you to compare JP Morgan vs National Bank of St. Anne JP Morgan St. Anne Assets ($mm) $ 1,914,658 $ 48 NIM 1.86% 3.74% Efficiency Ratio 66.4% 67.6% Cost of Funds 0.23% 0.23% ROAA 0.85% 0.55% ROAE 8.86% 4.50%

12 Who You Callin a Peer? Peer Groups Matter: Determine who you aspire to / compete with Purely local Best performers (regional / national) Best mix of business (loan niches, non-spread business, etc) UBPR Peer Groups: 20+ large & diverse groups UBPR Peer Goup # of Banks Avg Assets/ Bank # of States 3 Banks $300 million - $1 billion 4 Banks $100 million - $300 million, 3+ branches in MSA 5 Banks $100 million - $300 million, 3+ branches NOT in MSA 1220 $527, $198, $185,994 41

13 Peer Data: Put it To Work 1. Analyze performance data over a meaningful time period i.e. absolute performance over time 2. Compare to a group of peers that can place the bank s performance into context i.e. relative performance over time 3. Present the data in a format that can be easily digested i.e. Visual format

14 Everyone Needs Goals!

15 SWOT Analysis: Returns Return / Profitability Outcome Goals: Bottom Line

16 Industry Returns: ROE Absolute Goal: > 10% ROE? 1Q 2017 QCBI Community Banks Median Performance (Tax-affected for S-Corps) Source: QwickAnalytics

17 Industry Returns: ROE Relative Goal: Top 20% of Peer Group? QCBI Bank ROE Distribution Percentile Distribution % ROE 1Q 2017 QCBI Community Banks Performance (Tax-affected for S-Corps) Source: QwickAnalytics

18 Industry Returns: ROA Absolute Goal: > 1.0% ROA? 1Q 2017 QCBI Community Banks Median Performance Source: QwickAnalytics

19 Industry Returns: ROA Relative Goal: Top 20% of Peer Group? QCBI Bank ROAA Distribution Percentile Distribution % ROA 1Q 2017 QCBI Community Banks Performance (tax-effected for S-Corps) Source: QwickAnalytics

20 SWOT Analysis: Returns Return / Profitability Process Goals: Analyze Steps

21 Return / Profitability Performance Building Blocks Branch ROA Business Plan Markets Pricing Deposits Asset Mix ROE People Capital Leverage Capital Plan Simpler Decision / Execution 21

22 Return: What? Core Operating Earnings (a.k.a. Pre-Tax Pre-Provision, enhanced) Net Interest Income Core Non-Interest Income Core Non-Interest Expense Core Operating Earnings Excludes: Securities G/L OREO Costs Excludes: Goodwill Write-offs The Ultimate Common Size Tool! 22

23 Return: What Exactly? Spread Income Balance Sheet Utilization Loans/Deposits Earning Assets / Assets Asset Mix Loans Investments Other Earning Assets Non-Earning Assets Asset Yields Investments Loans Key Types Yields & Costs Funding Mix Deposits Other Funding Capital Funding Costs Deposits FHLB Sub Debt Preferred Other Revenue Service Charges Mortgage SBA Trust Deposit Related Other Lines of Business OH Expenses Operating Overhead Personnel Branches / Occupancy Other Overhead Operating Effectiveness Assets/Employee Revenue/Employee Net Operating Ratio Deposit/Branch Common Size Components

24 Return: How Exactly? Spread Income Balance Sheet Utilization Other Revenue Deposit Related OH Expenses Operating Overhead Loans/Deposits Earning Assets / Assets Asset Mix Loans Investments Other Earning Assets Non-Earning Assets Asset Yields Investments Loans Key Types Yields & Costs Funding Mix Deposits Other Funding Capital Funding Costs Deposits FHLB Sub Debt Preferred Service Charges Mortgage SBA Trust Market Driven Other Lines of Business Opt-In Manage/Plan: Most Control? Personnel Branches / Occupancy Other Overhead Operating Effectiveness Assets/Employee Revenue/Employee Net Operating Ratio Deposit/Branch Most Direct

25 Return: Scale & Priority Non-Interest Income 21% Net Income 23% Prov. 7% Taxes 7% Net Interest Income 79% Overhead Expense 66% 1Q 2017 Industry Income Statement Composition

26 Return: What Exactly? Spread Income Balance Sheet Utilization Loans/Deposits Earning Assets / Assets Asset Mix Loans Investments Other Earning Assets Non-Earning Assets Asset Yields Investments Loans Key Types Yields & Costs Funding Mix Deposits Other Funding Capital Funding Costs Deposits FHLB Sub Debt Preferred Focus? 80/20 Rule Loans / Deposits Yield on Loans Mix Cost of Deposits Mix

27 Return: What Exactly? Focus? 80/20 Rule Personnel Operating Leverage Personnel Branches / Occupancy Other Overhead Assets/Employee Revenue/Employee Net Operating Ratio Deposit/Branch OH Expenses Operating Overhead Operating Effectiveness

28 Return: What Exactly? The UBPR Report Is Designed to Provide This Type of Information

29 Return: What Exactly? The UBPR Report: Places Performance into CONTEXT

30 Return: What Exactly? NIE/A ROA 2.50% Net Income 23% Prov. 7% Taxes 7% 1.50% L/A Net Interest Income 79% 50% Overhead Expense 66% UBPR Distribution Groups: Place Performance in Context

31 Safety & Soundness: Canaries & Cushions Real risk locked in during underwriting years ago! Canary Warnings: Past Dues & NPAs Safety / Soundness Cushions: Capital Loan Loss Reserve

32 SWOT Analysis SWOT Examples

33 SWOT Example: Levered Lean Bank Net Interest Income 79% Net Income 23% Overhead Expense 66% Prov. 7% Red Orange Yellow Zone Blue LEADER Zone Zone Peer Taxes Zone BOARD 7% Period Type: LTM Bottom Top/Best Your As of: 03/31/17 20th 20th Nominal Peer Group: UBPR Peer Group th 10-20th Percentile 20-30th 30-40th 40-50th Median 50-60th 60-70th 70-80th Percentile 80-90th th PCT Rank Profitability & Earnings: OUTCOME GOALS "Spread Lean" Bank vs. UBPR Peer Group 3 Net Interest Margin 3.22% 3.65% 3.67% 4.11% 51 Noninterest Income (core) / Assets 0.26% 0.39% 0.68% 1.11% 9 Efficiency Ratio (core) 76.0% 66.6% 56.6% 45.0% 5 Noninterest Expense (core) / Assets 3.38% 2.79% 2.22% 1.72% 6 Core Operating Earnings / Assets 0.97% 1.41% 1.89% 2.10% 88 ROAA (pre-tax) 0.89% 1.31% 1.74% 2.04% 90 ROAA (stated) 0.67% 1.00% 1.29% 1.46% 73 ROAE Available to Common (tax-affected) 5.9% 8.3% 11.0% 15.6% 97 ROATCE Available to Common (tax-affected) 6.2% 8.8% 11.5% 15.6% 96

34 SWOT Example: Levered Lean Bank "Spread Lean" Bank vs. UBPR Peer Group 3 Red Zone Orange Zone Yellow Zone Peer Prov. Blue 7% Zone LEADER BOARD Period Type: LTM Bottom Top/Best Your As of: 03/31/17 20th 20th Nominal Net Interest Income 79% Net Income 23% Peer Group: UBPR Peer Group th 10-20th Percentile 20-30th 30-40th 40-50th Median 50-60th 60-70th 70-80th Percentile 80-90th th PCT Rank Balance Sheet Utilization: Net Loans / Deposits 65% 82% 94% 99% 88 Total Gross Loans / Assets 57% 71% 80% 83% 88 Nondeposit Funding / Total Funding 9% 9% 3% 0% 82 Yield & Cost Analysis: Yield on Total Loans & Leases 4.49% 4.87% 4.92% 5.39% 47 Yield on Total Securities 1.67% 2.08% 2.49% 4.32% 99 Yield on Earning Assets 3.63% 4.10% 4.38% 4.59% 69 Total Cost of Deposits 0.74% 0.59% 0.39% 0.22% 91 Total Cost of Funds 0.75% 0.65% 0.43% 0.25% 87 Interest Rate Spread 3.09% 3.39% 3.52% 3.97% 40 Deposit Composition: Overhead Expense 66% Total Noninterest Bearing Deposits (%) 13.7% 20.6% 28.7% 29.6% 77 Total Transaction Accounts (%) 9.7% 26.1% 31.8% 42.2% 60 Total Time Deposits (%) 38.0% 26.9% 26.5% 16.3% 51 Total Core Deposits (%) 85.7% 86.2% 92.8% 96.8% 22 Taxes 7%

35 SWOT Example: Levered Lean Bank ($000s) Bank Demand Deposits (%) Other Transaction Accounts (%) Total Transaction Accounts (%) Peer Group Comparison UBPR Peer Group 3 This Peer PCT Net Income 23% Median Rank Domestic Deposit Composition MRQ - 03/31/ % 14.7% % 6.9% % 26.1% 60 Prov. 7% Taxes 7% Money Market Deposit Accounts (%) Other Savings Accounts (%) Total Savings Accounts (%) Net Interest Income 79% Time Deposits < $100k (%) Time Deposits $100k-250k (%) Time Deposits > $250k (%) Total Time Deposits (%) Memo: Total Noninterest Bearing Deposits (%) 1.2% 19.7% % 14.2% % 40.8% % 11.2% 8 Overhead Expense 66% 14.5% 8.1% % 4.5% % 26.5% % 20.6% 77

36 SWOT Example: Levered Lean Bank ($000s) Bank Peer Group Comparison UBPR Peer Group 3 Net Income 23% This Peer PCT Median Rank Costs of Liabilities MRQ - 03/31/17 Prov. 7% Taxes 7% Rate on Int. Bearing Trans. Rate on Total Savings Accounts Rate on Time Deposits $250k ( Rate on Time Deposits > $250k ( Net Interest Income 79% Rate on Total Int. Bear. Deps. Total Cost of Deposits Total Cost of Funds Interest Rate Spread Net Interest Margin 0.05% 0.20% % 0.25% % 0.89% % 0.97% % 0.48% 96 Overhead Expense 66% 0.74% 0.38% % 0.43% % 3.49% % 3.62% 45

37 SWOT Example: Levered Lean Bank "Spread Lean Bank" vs. UBPR Peer Group 3 Prov. Red Orange Yellow Zone 7% Blue LEADER Zone Zone Peer Zone BOARD Net Interest Income 79% Net Income 23% Period Type: LTM Bottom Top/Best Your As of: 03/31/17 20th 20th Nominal Peer Group: UBPR Peer Group th 10-20th Percentile 20-30th 30-40th 40-50th Median 50-60th 60-70th 70-80th Percentile 80-90th th PCT Rank Asset Quality: Nonaccrual Loans / Loans 1.31% 0.54% 0.38% 0.15% 38 Adj. NPAs & Rest. Loans / Assets 1.76% 0.88% 0.32% 0.31% 20 Texas Ratio (adjusted) 16% 8% 3% 3% 23 Net Chargeoff Ratio 0.21% 0.07% 0.00% 0.00% 24 Loan Loss Reserve / Loans 1.01% 1.02% 1.26% 1.64% 21 Capital: Tang. Common Equity / Tang. Assets 8.45% 8.76% 9.84% 11.50% 14 Leverage Ratio 8.47% 9.02% 10.02% 11.68% 10 Common Equity Tier 1 Ratio 11.42% 13.03% 13.45% 17.04% 44 Tier 1 Ratio 11.48% 13.03% 13.51% 17.08% 43 Overhead Expense 66% Total Risk-Based Ratio 12.59% 14.28% 14.59% 18.17% 45 Taxes 7%

38 SWOT Example: Good Base Bank OUTCOME GOALS Good Base High Cost Bank vs. UBPR Peer Group 3 Period Type: LTM Red Bottom Orange Yellow Zone Blue Top/Best LEADER Your As of: 03/31/17 Zone 20th Zone Peer Zone 20th BOARD Nominal Peer Group: UBPR Peer Group th 10-20th Percentile 20-30th 30-40th 40-50th Median 50-60th 60-70th 70-80th Percentile 80-90th th PCT Rank Profitability & Earnings: Net Interest Margin 3.22% 3.31% 3.65% 4.11% 27 Noninterest Income (core) / Assets 0.39% 0.68% 1.11% 1.79% 93 Efficiency Ratio (core) 84.1% 76.0% 66.6% 56.5% 93 Noninterest Expense (core) / Assets 4.10% 3.38% 2.79% 2.22% 92 Core Operating Earnings / Assets 0.77% 0.97% 1.41% 1.89% 10 ROAA (pre-tax) 0.89% 1.08% 1.31% 1.75% 32 ROAA (stated) 0.67% 1.00% 1.46% 2.67% 98 ROAE Available to Common (tax-affected) 5.89% 8.31% 11.03% 42.30% 100 ROATCE Available to Common (tax-affected) 6.15% 8.81% 11.49% 42.34% 100 Non-Core DTA Reserve Reversal

39 SWOT Example: Good Base Bank Peer Group Comparison UBPR Peer Group 3 This Peer PCT ($000s) Bank Median Rank Operating Efficiency LTM - 03/31/17 Total Assets $355,771 Full Time Equivalent Employees (FTE) 141 Total Assets per FTE $2,523 $4,745 2 Noninterest Expense (core) / Assets Salaries & Benefits 2.45% 1.59% 94 Premises & Fixed Assets Expense 0.34% 0.33% 55 Data Processing 0.08% 0.14% 29 Legal, Accounting & Consulting 0.11% 0.05% 82 Noninterest Expense (core) / Assets 4.10% 2.79% 92 (Nonint. Expense - Nonint. Income) / Assets 2.31% 2.02% 73 Salaries & Benefits per Avg. FTE $59 $75 11 Prem. & Fixed Asset Exp. per Avg. FTE $8 $15 3 Efficiency Ratio (core) 84.1% 66.6% 93

40 SWOT Example: Good Base Bank Period Type: LTM Red Bottom Orange Yellow Zone Blue Top/Best LEADER Your As of: 03/31/17 Zone 20th Zone Peer Zone 20th BOARD Nominal Peer Group: UBPR Peer Group th 10-20th Percentile 20-30th 30-40th 40-50th Median 50-60th 60-70th 70-80th Percentile 80-90th th PCT Rank Balance Sheet Utilization: Net Loans / Deposits 59% 65% 82% 94% 12 Total Gross Loans / Assets 55% 57% 71% 80% 18 Nondeposit Funding / Total Funding 9% 3% 0% 0% 0 Yield & Cost Analysis: Yield on Total Loans & Leases 4.49% 4.69% 4.92% 5.39% 33 Yield on Total Securities 1.67% 1.93% 2.08% 2.49% 37 Yield on Earning Assets 3.50% 3.63% 4.10% 4.59% 14 Total Cost of Deposits 0.60% 0.39% 0.22% 0.18% 12 Total Cost of Funds 0.65% 0.43% 0.25% 0.18% 10 Interest Rate Spread 3.09% 3.28% 3.52% 3.97% 32 Deposit Composition: Net Interest Income 79% Good Base High Cost Bank vs. UBPR Peer Group 3 Overhead Expense 66% Total Noninterest Bearing Deposits (%) 13.7% 18.4% 20.6% 29.6% 39 Total Transaction Accounts (%) 9.7% 26.1% 42.2% 48.1% 89 Total Time Deposits (%) 38.0% 26.5% 19.5% 16.3% 30 Total Core Deposits (%) 85.7% 92.8% 96.8% 99.6% 99 Taxes 7%

41 SWOT Example: Good Base Bank Net Interest Income 79% Net Income 23% Overhead Expense 66% Prov. 7% Red Orange Yellow Zone Blue LEADER Taxes Zone Zone Peer Zone BOARD 7% Period Type: LTM Bottom Top/Best Your As of: 03/31/17 20th 20th Nominal Peer Group: UBPR Peer Group th 10-20th Percentile 20-30th 30-40th 40-50th Median 50-60th 60-70th 70-80th Percentile 80-90th th PCT Rank Asset Quality: Nonaccrual Loans / Loans 1.95% 1.30% 0.54% 0.15% 90 Adj. NPAs & Rest. Loans / Assets 2.41% 1.76% 0.88% 0.32% 89 Texas Ratio (adjusted) 30% 16% 8% 3% 95 Net Chargeoff Ratio 0.21% 0.09% 0.07% 0.00% 60 Loan Loss Reserve / Loans 1.01% 1.26% 1.49% 1.64% 72 Capital: SAFETY & SOUNDNESS Good Base High Cost Bank vs. UBPR Peer Group 3 Tang. Common Equity / Tang. Assets 7.13% 8.76% 9.84% 11.50% 3 Tangible Equity / Tangible Assets 7.13% 8.79% 9.85% 11.52% 2 Leverage Ratio 6.56% 9.03% 10.02% 11.68% 1 Common Equity Tier 1 Ratio 10.54% 11.44% 13.45% 17.04% 9 Tier 1 Ratio 10.54% 11.50% 13.51% 17.08% 8 Total Risk-Based Ratio 11.80% 12.60% 14.59% 18.17% 10

42 Opportunity: Universal Bank Bank HoldCo Magnify returns and keep bank sub sound BHC loans: can get year amortization around Prime 10 Year sub debt around 6%-7% Assets $ 500,000 $ 500,000 Debt $ 15,000 Rate 4.0% Equity $ 45,000 $ 30,000 TE / TA 9.00% 6.00% Double Leverage 150% Net Income $ 4,000 $ 3,610 ROA 0.80% 0.72% Improve ROE 8.9% 12.0% 35%

43 Opportunity: Universal Depends on BV, etc. but triple net market is bubbly take advantage 5%-6% Cap Rates from Section 1031 investors Older, owned branches carried at depreciated BV Gain a function of investor Cap Rate on negotiated lease gains possible even in otherwise unattractive markets Net impact on profit a function of: - Rent payments + Depreciation avoided + Gain amortized over lease + Yield on cash deployed

44 Use Peer Data to Set Goals Set Outcome Goals Absolute goals (eg 1.0% ROA) Relative (eg top 20% of peer group) performance levels Determine Appropriate Process Goals Drill down on components of profitability Common size every key aspect Focus on 80/20 rule of what moves the needle Assess SWOTs vs Peers Focus on what you control Management decisions vs market forces Measure to Manage Periodically compare performance to goals and to peers

45 Everyone Needs Goals!