Peer Analysis: How Does Your Bank Stack Up?

Transcription

1 Peer Analysis: How Does Your Bank Stack Up? IBANYS Annual Convention September 26 th, 2017

2 Speaker Shawn O Brien President QwickRate Leads the Strategy for QwickRate Partner, Monroe Financial Partners Co-founder of QwickAnalytics Director, National Bank of St. Anne shawn.obrien@qwickrate.com

3 QwickAnalytics Created by Bankers to Assist Community Banks QwickRate & QwickAnalytics National Bank of St. Anne Monroe Financial Partners

4 Key Questions For Management & Directors Do You Know Your Bank s Financial Story? Do You Know How it Compares to Other Community Banks? Do You Think It Matters? 4

5 Some Community Bank Performance Benchmarks 5

6 Pop Quiz: Median U.S. Community Bank ROE? All U.S. QCBI banks only Taxaffected S-Corps

7 Banking Cost of Capital? CAPM Model Current Normalized 30 Yr T-Bond at 8/28/ % 4.00% Equity Risk Premium 5.50% 5.50% Duff & Phelps Expected Equity Return 7.98% 9.50% Risk Premium for Size/Liquidity 3.67% 3.67% Duff & Phelps Banking Industry Risk Factor 2.00% 2.00% Subjective Equity Cost of Capital 13.65% 15.17%

8 Return on Equity: Q Distribution All U.S QCBI banks only Taxaffected S-Corps

9 ROE Distribution: Size Matters All U.S. QCBI banks only Taxaffected S-Corps

10 Pop Quiz: Median NY State Bank s ROE? Higher or Lower than the National Median?

11

12

13

14 TODAY: Competition is Intense Higher Capital Increased Compliance Costs

15 Using Performance & Peer Data 15

16 Everyone Needs Goals!

17 Budget and Strategic Planning? 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!

18 Is your Performance Understood One Month at a Time?

19 What / How do you Measure your Bank s Performance? How do you want to be measured or defined? Profitable/Not Profitable? Month to Month variances? Meeting Budget? Continuous improvement? Share price? Being the best bank you can be?

20 Regulated = GOOD!.., maybe more than One benefit = Exact # Of Benefits to Being Regulated: Free, Voluminous Competitive Data!

21 Peer Performance Data: Why? BECAUSE YOU CAN: The Call Reports require quarterly reporting in excruciating detail take advantage of it! BECAUSE YOU CAN: Reams of public data available on EVERY competitor Private or public, small or large HUGE LUXURY! BECAUSE YOU CAN : Common sizing the data permits you to compare JP Morgan vs National Bank of St. Anne 21

22 Common Sizing Because You Can! JP Morgan National Bank of St. Anne Total Assets ($mm) $2,082,803 $49 NIM 1.86% 4.30% Efficiency Ratio 62.5% 62.4% Cost of Funds.28%.22% ROAA.99%.92% ROAE 10.14% 7.08% CET % 12.55%

23 Why Should You Care? To Survive & Thrive Identify Strengths & Weaknesses: compare your bank against specific local peers (or best performing peers anywhere) SWOT Analysis What is your Financial Story? And has that changed over time? Understand Local Market Trends: are competitors suffering similar loan pricing pressure? Are they growing faster than you? Is the overall market growing? Get Objective Data: Public peer data, not necessarily filtered by management, is a critical tool to measure performance Stay Ahead of Regulators: Know how you stack up in the eyes of the regulators (OUTLIERS), and understand what regulators are likely to criticize ahead of time

24 Do the Numbers ever lie? How do you manage what you do not monitor? Consistent reporting framework builds trust, confidence and strengthens communication!

25 Our Philosophy: 3 Simple Rules 1. Access, analyze and present all the performance data of the bank over a meaningful time period i.e. absolute performance over time 2. Do the same for a group of peers that can be used to 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 by directors, consistently - including those who are not experienced or formally educated in interpreting financial information 25

26 ROE Absolute versus Relative Goals Absolute Goal: > 10% ROE? 1Q 2017 QCBI Community Banks Median Performance (Tax-affected for S-Corps) Source: QwickAnalytics

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

28 Who You Callin a Peer? Peer Groups Matter: Determine who you aspire to / compete with Purely local Top 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

29 The Good & Bad News 29

30 Versus this 30

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

32 Return vs Safety: Competing Goals? Return / Profitability Safety / Soundness Management

33 Return / Profitability Performance Building Blocks Branch ROA Business Plan Markets Pricing Deposits Asset Mix ROE People Capital Leverage Capital Plan Simpler Decision / Execution 33

34 Return/Profitability 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! 34

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

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

37 Return/Profitability: How Exactly? Spread Income Balance Sheet Utilization Loans/Deposits Earning Assets / Assets Focus? 80/20 Rule 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 Loans / Deposits Yield on Loans Mix Cost of Deposits Mix

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

39 Your Bank s Financial Story 39

40 Information is Your Friend! Readily available information at your disposal. Utilize available information because you are able to and because you need too! Keep constituents up to date. Keep Directors informed and educated. Assist Management monitor performance and progress! Better understand how Regulators/Outsiders see you. Learn from, study high performing banks. Better information leads to better decisions. Never been more affordable don t build the watch!

41 Every Bank has a Normal. What is your Bank s Normal? Is normal the same everywhere in New York state? Is your Bank s normal understood without understanding your local market? Relative Performance gives context to your overall absolute performance!

42 Your Financial Story Over meaningful time period Recent period Useful metrics Peer Comparison

43 Your Financial Story Strengths Changes over time Red flags

44 Your Financial Story: vs Peers Strengths Red flags Strengths

45 Your Financial Story: vs Peers 1-4 Family Residential Loan Mix Recent Rank Trend vs. Peers Vs. Each Peer

46 Your Financial Story: vs Peers Net Interest Margin Recent Rank Trend vs. Peers Vs. Each Peer

47 Your Financial Story: vs Peers Yield on Loans Recent Rank Trend vs. Peers Vs. Each Peer

48 Your Financial Story: vs Peers Cost of Deposits Recent Rank Trend vs. Peers Vs. Each Peer

49 Peer Analysis: Easily Understand SWOT Net Interest Income 79% Net Income 23% Overhead Expense 66% Prov. 7% Red Orange Yellow Zone Blue LEADER Zone Zone Peer Taxe Zone BOARD s 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

50 Peer Analysis: Easily understand SWOT "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 Total Gross Loans / Assets 65% 57% 82% 71% Taxe s 94% 80% 99% 83% Nondeposit Funding / Total Funding 9% 9% 3% 7% 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

51 Use Peer Data to Set Goals Set Outcome Goals Absolute goals (e.g. 1.0% ROA) Relative (e.g. 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 Consistently and periodically compare performance to goals and to peers

52 Everyone Needs Goals!

53 Return on/of Capital Bank Shareholders today are worried equally about the Return of their Capital as they are about the Return on their Capital!

54

55 Thank You For Attending! Sign up for a 7-day free trial of QwickAnalytics! Go to Call us at to get started. Melissa Wallace melissa.wallace@qwickrate.com Shawn O Brien shawn.obrien@qwickrate.com Ricki Dagosta ricki.dagosta@qwickrate.com