COMMUNITY BANK PROFITABILITY 16 th R&C Conference November 16, 2017 The views expressed here are those of the speaker and do not necessarily represent the views of the Federal Reserve Bank of Boston or the Federal Reserve System
2 Community Bank ROAA (% of Average Assets) FD CBOs US CBOs 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Source: Call Report
3 Net Interest Margin (% of Earning Assets) FD CBOs 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 US CBOs Source: Call Report
4 Interest Income and Expense % of Average Assets 7.00 6.50 6.00 5.50 5.00 4.50 4.00 3.50 3.00 Interest Income FD CBOs US CBOs % of Average Assets 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Interest Expense Source: Call Report
5 First District Characteristics Depository Type Density Asset Size Customer
6 Depository Types Commercial & Savings Banks Mutuals & Cooperatives Credit Unions Thrifts 28% First District 1% 9% National 4% 2% 43% 62% 51% 3% 24% 9% 3% 73% Source: Call Report 88%
7 Branch Density % of CBOs 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% First District Nation MSA Type First Dist. Nation Urban 86% 53% Rural (Non-MSA & Bin 1) 14% 47% Non-MSA 1 2 3 4 5 MSA Branch Density Bin (Bin 1: Fewest Branches / Sq. Mile) Source: FDIC Summary of Deposits, US Census
8 Asset Size % of CBOs 45% 40% 35% 30% 25% 20% 15% 10% 5% First District Nation 0% $0 - $150MM $150MM - $250MM $250MM - $500MM Asset Size $500MM - $1B $1B - $10B Source: Call Report
9 Percentage of the population* with bachelor degree or higher Massachusetts Connecticut New Hampshire Vermont Rhode Island National Maine 0% 10% 20% 30% 40% 50% *Population aged between 18 and 65 Source: US Census Bureau 2013 American Community Survey
10 In the Numbers Balance Sheet Composition Yields
11 Loan Yield and Composition FD US 83% FD Yield: 4.07% US Yield: 4.96% 82% 81% % of Earning Assets 80% 79% 78% 77% 76% 82% 75% 74% 76% 73% FD US Source: Call Report
12 Earning Asset Attribution: FD vs. Nation +0.18% Earning Asset Yield (%) 4.29% -0.68% +0.02% -0.06% 3.75% U.S. Weighted Avg. Yield Loans vs. Investments Allocation Loan Yield Investment Yield Interaction Effect FD Weighted Avg. Yield Source: Call Report
13 Loan Composition & Yield: FD vs. Nation FD Loan Proportion (LHS Columns) US Loan Proportion (LHS Columns) 50% FD Yields (RHS Dots) US Yields (RHS Dots) 9.00% % of Total Loans 45% 40% 35% 30% 25% 20% 15% 10% 4.50% 3.72% 4.80% 4.28% 4.84% 4.65% 5.24% 4.81% 7.81% 4.08% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% Yield 5% 1.00% 0% 1-4 Resi. CRE Agri. C&I Consumer Source: Call Report 0.00%
14 Residential Yield Factors Historical Maturity Rate type Size Type Density and Assets
15 1-4 Family Residential RE Loan Yields 7.00 Spread First District National 6.00 Yield (%) 5.00 4.00 3.00 2.00 1.00 0.00 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Call Reports
16 Mortgages by Maturity First District vs. Nation, March 2017 100% 90% 80% Share of Mortgages 70% 60% 50% 40% 30% 78% 80% >40 Yrs 30-35 Yrs 25-30 Yrs 20-25 Yrs 15-20 Yrs <15 Yrs 20% 10% 0% 13% 12% Boston National Source: Residential Mortgage Servicing Database
17 Mortgages by Interest Type First District vs. Nation, March 2017 Fixed ARMs Other 100% 90% 16% 21% 80% Share of Mortgages 70% 60% 50% 40% 30% 83% 78% 20% 10% 0% Boston National Source: Residential Mortgage Servicing Database
18 Jumbo Mortgages First District vs. Nation, March 2017 Share of Mortgages 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: Residential Mortgage Servicing Database Non-Jumbo Jumbo 13% 17% 87% 83% Boston National
Share of Mortgages Mortgage Type Composition First District vs. Nation, March 2017 Conventional w/o PMI Conventional w/ PMI FHA Residential Other 100% 90% 9% 11% 80% 14% 70% 13% 60% 50% 40% 30% 72% 68% 20% 10% 19 0% Boston Nation Source: Residential Mortgage Servicing Database
20 Residential Loans in the FD and Nation % of outstanding balance (Avg. of Q1 & Q2 2017) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% First District Nation 86% 85% 13% 12% 2% 3% 1st Lien Closed-End Mortgages 2nd Lien Closed-End Mortgages HELOCs Source: Call Reports
Median Residential Real Estate Loan Yield Q2 2017 YTD 6.00 5.00 FD Median US Median 21 Average Branch Density Bin FD: 3.53 US: 1.73 Yield (%) 4.00 3.00 2.00 1.00 0.00 Non-MSA 1 2 3 MSA Branch Density Bin 4 5 (Bin 1: Fewest Branches / Sq. Mile) Source: US Census, Call Report
Boston and New York MSAs Central and Outlying Boundaries Counties in Boston MSA MA: Norfolk, Plymouth, Suffolk, Essex, Middlesex NH: Rockingham, Strafford Counties in New York MSA NJ: Essex, Hunterdon, Morris, Somerset, Sussex, Union, Bergen, Hudson, Middlesex, Monmouth, Ocean, Passaic NY: Dutchess, Putnam, Nassau, Suffolk, Bronx, Kings, New York, Orange, Queens, Richmond, Rockland PA: Pike 22 (Green = Outlying)
23 Median Residential Real Estate Yield Central Portion of MSA, Q2 2017 YTD 5.00 4.50 4.00 3.50 Yield (%) 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Region # of Banks Median Asset Size ($ Mil) Boston 85 $508 Chicago 123 $311 New York 112 $672 San Fran 20 $300 Nation 5,670 $203 Boston Chicago New York San Francisco Nation Source: US Census, Call Report
Average Residential Real Estate Loan Yield Q2 2017 YTD FD CBO US CBO 6.00 24 5.00 Yield (%) 4.00 3.00 2.00 1.00 0.00 <150MM 150MM - 250MM 250MM - 500MM 500MM - 1B 1B - 10B Asset Size Source: Call Report
Funding 25
26 % of Interest-Bearing Liabilities Core Funding* 89% 88% 87% 86% 85% 84% 83% 82% 81% FD Cost: 0.43% US Cost: 0.38% 88% 84% FD FD US *Transaction accounts (including brokered deposits), savings accounts, MMDAs and Time Deposits <$250M US Source: Call Report
27 Median CBO Funding Cost, Q2 2017 YTD FD US 0.90 0.80 0.70 0.60 Cost (%) 0.50 0.40 0.30 0.20 0.10 0.00 Non-MSA 1 2 3 4 5 MSA Branch Density Bin (Bin 1: Fewest Branches / Sq. Mile) Source: US Census, Call Report
Median CBO Funding Cost Central Portion of MSA, Q2 2017 YTD 0.90 0.80 0.70 0.60 28 Cost (%) 0.50 0.40 0.30 0.20 0.10 0.00 Boston Chicago New York San Francisco Nation Source: US Census, Call Report
29 Median Funding Costs by Asset Size Q2 2017 YTD FD Median US Median 0.80 0.70 0.60 0.50 Cost (%) 0.40 0.30 0.20 0.10 0.00 $0 - $150MM $150 - $250MM $250 - $500MM $500 - $1B $1B - $10B Asset Size Source: US Census, Call Report
Elements of Overhead 30
31 Non-Interest Expense / Average Assets FD CBOs US CBOs 3.20 3.10 % of Average Assets 3.00 2.90 2.80 2.70 2.60 Source: Call Report
32 Median Overhead / Average Assets Q3 16 Q2 17 FD US 3.50 3.00 % of Average Assets 2.50 2.00 1.50 1.00 0.50 0.00 non-msa 1 2 3 4 5 MSA Branch Density Bin (Bin 1: Fewest Branches / Sq. Mile) Source: US Census, Call Report
Median Overhead / Average Assets Central Portion of MSA, Q3 16 Q2 17 3.50 33 3.00 % of Average Assets 2.50 2.00 1.50 1.00 0.50 0.00 Boston Chicago New York San Francisco Nation Source: US Census, Call Report
34 Average Overhead / Average Assets by Asset Bin, Q3 2016 Q2 2017 FD CBO US CBO 4.00 3.50 % of Average Assets 3.00 2.50 2.00 1.50 1.00 0.50 0.00 < 150MM 150MM - 250MM 250MM - 500MM 500MM - 1B 1B - 10B Asset Size Source: Call Report
% of Average Assets Median CBO Salary & Benefit Expense by Central Portion of MSA, Q3 16 Q2 17 2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 35 0.00 Boston Chicago New York San Francisco Nation Source: US Census, Call Report
Median CBO Premises Expense by Central Portion of MSA, Q3 16 Q2 17 0.40 0.35 0.30 36 % of Average Assets 0.25 0.20 0.15 0.10 0.05 0.00 Boston Chicago New York San Francisco Nation Source: US Census, Call Report
Summary 37