Mutual Savings Association Advisory Committee Meeting March 21, 2018 - - PowerPoint PPT Presentation

Mutual Savings Association Advisory Committee Meeting

March 21, 2018

Mutual Overview and Trends

Ernie Knott

Northeastern District Financial Analyst

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Mutual Overview and Trends

1. Portfolio Demographics

• Federal Savings Associations (FSAs) trends by form of organization, lender

peer, state, asset distribution, and charter age. 2. Financial & Rating Metrics

• Composite Rating, Capital (including PCA categories), Asset Quality

(including loan mix and loan growth), Management, Earnings (including efficiency ratio detail), Liquidity, Sensitivity to Market Risk, and Specialty

• areas. Some breakouts by mutual peer groups.

3. Supervisory Information

• Risk Assessment Information, Examination Cycle, Matters Requiring Attention

(MRAs), Violations of Law (VOLs), and Supervisory Rating Changes. 4. OCC Supervisory Tools

• Canary FSA Benchmarks, Thrift Analysis Report, Mutual Peer Bank

Performance Report, Quarterly FSA Briefing Package, and Customized Mutual Q Book.

Agenda

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OCC Supervised Institutions by Type

OCC supervised 1,419 institutions as of December 31, 2017. Federal Savings Associations represent 24 percent of OCC charters.

Portfolio Demographics

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OCC and MCBS Supervised Assets

Federal Savings Associations (FSAs) represent 7 percent of OCC supervised assets and 28 percent of Midsize and Community Bank Supervision (MCBS) supervised assets. All mutual FSAs are supervised by MCBS.

Portfolio Demographics

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Trends in OCC Supervised FSAs

The number of mutual FSAs continue to decline but not as rapidly as stock FSAs. Aggregate assets held by mutual FSAs of $45 billion remained fairly stable over the last year.

Portfolio Demographics

$0 $200 $400 $600 $800 $1,000 100 200 300 400 500 600 700 2Q11 (649) 4Q11 (619) 2Q12 (573) 4Q12 (546) 2Q13 (521) 4Q13 (497) 2Q14 (468) 4Q14 (448) 2Q15 (429) 4Q15 (403) 2Q16 (390) 4Q16 (373) 2Q17 (357) 4Q17 (344) # Stock 430 406 370 352 333 312 293 277 260 243 237 226 216 209 # Mutual 219 213 203 194 188 185 175 171 169 160 153 147 141 135 Stock $ (B) 853 864 749 668 668 655 646 660 646 634 664 697 710 724 Mutual $ (B) 57 54 54 51 50 48 48 47 48 45 45 45 45 45

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FSAs by Charter Type

Mutual FSAs and stock FSAs mutually-owned (that have not issued shares) represent 45 percent of OCC-regulated FSAs.

Portfolio Demographics

FSAs by Lender Peer

Portfolio Demographics

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Most mutual FSAs are classified as residential real estate lenders followed by diversified lenders.

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Mutual FSAs by State

Mutual FSAs are concentrated in the Midwest and Northeastern states. There are three states with 10 or more mutual FSAs: Ohio (17); Illinois (11); and Pennsylvania (10).

Portfolio Demographics

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FSAs by Asset Buckets

Mutual FSAs are typically smaller in size than their stock counterparts. Only 4 percent of mutual FSAs have total assets greater than $1 billion versus 22 percent of stock FSAs.

Portfolio Demographics

25 27 37 30 10 6 15 25 55 41 27 46 40 52 92 71 37 52 0% 6% 12% 18% 24% 30% Less Than $50MM $50MM To $100MM $100MM To $250MM $250MM To $500MM $500MM To $1B Greater Than $1B Mutual FSAs 19% 20% 27% 22% 7% 4% Stock FSAs 7% 12% 26% 20% 13% 22% All FSAs 12% 15% 27% 21% 11% 15%

14 66 55 49 29 29 49 53 49 29 43 115 108 0% 10% 20% 30% 40% 50% < 25 Yrs 25 to 50 Yrs 50 to 75 Yrs 75 to 100 Yrs > 100 Yrs Mutual FSAs 0% 0% 10% 49% 41% Stock FSAs 23% 14% 14% 23% 25% All FSAs 14% 8% 13% 33% 31%

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FSA Age Distribution

Mutual FSAs represent some of the oldest financial institutions in the United States. 41 percent of mutual FSAs were formed more than 100 years ago. 90 percent have operated for 75 years or more.

Portfolio Demographics

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Mutual FSA Composite Ratings

Composite ratings at mutual FSAs improved since last year. 95 percent

• f all mutual FSAs are satisfactorily rated with a composite 1 or 2.

Financial & Rating Metrics

23% 24% 25% 27% 67% 67% 69% 68% 10% 8% 6% 5% 0% 20% 40% 60% 80% 100% 2014Q4 2015Q4 2016Q4 2017Q4 1 Rated 2 Rated 3/4/5 Rated

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Mutual FSA Peer Groups

Mutual FSAs are placed into four peer groups and four supplemental peer groups based on quarterly average assets from the call report.

Financial & Rating Metrics

Peer Group Number

101 102 103 104

Peer Group Number

101M 102M 103M 104M

Ownership Type and Assets*

Mutually-owned savings banks in excess of $1 billion Mutually-owned savings banks between $300 million and $1 billion Mutually-owned savings banks between $100 million and $300 million Mutually-owned savings banks less than $100 million *Asset figure used in latest quarterly average assets (from FFIEC Call Report Schedule RC-K) FDIC insured savings banks in excess of $1 billion FDIC insured savings banks between $300 million and $1 billion FDIC insured savings banks between $100 million and $300 million FDIC insured savings banks less than $100 million

Institution Type and Assets*

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Tier 1 Leverage Capital Ratio

Mutual tier 1 capital levels continue on an upward trajectory under OCC supervision.

Financial & Rating Metrics

12.50 13.00 13.50 14.00 14.50 15.00 15.50 16.00 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 101M 12.76 12.96 13.19 13.35 13.50 102M 12.79 13.04 13.63 14.00 14.29 103M 13.35 13.52 13.86 13.71 13.75 104M 14.44 14.30 14.33 14.70 15.36 Mutual 13.35 13.52 13.87 14.15 14.53

Leverage Ratio for State Mutuals: 12.12 as of 2017Q4

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Total Risk-based Capital Ratio

Mutual total risk-based capital levels remain strong and stable, hovering around 28 percent.

Financial & Rating Metrics

12.50 17.50 22.50 27.50 32.50 37.50 42.50 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 101M 24.19 23.25 23.20 22.98 23.06 102M 26.46 26.32 26.99 28.01 28.68 103M 27.08 26.26 27.68 26.24 25.52 104M 34.29 36.76 35.08 36.79 36.29 Mutual 28.55 28.26 28.07 28.02 27.85

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FSA PCA Categories

99 percent of all mutual FSAs are well-capitalized per the Prompt Corrective Action (PCA) provisions of FDICIA.

Financial & Rating Metrics

134 1 197 11 1 331 12 1 0% 20% 40% 60% 80% 100% Well Adequate Under Sig Under Mutual FSAs 99% 1% 0% 0% Stock FSAs 94% 5% 0% 0% All FSAs 96% 3% 0% 0%

55% 57% 58% 60% 40% 39% 39% 37% 5% 4% 4% 3% 0% 20% 40% 60% 80% 100% 2014Q4 2015Q4 2016Q4 2017Q4 1 Rated 2 Rated 3/4/5 Rated

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Mutual FSA Capital Ratings

Mutual FSA capital ratings improved in 2017. 97 percent of mutual FSAs are rated 1 or 2 for capital.

Financial & Rating Metrics

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Classified Assets to Tier 1 Capital + ALLL

Classified levels continue to decline for mutual FSAs.

Financial & Rating Metrics

0.00 5.00 10.00 15.00 20.00 25.00 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 101M 8.48 7.62 6.41 4.86 2.54 102M 14.79 10.95 8.01 7.17 5.90 103M 18.25 15.86 12.58 12.60 10.78 104M 14.42 14.19 9.22 10.05 9.30 Mutual 15.52 14.20 10.30 10.11 8.68

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Net Loans & Leases - 1 Year Growth Rate

Mutual FSA loan growth continues to be slow but in positive territory for

• 2017. Loan growth is strongest for the 102M peer group.

Financial & Rating Metrics

‐4.00 ‐2.00 0.00 2.00 4.00 6.00 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 101M 0.74 3.65 5.25 5.87 3.50 102M 1.52 3.41 2.16 3.94 6.45 103M ‐2.37 ‐0.88 0.03 2.74 4.05 104M ‐2.57 ‐0.13 ‐0.72 ‐0.05 1.44 Mutual ‐1.71 0.39 0.36 2.16 3.69

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Mutual FSA Loan Distribution

Financial & Rating Metrics

Loan portfolios held by mutual FSAs are heavily concentrated in residential mortgages.

1-4 Family 1st Liens 1-4 Fam Jr. Liens + HELOCS Comm'l Real Estate Comm'l & Industrial Consumer Other Loans Mutual 31,871,025 71% 5% 17% 2% 3% 3% Stock 367,007,896 49% 6% 30% 6% 6% 3% All FSAs 398,878,921 58% 5% 25% 5% 5% 3%

Loan Distribution by FSA Type-Straight Average

Charter Type $ Loans (000's) 12/31/2017 % of Total Loans

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Mutual Growth Rates by Loan Category

The highest loan growth for mutual FSAs has been in the land and development loan category.

Financial & Rating Metrics

Loan Category % of Total Loans % of Mutuals That Offer Product Median Year-over- year Growth Rate # with growth rates > 10% (a) 1-4 Family 1st Lien Loans 71% 100% 1.70 20 1-4 Family Jr Lien Loans 87%

• 4.32

2 Home Equity Lines of Credit 79% 1.15 11 CRE: Multifamily Loans 79%

• 1.19

15 CRE: Land & Development Loans 87% 9.76 23 CRE: NonFarm Nonresi Loans 93%

• 1.14

26 Commercial & Industrial Loans 2% 56% 4.17 14 Lns to Indivs: Other Revolving 93% 3.45 Lns to Indivs: Auto Loans 67% 1.63 5 Lns to Indivs: Other Consumer Loans 27%

• 3.03

Lns to Indivs: Credit Cards 9% 6.44 Other: Lns to Finance Ag Production 19%

• 2.00

Other: Lns Secured by Farmland 44%

• 2.91

12 Other: Other Loans in Domestic Offices 41%

• 16.94

(a) - for mutual FSAs that have exposure to capital > 25% for the loan category 5% 17% 3% 2%

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Allowance for Loan and Lease Losses

ALLL levels for mutual FSAs have been decreasing in recent years and now represent 0.91 percent of total loans.

Financial & Rating Metrics

0.40 0.60 0.80 1.00 1.20 1.40 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 101M 0.82 0.81 0.81 0.78 0.75 102M 0.81 0.82 0.81 0.80 0.75 103M 1.11 1.06 0.99 0.98 0.96 104M 1.11 1.07 1.04 1.08 0.98 Mutual 1.05 0.98 0.97 0.97 0.91

34% 33% 38% 39% 53% 57% 56% 56% 13% 10% 7% 4% 0% 20% 40% 60% 80% 100% 2014Q4 2015Q4 2016Q4 2017Q4 1 Rated 2 Rated 3/4/5 Rated

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Mutual FSA Asset Quality Ratings

Asset quality ratings continue to improve for mutual FSAs. 95 percent are rated 1 or 2 for asset quality.

Financial & Rating Metrics

23% 21% 23% 23% 64% 69% 70% 70% 13% 10% 7% 7% 0% 20% 40% 60% 80% 100% 2014Q4 2015Q4 2016Q4 2017Q4 1 Rated 2 Rated 3/4/5 Rated

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Mutual FSA Management Ratings

Management ratings remain very positive. 93 percent of mutual FSAs are rated 1 or 2 for management.

Financial & Rating Metrics

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Return on Average Assets

Mutual earnings remain flat overall. The larger the mutual, the better the ROAA.

Financial & Rating Metrics

0.00 0.20 0.40 0.60 0.80 1.00 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 101M 0.64 0.57 0.59 0.63 0.65 102M 0.50 0.43 0.50 0.51 0.43 103M 0.38 0.37 0.41 0.43 0.43 104M 0.28 0.17 0.27 0.31 0.28 Mutual 0.39 0.36 0.39 0.40 0.38

0.20 0.30 0.40 0.50 0.60 0.70 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4

• Res. RE

0.40 0.36 0.37 0.40 0.37 Diverse 0.33 0.46 0.46 0.46 0.50

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Return on Average Assets by Lender Peer

Diversified lenders have higher ROAAs since 2014.

Financial & Rating Metrics

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Efficiency Ratio

Mutual efficiency ratios remain elevated, hovering around 82 percent since 2014. The larger the mutual, the better the efficiency ratio.

Financial & Rating Metrics

70.00 74.00 78.00 82.00 86.00 90.00 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 101M 73.62 74.44 72.19 70.92 71.16 102M 76.88 79.69 79.63 77.61 73.59 103M 78.94 81.29 81.64 81.65 81.08 104M 85.19 88.87 88.83 87.54 88.43 Mutual 79.90 82.28 81.90 82.32 81.74

$ YE 17 YOY Δ % of AA $ YE 17 YOY Δ % of AA

NONINT EXPENSE

1,050,173 5.18 2.50 389,169 1.43 3.01

NONINT EXPENSE NONINT INCOME

225,710 ‐3.95 0.48 60,459 0.02 0.40

NONINT INCOME NET INT INCOME (TE)

1,221,151 6.99 2.84 407,003 3.36 3.05

NET INT INCOME (TE)

Efficiency Ratio Efficiency Ratio

Efficiency Component

101M & 102M 103M & 104M 72.58 83.25

Efficiency Component

Peer Groups Peer Groups

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Efficiency Ratio Breakdown

Smaller mutual FSAs (peer groups 103M & 104M) have higher net interest margins, lower fee income, and higher overhead expenses.

Financial & Rating Metrics

Green shaded cells indicate the most favorable components in relation to average assets

15% 16% 17% 14% 51% 56% 61% 66% 34% 28% 22% 20% 0% 20% 40% 60% 80% 100% 2014Q4 2015Q4 2016Q4 2017Q4 1 Rated 2 Rated 3/4/5 Rated

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Mutual FSA Earnings Ratings

Earnings ratings continue to improve but lag ratings in other safety and soundness areas. Only 80 percent of mutual FSAs are rated 1 or 2 for earnings.

Financial & Rating Metrics

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Net Non-core Funding Dependence Ratio

Levels of net non-core funding dependence remain low and stable for mutual FSAs.

Financial & Rating Metrics

‐20.00 ‐15.00 ‐10.00 ‐5.00 0.00 5.00 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 101M ‐2.84 ‐2.88 ‐2.53 ‐2.10 ‐0.87 102M ‐2.08 ‐0.54 ‐0.28 1.35 ‐0.36 103M ‐7.88 ‐4.72 ‐6.49 ‐2.22 ‐2.67 104M ‐7.17 ‐8.14 ‐6.51 ‐8.71 ‐8.07 Mutual ‐5.91 ‐4.32 ‐4.31 ‐4.65 ‐1.91

75.00 80.00 85.00 90.00 95.00 100.00 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 101M 89.63 92.48 91.68 93.92 95.30 102M 79.32 80.62 80.04 80.87 87.07 103M 81.36 83.53 81.71 82.93 82.52 104M 77.84 81.27 82.04 80.10 80.35 Mutual 79.86 81.67 81.96 80.87 83.23

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Net Loans & Leases to Total Deposits Ratio

Loan to deposit ratios continue to rise. This ratio is usually higher for FSAs due to more reliance on FHLB borrowings and the Qualified Thrift Lender (QTL) test.

Financial & Rating Metrics

58% 57% 58% 57% 41% 40% 39% 42% 1% 3% 3% 1% 0% 20% 40% 60% 80% 100% 2014Q4 2015Q4 2016Q4 2017Q4 1 Rated 2 Rated 3/4/5 Rated

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Mutual FSA Liquidity Ratings

Liquidity ratings for mutual FSAs improved in 2017. 99 percent are rated 1 or 2.

Financial & Rating Metrics

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Long-term Assets to Total Assets Ratio

Long-term assets for some mutual peer groups are increasing. About half of mutual FSA assets are considered long-term.

Financial & Rating Metrics

30.00 40.00 50.00 60.00 70.00 80.00 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 101M 48.26 46.31 49.35 58.16 57.52 102M 56.11 59.09 59.77 62.40 62.14 103M 41.96 42.87 45.57 46.02 49.59 104M 54.94 56.47 53.29 49.98 53.75 Mutual 51.94 52.21 51.29 51.04 53.75

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Sensitivity to Market Risk Ratings

Sensitivity to market risk ratings for mutual FSAs improved in 2017. 97 percent are rated 1 or 2.

Financial & Rating Metrics

55% 23% 27% 27% 40% 73% 68% 70% 5% 4% 4% 3% 0% 20% 40% 60% 80% 100% 2014Q4 2015Q4 2016Q4 2017Q4 1 Rated 2 Rated 3/4/5 Rated

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Mutual FSA Specialty Ratings

Specialty ratings are good. Only 5 mutual FSAs have trust powers.

Financial & Rating Metrics

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OCC Supervisory Tools/Products

OCC Supervisory Tools

• Canary System Benchmarks
• Thrift Analysis Report
• Mutual Peer Bank Performance Report
• Quarterly FSA Briefing Package
• Customized Mutual Q Book

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Questions ?