Trends Among Community Banks - AchievementSuite Quarterly Newsletters

2013 Quarterly Newsletter: June 30 Actual, September 30 Expected and December 30 Forecast
AchievementSuite provides performance management and business intelligence software solutions for community banks. Our core product offering is the Tangible Results Suite, which establishes a pathway of continuous improvement by identifying and managing performance drivers. The Suite includes: TR Executive, TR Forecast and TR Income & Expense Optimizer.

Our forecasting model shows seven significant performance metrics for Q3 and Q4 2013.

Problem Assets to Capital & Allowance (Chart 1)
Among the better performing banks, this metric is no longer improving, suggesting that 6% is the industry floor. In addition, Problem Assets is averaging 1.0% of Total Assets, and 1.4 % of Total Loans among high performing banks.

Core Deposit Funding (Chart 2)
Core funding continues to fall among all performance groups; however, at a slower rate. Looking a year down the road, as loan growth picks up, management will need to re-focus on core deposit liquidity. It is interesting to note that over a $1 trillion in core deposits have exited the banking sector since 2008.

Problem Assets to Capital & Allowance    Core Funding

Loan Growth by Region (Charts 3 & 4)
Of the 2,900 banks we follow, total loans fell last quarter at an annual rate of 1% in the Southeast region while growing at an annual pace of 10% in the Western region of the U.S. Year over year loan growth for the 2,900 bank group was 5%.

Loan Assets    Loan Growth by Region

Fee Income (Chart 5)
Fee Income as a percent of average asset continued to grow in the second quarter. Our forecasting model projects continued growth in the 3rd and 4th quarter; however we believe that the recent falloff in mortgage refinance volumes will cause actual results to come in below our forecast. However, our model projects continued growth in fee income in middle and higher performance groups.

Provision (Chart 6)
0.31% of loans, and 0.21% of assets, are becoming the new standard for high performing banks.

Fee Income    Provision as a percentage of loans

Yield on Loans (Chart 7)
While we projected that yield on loans would continue to fall (by 4 basis points to 5.48%) yields stabilized at 5.52%, unchanged from Q1. While the long term trends (see our chart below) still project falling yields, outcomes will likely be better than our expected values.

Net Interest Margin (Chart 8)
Actual for Q2 was slightly better than expected but the trend is still negative so the rate of decline has slowed. Loan interest income has flattened. Net interest expense and investment yields continue to fall, and net cost of funds declined. Therefore the entire decline in Net Interest Margin is due to yields in the investment portfolio. Our analysis indicates that: (1) investments (bonds) are being replaced at lower yields; and/or (2) management (ALCO Committees) is/are shortening portfolio maturities in anticipation of rising yield curves.

Yield on Loans    Net Interest Margin

Call to Action
• Set reasonable performance targets based on market and customer profiles.
• Set achievable milestones with dates for each target.
• Assign performance targets and milestones to business units.
• Evaluate results, execute corrective actions, and improve business practices.
• Re-benchmark each quarter and re-set targets and milestones.
• Make sure evaluation and compensation plans are reasonable, equitable, controllable and symmetrical.

Contact Us:
We can help with performance benchmarking and mapping, target and milestone design, and business unit and team metrics. To learn more about our Tangible Results Suite (TR Executive, TR Forecast and TR I&E Optimizer), please contact us.


The preceding metrics are derived from our analysis of quarterly results for 2,900 community banks, a universe that has been selected beginning with all 7,000 FDIC insured banks and screened to eliminate very poor performing banks and non-community banks. The 2,900 bank universe is scored and then ranked into eight performance levels based on each bank’s aggregate score for soundness, profitability and growth. Outcome metrics that are used to measure overall performance include capital levels, non-performing assets, ROA, and asset growth. Our modeling process derives expected values for the second quarter and forecasted values for the third quarter of 2013 for key performance metrics affecting community bank results.

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