While the Twittersphere has been agog about Twitter’s IPO today, we have been staying focused on Tweeting (@CSB4banks) about bank performance (with some banking sarcasm thrown in). It is a new medium for us and we still struggle to think in 140 character strings.
It is not that we have any doubts about Twitter’s long run viability, as it is really the only microblogging option that has the potential for great growth and has the potential for 50% margins. For us, it is the perfect medium to get real time thoughts out about live banking conferences, best bank practices (including social media), fresh data and banking events. Not everything warrants a blog post or email and so Twitter has proven a great channel to not only post information, but also engage customers. The ease of use makes information dissemination quicker and timelier. When it comes to posing quarterly performance metrics, it is perfect. In case you missed some of our Tweets about third quarter performance, here is a quick recap of what is happening with top performing banks.
There are 427, or roughly 6% of the banks that are under $100 billion in assets that have produced over a 2% Return on Average Asset (ROAA) number for the third quarter. While next week we will Tweet and blog the material drivers of a superior ROA, we wanted to set the stage and let you know statistically what a top performing banks looks like for third quarter.
For starters, the average size of a high performing bank (as defined by a ROA over 2%), is $903 million, 74% of which are composed of loans. The average ROAA for this group is an impressive 5.35%. The average number of branches is nine and the average number of employees is 198.
Loan growth for this group is a strong 13% (which is almost 3x the industry average) and the composition of the loan portfolio is a split between residential mortgages, commercial and commercial real estate. Agriculture loans make up a little less than 10% and construction makes up less than 5%. Similar to last quarter, a large credit card portfolio is the fastest way to get into this group of superior performing banks.
The average yield on loans is an impressive 7.01%, but again these are skewed because of the credit card banks. The net interest margin is 4.55%, well above the 3.76% average for the community bank industry. No surprise that loan quality is high, as only 1.76% of the loans are non-current for the average top performing bank. Allowance for loan and lease loss is 1.96%, which is just a touch above the industry average. Deposit leverage is nothing special at 78%, which is just a little higher than average.
Speaking of deposits, the average cost of funds for this group of outperformers for the third quarter was 76 basis points, which is completely average for the industry. Deposit growth averaged 12.4%, almost double the industry average. In terms of composition, the remarkable thing here is that nothing is really remarkable. Non-interest bearing deposits to total deposits are 18.8%, transactional deposits to total deposits are 25.8%, money market accounts to total deposits are 33.2% and CDs to total deposits are 33.3% - all right at the average for the industry. Only jumbo CDs as a percent of CDs came in at 9.2%, which is higher than the industry’s 5.2%.
However, of all the areas, here is where these top performing banks stand out. They hold almost double the average capital (core) for the industry at 22.6%. This cohort produces fee income as a percent of total revenue of 19.2%, which is more than 9x the industry average. In terms of cost of operations, these banks are trimmed for speed as their efficiency ratio is an impressive 54.4% compared to the industry average of 72.8%.
Please keep in mind that this is just a statistical outline of this group. We are breaking in a new, advanced pattern recognition model and should be able to tell you the drivers and contributing factors to top level ROAA with greater accuracy than ever before. We will outline which bank performance factors are dependent and which are independent so that you have a better feel for what are the most important initiatives to focus on to improve ROAA the fastest.
We will be Tweeting our findings first so be sure to follow us on Twitter (just click the blue bird icon and then click “Follow” or go @CSB4Banks). Twitter will become more popular after today so you might as well not only get your information right after it is created, but see firsthand if you are made to communicate in 140 character thoughts.
Submitted by Chris Nichols on November 07, 2013