Ernie Knott Northeastern District Financial Analyst · 3/21/2018 · Advisory Committee Meeting March 21, 2018 Mutual Overview and Trends Ernie Knott Northeastern District Financial
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Mutual Savings Association Advisory Committee Meeting
March 21, 2018
Mutual Overview and Trends
Ernie KnottNortheastern District Financial Analyst
2
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
3
OCC Supervised Institutions by TypeOCC supervised 1,419 institutions as of December 31, 2017. Federal
Savings Associations represent 24 percent of OCC charters.
Portfolio Demographics
4
OCC and MCBS Supervised AssetsFederal 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
5
Trends in OCC Supervised FSAsThe 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
0
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 135Stock $ (B) 853 864 749 668 668 655 646 660 646 634 664 697 710 724Mutual $ (B) 57 54 54 51 50 48 48 47 48 45 45 45 45 45
6
FSAs by Charter TypeMutual 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 7
Most mutual FSAs are classified as residential real estate lenders followed by diversified lenders.
8
Mutual FSAs by StateMutual 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
9
FSAs by Asset BucketsMutual 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
2527
37
30
106
15
25
55
41
27
46
40
52
92
71
37
52
0%
6%
12%
18%
24%
30%
Less Than$50MM
$50MMTo
$100MM
$100MMTo
$250MM
$250MMTo
$500MM
$500MMTo $1B
GreaterThan $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%
0 0
14
66
55
49
29 29
49 53
49
2943
115 108
0%
10%
20%
30%
40%
50%
< 25 Yrs 25 to 50 Yrs 50 to 75 Yrs 75 to 100Yrs > 100 Yrs
Mutual FSAs 0% 0% 10% 49% 41%Stock FSAs 23% 14% 14% 23% 25%All FSAs 14% 8% 13% 33% 31%
10
FSA Age DistributionMutual FSAs represent some of the oldest financial institutions in the
United States. 41 percent of mutual FSAs were formed more than 100years ago. 90 percent have operated for 75 years or more.
Portfolio Demographics
11
Mutual FSA Composite RatingsComposite ratings at mutual FSAs improved since last year. 95 percent
of 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
12
Mutual FSA Peer GroupsMutual 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
Number101102103104
Peer Group
Number101M102M103M104M
Ownership Type and Assets*
Mutually-owned savings banks in excess of $1 billionMutually-owned savings banks between $300 million and $1 billionMutually-owned savings banks between $100 million and $300 millionMutually-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 billionFDIC insured savings banks between $300 million and $1 billionFDIC insured savings banks between $100 million and $300 millionFDIC insured savings banks less than $100 million
Institution Type and Assets*
13
Tier 1 Leverage Capital RatioMutual 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 2017Q4101M 12.76 12.96 13.19 13.35 13.50102M 12.79 13.04 13.63 14.00 14.29103M 13.35 13.52 13.86 13.71 13.75104M 14.44 14.30 14.33 14.70 15.36Mutual 13.35 13.52 13.87 14.15 14.53
Leverage Ratio for
State Mutuals:
12.12 as of 2017Q4
14
Total Risk-based Capital RatioMutual 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 2017Q4101M 24.19 23.25 23.20 22.98 23.06102M 26.46 26.32 26.99 28.01 28.68103M 27.08 26.26 27.68 26.24 25.52104M 34.29 36.76 35.08 36.79 36.29Mutual 28.55 28.26 28.07 28.02 27.85
15
FSA PCA Categories99 percent of all mutual FSAs are well-capitalized per the Prompt
Corrective Action (PCA) provisions of FDICIA.
Financial & Rating Metrics
134
1 0 0
197
110 1
331
12 0 10%
20%
40%
60%
80%
100%
Well Adequate Under Sig UnderMutual 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
16
Mutual FSA Capital RatingsMutual FSA capital ratings improved in 2017. 97 percent of mutual FSAs
are rated 1 or 2 for capital.
Financial & Rating Metrics
17
Classified Assets to Tier 1 Capital + ALLLClassified 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 2017Q4101M 8.48 7.62 6.41 4.86 2.54102M 14.79 10.95 8.01 7.17 5.90103M 18.25 15.86 12.58 12.60 10.78104M 14.42 14.19 9.22 10.05 9.30Mutual 15.52 14.20 10.30 10.11 8.68
18
Net Loans & Leases - 1 Year Growth RateMutual 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 2017Q4101M 0.74 3.65 5.25 5.87 3.50102M 1.52 3.41 2.16 3.94 6.45103M ‐2.37 ‐0.88 0.03 2.74 4.05104M ‐2.57 ‐0.13 ‐0.72 ‐0.05 1.44Mutual ‐1.71 0.39 0.36 2.16 3.69
19
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
20
Mutual Growth Rates by Loan CategoryThe 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% 1.70 201-4 Family Jr Lien Loans 87% -4.32 2Home Equity Lines of Credit 79% 1.15 11CRE: Multifamily Loans 79% -1.19 15CRE: Land & Development Loans 87% 9.76 23CRE: NonFarm Nonresi Loans 93% -1.14 26Commercial & Industrial Loans 2% 56% 4.17 14Lns to Indivs: Other Revolving 93% 3.45 0Lns to Indivs: Auto Loans 67% 1.63 5Lns to Indivs: Other Consumer Loans 27% -3.03 0Lns to Indivs: Credit Cards 9% 6.44 0Other: Lns to Finance Ag Production 19% -2.00 0Other: Lns Secured by Farmland 44% -2.91 12Other: Other Loans in Domestic Offices 41% -16.94 0
(a) - for mutual FSAs that have exposure to capital > 25% for the loan category
5%
17%
3%
2%
21
Allowance for Loan and Lease LossesALLL 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 2017Q4101M 0.82 0.81 0.81 0.78 0.75102M 0.81 0.82 0.81 0.80 0.75103M 1.11 1.06 0.99 0.98 0.96104M 1.11 1.07 1.04 1.08 0.98Mutual 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
22
Mutual FSA Asset Quality RatingsAsset 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
23
Mutual FSA Management RatingsManagement ratings remain very positive. 93 percent of mutual FSAs
are rated 1 or 2 for management.
Financial & Rating Metrics
24
Return on Average AssetsMutual 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 2017Q4101M 0.64 0.57 0.59 0.63 0.65102M 0.50 0.43 0.50 0.51 0.43103M 0.38 0.37 0.41 0.43 0.43104M 0.28 0.17 0.27 0.31 0.28Mutual 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 2017Q4Res. RE 0.40 0.36 0.37 0.40 0.37Diverse 0.33 0.46 0.46 0.46 0.50
25
Return on Average Assets by Lender PeerDiversified lenders have higher ROAAs since 2014.
Financial & Rating Metrics
26
Efficiency RatioMutual 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 2017Q4101M 73.62 74.44 72.19 70.92 71.16102M 76.88 79.69 79.63 77.61 73.59103M 78.94 81.29 81.64 81.65 81.08104M 85.19 88.87 88.83 87.54 88.43Mutual 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 EXPENSENONINT 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
27
Efficiency Ratio BreakdownSmaller 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
28
Mutual FSA Earnings RatingsEarnings 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
29
Net Non-core Funding Dependence RatioLevels 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 2017Q4101M ‐2.84 ‐2.88 ‐2.53 ‐2.10 ‐0.87102M ‐2.08 ‐0.54 ‐0.28 1.35 ‐0.36103M ‐7.88 ‐4.72 ‐6.49 ‐2.22 ‐2.67104M ‐7.17 ‐8.14 ‐6.51 ‐8.71 ‐8.07Mutual ‐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 2017Q4101M 89.63 92.48 91.68 93.92 95.30102M 79.32 80.62 80.04 80.87 87.07103M 81.36 83.53 81.71 82.93 82.52104M 77.84 81.27 82.04 80.10 80.35Mutual 79.86 81.67 81.96 80.87 83.23
30
Net Loans & Leases to Total Deposits RatioLoan 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
31
Mutual FSA Liquidity RatingsLiquidity ratings for mutual FSAs improved in 2017. 99 percent are rated
1 or 2.
Financial & Rating Metrics
32
Long-term Assets to Total Assets RatioLong-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 2017Q4101M 48.26 46.31 49.35 58.16 57.52102M 56.11 59.09 59.77 62.40 62.14103M 41.96 42.87 45.57 46.02 49.59104M 54.94 56.47 53.29 49.98 53.75Mutual 51.94 52.21 51.29 51.04 53.75
33
Sensitivity to Market Risk RatingsSensitivity 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
34
Mutual FSA Specialty RatingsSpecialty ratings are good. Only 5 mutual FSAs have trust powers.
Financial & Rating Metrics
35
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
36
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