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Community banking 'not for the fainthearted,' but revenue opportunities exist

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Community banking 'not for the fainthearted,' but revenue opportunities exist

In the first quarter of 2016 many community banks sawsizable year-over-year growth in operating revenue amid acquisitions, regionalpockets of strength and improving loan growth.

This analysis looks at banks with less than $10 billion inassets that, as of April 22, had reported earnings for the quarter ended March31. The banks are split into different asset groups — the sub-$1 billion banks,the $1 billion to $5 billion institutions, and those with between $5 billionand $10 billion in assets. In each bucket, banks saw year-over-year growth inoperating revenue on a median basis.

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Vining Sparks chief economist Craig Dismuke said thatregional strength, better loan growth and more optimism about the economy couldbe factors in community banks' strong operating revenue figures. Dismuke alsosaid that small banks are expressing more hope in the economy as they have seenbetter activity than expected.

The top executive at Howard Bancorp Inc., a bank in Ellicott City, Md., fastapproaching $1 billion in assets, voiced cautious optimism about the economy.Chairman, President and CEO Mary Ann Scully pointed to an environment that ismore conducive to organic loan growth than it has been in recent years."It's very, very competitive as a result," she said. "I thinkfor the last two quarters, you've seen more kind of typical and healthy organicgrowth that's driven by growth in some of our business clients. It's a differentmarket than it was a year ago."

Despite improvements, the market continues to presentchallenges. "Community banking is not for the fainthearted, but we dothink that there are multiple growth opportunities," Scully said.

Howard Bancorp saw strong growth in its operating revenue,which Scully attributed to the bank's three-pronged strategy of organiccommercial loan growth to drive net interest income; growth in noninterestincome, and mortgages in particular; and growth through acquisitions.

Howard Bancorp did a branch deal in 2013, a failed-bankacquisition and another branch deal in 2014, and completed the of Dundalk, Md.-basedPatapsco Bancorp Inc.in 2015. The bank has also done lift-outs of lending teams over the past fewyears. Scully said that more M&A is on the horizon. "I don't know if Ican say this year, but you should expect another deal. It is a big part of ourstrategy," she said.

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Among banks with between $1 billion and $5 billion inassets, Pacific Premier BancorpInc. saw its year-over-year operating revenue growth climb nearly54%. During the bank's earningscall, executives pointed to the quarter's strong loan productionwithin a seasonally slower period. Management also highlighted Pacific Premier'sbusiness and reputation growth in the Southern California market.

"We're able to recruit and attract a more experiencedcaliber of banker and we're consistently seeing an improvement in the qualityof our team," said President and CEO Steven Gardner. "We are seeingthis manifest itself in strong loan and deposit pipelines, which are at theirhighest levels in the history of the company."

In terms of loan originations, Gardner said that the bankfinished the first quarter ahead of where it expected to be amid the integrationof its Security CaliforniaBancorp acquisition.

Nashville, Tenn.-based Pinnacle Financial Partners Inc., which is nearing $10billion in assets, grew operating revenue more than 42% year over year. Duringthe company's recent earningscall, management pointed to Pinnacle's organic growth model.

"By way of update on these various growth initiatives,the hiring momentum is as strong as I ever remember," said President andCEO M. Terry Turner. "In the first quarter of 2016, we've hired 14revenue-producing associates, again a pace similar to what we did in the fourthquarter of 2015."

Pinnacle executives also emphasized the revenueopportunities created by recent deals, including the pending of Lookingahead, executives at the acquisitive bank pointed out that they are beginningto harvest "revenue synergies" from both of their 2015 deals.  

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