Moving up the ladder In post-merger mode, Community Bank earns recognition from banking industry
In the six months that have passed since completing its merger with First Federal Savings Bank, the numbers have been very good for CB Financial Services – as has the recognition of the performance.
The results of the Carmichaels-based bank holding company – better known for its Community Bank badge – have earned the notice of the American Bankers Association, which recently placed the company on its top 200 publicly traded community banks and thrifts with less than $2 billion in assets.
But as Pat McCune, CEO of Community Bank and CB Financial Services, notes, the designation is an indicator that the Carmichaels-based bank has moved onto a higher rung of the banking industry ladder for a variety of reasons.
“The merger has catapulted Community Bank to a higher level of performance in many regards,” McCune said last week in discussing the bank’s major events of the last half-year.
While the bank haD been recognized in the past for financial performance, its post-merger size puts it in a different class.
“We’re in a different peer group now,” McCune said.
In addition to its inclusion in the ABA’s Top 200 publicly traded community banks, CB Financial, which now trades on the NASDQ Exchange, also received the highest ranking from an independent rating firm.
Earlier this month, CB Financial was notified by the ABA that it has also been added to the prestigious ABA NASDAQ Community Bank Index, which, because it is calculated on both a total return and price return basis, has been embraced by the financial community as a benchmark for the community banking industry.
As of June 1, the index included 367 community banks with a total market capitalization of $199 billion. It is reported daily on aba.com and through all financial data services under the ticker symbol ABAQ, and is reported daily in ABA’s flagship publication American Banker.
The ABA’s Top 200 designation is based on a bank’s three-year average return on equity – how it reinvests shareholders’ investments, as well as return on average assets – how it reinvests the assets of depositors. Other metrics include net interest margin, net income as well as loan growth, which the association notes is what separates top performers from also-rans.
“The overall group of 750 institutions that fit the criteria for our ranking had median noninterest expense growth of 2.91 percent last year,” the ABA wrote when it released its list at the end of May.
“But they also posted median net loan growth of 7.3 percent, which contributed to median revenue growth of 3.41 percent.”
In its introduction to its analysis, the ABA noted the difference between cost-cutting at banks versus the ability to generate more loans.
“Though cost cuts hae been a focus across the industry for years,” the ABA wrote, “noninterest expenses for this group of community banks continued to rise in 2014, according to Capital Performance Group’s analysis. The trend could be worrisome, CPG said, if the extra spending had not been offset by extra income.
“Those that earned a spot in the top 200 – as ranked by their return on average equity across three years – set themselves apart mainly by doing a better job than their peers of making loans rather than keeping costs down,” CPG continued.
“Noninterest expenses for these 200 best performers actually increased a median of 3.46 percent last year, or 55 basis points more than for the larger peer group.
To CPG Senior Analyst Kevin Halsey, those who landed on the top performers list are there because of their ability to generate more loans.
“… They booked more loans than their peers (net loans grew a median of 7.8 percent), and did so at comparatively higher interest rates,” Halsey said.
The yield on average earning assets for the top 200 was a median of 4.22 percent last year, compared with 4.10 percent for the peer group, the analysis showed. As a result, their median revenue growth also was higher at 3.58 percent.
The ABA noted that with the performance of small banks improving overall, the competition to earn a spot on the top 200 continues to grow. It noted that to make its 2014 list, institutions had to post a three-year average ROE of 8.66, while this year, the cutoff was higher at 8.76 percent.
CB Financial was 166th on the ABA Top 200, with total assets of $846.3 million, a three-year return on average equity of 9.21 percent and net interest margin of 3.47 percent. It had net income of $4.29 million and total noninterest income of $3.75 million.
Backing up CB Financial’s strong performance is a separate, top-performance ranking it received in April from BauerFinancial Inc., the nation’s leading independent bank and credit union rating and research firm.
According to BauerFinancial, its 5-Star Superior Rating indicates that Community Bank “is one of the strongest in the nation, excelling in the areas of capital, loan quality and profitability.”
BauerFinancial President Karen Dorway noted in her news release announcing the rating that community-based banks have always understood the importance of relationships they have with their local customer base.
“For the first time, we see big banks acknowledging the value in relationship banking,” Dorway said. “That’s something community banks, like Community Bank, have always known.
“In fact, because of their inherent focus on relationships, community banks are uniquely positioned to serve their communities in a way no one else can. Those relationships pay off for both Community Bank and the customers it serves.”
The importance of local relationships aren’t lost on McCune, who said Community Bank has never lost sight of its market, where it knows the customers to whom it loans money.
“All of the loans (we’ve made) are to local business people throughout the Pittsburgh area,” he said.