2019 Journal of Community Bank Case Studies

University of Tennessee at Martin

THIRD PLACE:

FirstBank has also achieved a higher Return on Average Equity (ROAE) compared to industry peers. ROAE increased from 11.3% in 2017 to 13.0% for year-end 2018. The average ROAE for FirstBank’s peer group for year-end 2018 was 11.73% (see Exhibit 3) (“UBPR Peer Group”). FirstBank’s net interest margin has increased modestly over the last five years and ranks above peer averages (see Exhibit 4). Over the past five years, FirstBank’s net interest margin has increased from 3.93% in 2014 to

owner occupied commercial real estate, have remained 38% of the loan portfolio over the past six years, other major shifts in the portfolio’s composition have occurred (see Exhibit 5). For example, “1-4 family” and HELOC loans have decreased from 32% to 20% of the total loans. Meanwhile, FirstBank’s Commercial Real Estate (CRE) and Construction & Development loans increased from only 22% to comprising 34% of the portfolio’s total loans. Although CRE loans are considered riskier, this increased risk warrants an increased expected return. This

4.66% in 2018. The peer average net interest margin was 3.66% for 2018 (“UBPR Peer Group”). The main driver for this increase is largely FirstBank’s “continued customer-focused balance sheet growth” (“Corporate Profile”). This customer-focused balance sheet is accomplished through the numerous local loans and the large holding of core deposits, as opposed to brokered deposits. At year-end 2018, FirstBank’s core deposits were 97.5% of total deposits (“Corporate Profile”). The peer group’s core deposits to total deposits is 94.8% (“UBPR Peer Group”). This strategy proves that FirstBank strives to keep its banks local and seeks to solve liquidity issues by retaining its communities’ customers as the company’s main depositors. B. Loan Portfolio Composition Although Commercial and Industrial (C&I) loans, including

Exhibit 3: ROAE of FirstBank compared to Peer Group

FirstBank Banks in Peer Group ($1 Billion-$3 Billion in Assets in 2014-2015/$3 Billion-$10 Billion 2016-2018

30.00%

19.12%

20.00%

13.99%

14.56%

13.14%

11.73%

9.59%

9.52%

9.38%

9.26%

8.85%

Percentage 10.00%

0.00%

2014

2015

2016

2017

2018

Year

Exhibit 4: Net Interest Margin of FirstBank compared to Peer Group

FirstBank Banks in Peer Group

($1 Billion-$3 Billion in Assets in 2014-2015/$3 Billion-$10 Billion 2016-2018

5.00%

4.66%

4.46%

4.10%

3.97%

3.93%

3.37%

3.33%

3.41%

3.40%

3.26%

Percentage

0.00%

2014

2015

2016

2017

2018

Year

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