KBRG Research - 2017 Excess Costs in US Community Banks

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NEW RESEARCH BY KBRG: US Banks have more than $3BN in Excess Cost SUMMARY OF FINDINGS Banking regulations are complex and continuously evolving. Today’s financial institutions must adapt to stay in compliance, but at what cost? Costs to be compliant continue to grow inefficiently due to the reactive nature of regulatory feedback and enforcement. The finance and compliance functions in today’s banks are struggling to maintain operational efficiency while ensuring regulatory expectations are met. KBRG performed an assessment of its proprietary metric – “SET” (Total Salary cost as a % of Total Non-Interest Expense) on all 829 US Banks and Credit Unions with assets from $1 – $10BN (as of FY’16). The research of the SET metric showed the following:  Approx. 585, or 70% of the total, have an excess of $3.11BN in cost within their current organizations.  Excess cost increased by more than $300MM over fiscal year 2015.  The SET Metric, a relative measure of salary expense, continued to outpace the increase in total non-interest expense by ~3% annually.  On the other hand, non-interest expense has been steadily growing greater than 7% annually.  Total assets in the meantime have grown by ~10%, while excess cost grew by more than 11% in 2016, outpacing asset growth.  Total number of full-time employees (where data is available) has been steadily increasing over the last three years, with over 300,000 employed at the end of 2016.  The average employee was making more than $86,000/yr. in salary in 2016, an increase of roughly 3% over 2015.  The average bank; held total assets of $2.77BN, had ~364 full-time employees with an average annual salary of $86.7K, total non-interest expense of $83.4MM, a SET metric of 53.6% and $3.8MM in excess cost.

Karlo A. Bustos

For more information:

CEO & Chief Analyst

Phone: +1 617-898-7476

Email: kbustos@kbrg.co

All proprietary information and analysis held within this document is the absolute property of KBRG, LLC. No part of this document may be produced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, nor may it be used outside the scope of the engagement for which it was supplied or disseminated, without the prior written permission of KBRG, LLC. www.kbrg.co

PROPRIETARY & CONFIDENTIAL

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