ABA Banking Journal 5/08 - (Page 36) 25 big banks was sent to print. Those institutions are: Doral Financial Corp., San Juan, P.R.; NetBank, Alpharetta, Ga.; BFC Financial Corp., Fort Lauderdale, Fla.; HSBC North America Holdings, Prospect Heights, Ill.; and Fremont General Corp., Santa Monica, Calif.) the top Three winning strategies This year’s top 25 public banks and thrifts are those who made the best of a bad situation. To get an idea of the difference in overall industry performance between 2006 and 2007, one need only look at the drop in the return on average equity (ROAE) that an institution needed to qualify: last year, the 25th institution had an ROAE of 17.26%, while this year, City National of Beverly Hills, Calif. (#25) made it with an ROAE of 13.92%. This year’s top performers used three main strategies to counter the inhospitable operating environment: growing noninterest income, focusing on a particular niche business or consumer segment, and improving overall efficiency. 1. Reliance on noninterest income Among the top 25 institutions, noninterest income represented on average 32.19% of total revenues, compared to an average ratio of 28.01% for all institutions. This helped to alleviate some of the margin compression and to counter some of 2007’s other negative trends. Very few of this year’s top 25 relied heavily on interest income from mortgages—among top performers, one-to-four family mortgages represented on average about 19.7% of total loans, compared to an average of 25.3% among all institutions. Wells Fargo & Co. of San Francisco, Calif., one of the larger mortgage lenders in our group, was able to improve its position among the top performers— moving from 13th to 9th—by increasing the relative contribution of its fee income. For the past three years, noninterest income has represented roughly half of the total revenues of TCF Financial Corp., Wayzata, Minn., 2008’s top performing bank. TCF has appeared in our top 5 since 2005 and has returned to the top spot after being displaced last year. During 2007, TCF made a “concentrated effort” to manage and diversify its noninterest income, increasing deposit service charges by 2.9%, raising card revenues by 7.4%, and growing balances in its leasing and equipment portfolio by 14.6%. TCF’s leasing and equipment finance business generated both interest and noninterest income and has become an important source of revenue for the bank. This, coupled with a decision not to compete with other institutions for high-yield deposits, helped to grow net interest income by 2.4%. At many other institutions, including Wells Fargo, growth in noninterest income was necessary to help counter the loss of revenues from interest-earning assets. Fee income at Wells increased by 17%, driven by a 36% increase in mortgage servicing fees and a 22% increase in card revenues. Though the bank felt the effects of the softening housing market, its strategy of adapting underwriting standards on an MSA-by-MSA basis helped limit the damage. The company was also prescient and exited many of its riskier origination businesses early in the year. Institutions looked for noninterest income growth in other areas as well. As the cost of funds remained high, trust revenue became an increasingly important source of income for banks and thrifts. Among this year’s top performers, trust revenue represented, on average, 11.2% of total revenue, compared to an average of 9.9% in 2006. At Wilmington Trust Corp. of Wilmington, Del. (#12), revenues from the bank’s Wealth Advisory Services and Corporate Client Services (advisory services for institutional clients) outpaced those of its retail bank for the first time in the company’s history. Private/foreign institutions* By 2007 ROAE 2008 rank 2007 rank Institution Total assets (000) 2007 ROAE 2007 ROAA 1 2 3 4 5 6 7 8 9 10 12 2 4 3 8 9 10 20 7 13 Intrust Financial Corp., Wichita, KS (bhc) Midfirst Bank, Oklahoma City (thrift) La Jolla Bank, Rancho Santa Fe, CA (thrift) First Nat'l Bank Group Edinburg, TX (bhc) Dickinson Financial Corp. II, Kansas City, MO (bhc) FirstBank Holding Co., Lakewood, CO (bhc) Pinnacle Bancorp, Central City, NE (bhc) Great Western Bancorp., Omaha (bhc) First Interstate BancSystem, Billings, MT (bhc) Riverside Banking Co., Fort Pierce, FL (bhc) $3,473,539 12,970,989 3,487,771 4,383,997 5,582,293 8,690,219 4,669,666 3,549,220 5,213,051 4,805,174 27.54% 25.73 23.52 19.01 18.54 17.63 17.12 16.52 16.14 15.87 1.64% 1.9 1.86 0.82 2.13 1.20 1.72 1.09 1.38 0.83 *Includes nonpublicly traded banks, thrifts and holding companies over $3 billion and wholly owned financial institution subsidiaries of both privately-held and publicly traded foreign financial services companies (where the subsidiary's results are broken out separately). Source: SNL 2. A high-end niche focus In addition to focusing on noninterest income growth over the past year, Wilmington Trust pursued another strategy that was prevalent among 2007’s top performers: a focused, high-end niche strategy. While the bank’s retail services are offered to a broad clientele, its Wealth Advisory Services and Corporate Client Services focus on two specific segments: high net worth individuals and global enterprises. Other institutions apply more precise definitions to their target markets for traditional retail banking services and have succeeded by sticking to these definitions and not attempting to be all things to all people. Northern Trust Corp., Chicago (#7), also provides asset management and banking services to commercial institutions and individuals with between one million and one billion dollars of investable assets. Noninterest income represents over 76% of total revenues at the bank; trust revenues alone represent 58%. SVB Financial Group, Santa Clara, Calif. (#6), provides banking services only www.ababj.com/subscribe.html 36 MAY 2008/ABA BANKING JOURNAL https://www.wellsfargo.com http://www.tcfbank.com http://www.tcfbank.com http://www.wilmingtontrust.com http://www.wilmingtontrust.com http://www.northerntrust.com http://www.svb.com http://www.ababj.com/subscribe.html
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