ABA Banking Journal - May 2009 - (Page 24)

2 5 the top big banks strategies to raise core deposits. In the highly competitive market of Hawaii (where the top 4 banks hold 92% of market deposits), BOH not only set aggressive deposit growth goals but changed performance metrics and moved talent around as necessary to enable the achievement of those goals. In the third and fourth quarters, hitting deposit growth targets became easier for all institutions as consumers pulled their money out of the stock market and put it into banks. To ensure that Hawaiian consumers brought their money to BOH, the bank reworked its entire deposit product offering to better align with customer needs—introducing free checking and simplifying DDA options. The bank also reclassified some deposit balances as interest bearing, creating a product that earned a return for customers on the funds which they had taken out of the markets (but at rates lower than those offered on CDs and, therefore, at a lower cost to BOH). For other institutions, core banking helped to compensate for declines in revenues from other sources. SVB Financial of Santa Clara, Calif., experienced a near 50% decrease in net income year-overyear due to declining investment fee revenues, dropping from #10 in 2007 to #23 in 2008. The decrease in earnings might have been greater had the bank not been able to both grow loans and replace highcost borrowings with deposits, thereby improving net interest income, and sustaining a net interest margin that, at 5.42%, was well above the average for both the top 25 (3.88%) and all institutions (3.40%). Summary statistics 88 Average ROAE (%) Average ROAA (%) Average Net Interest Margin (%) Avg. Noninterest Inc./Tot. Revenue (%) Average Price/Earnings (x) Average Capital Ratio (%) Average Efficiency Ratio (%) Avg. Nonper. Loans/Total Loans (%) Source: SNL Financial LC. Public banks and thrifts with total assets of $3 billion or more Top 25 All Banks % Change 2008 2007 % Change 2007 2008 13.37 1.20 3.88 35.08 19.89 14.29 55.68 0.89 17.08 1.54 4.05 32.19 15.15 12.29 53.23 0.52 (3.71) (0.33) (0.17) 2.89 4.75 2.00 2.45 0.37 (4.21) (0.35) 3.40 29.21 24.15 13.76 61.62 2.47 8.24 0.81 3.45 28.01 19.73 12.87 60.73 1.11 (12.46) (1.16) (0.06) 1.20 4.42 0.90 0.89 1.36 Capturing full relationships SVB Financial also benefited from a highly focused business model. The bank provides banking services only to businesses within specific industry sectors (including technology services, private equity, biotechnology, and premium wine), and to the executives and officers of these businesses and other high net worth individuals. SVB was one of several banks among this year’s top performers that made the strategic decision to focus on capturing the full banking relationship of a core group of businesses or consumers. 24 MAY 2009/ABA BANKING JOURNAL Banks that made this decision and executed it effectively benefited in 2008 as their superior knowledge of target customer segments enabled them to best provide banking services and advice to those customers under adverse conditions. CVB Financial Corp. of Ontario, Calif. (#10), operates in one of the hardest hit markets in the country—California’s Inland Empire. CVB has been able to post strong earnings, despite the large declines in home prices and increases in unemployment, because the bank does not try to serve all segments in its markets. Since its conception, the bank has targeted the “best privately held and/or family owned businesses” with annual revenues of $1 million to $200 million. CVB’s loan portfolio is dominated by C&I, CRE, and commercial construction loans. CVB’s knowledge of the customers and industries that it serves helped it to maintain a ratio of nonperforming loans to total loans of 0.54%, well below the average ratios of 0.89% and 2.47% for the top 25 and for all institutions, respectively. Emphasis on cost & efficiency This year’s top performers did not just outperform their peers based on growth in revenues. As in 2007, the top 25 also achieved better-than-average earnings by exhibiting greater expense control. On average, noninterest expenses increased by 9.5% year-over-year for the top performers, compared to 27.0% for all institutions. For many of the efficiency leaders in 2008’s top 25, expense control is a way of life. Westamerica Bancorp., San Raphael, Calif. (#6), for example, has maintained an efficiency ratio of less than 40% for six years running. This strategy is one of the primary reasons that Westamerica has stayed in our top 10 since 2003, despite increased pressures on revenues. Bank of the Ozarks (#2) has also made the maintenance of efficiency a key part of its overall strategy. For 2008, the bank set the goal of achieving a “sub-40” efficiency ratio and—at 41.74%—it came very close to meeting that goal. Bank of the Ozarks’ ratio of noninterest expenses to average assets is just over half that of its peers, at 1.80% compared to averages of 3.16% and 3.26% for the top 25 and for all institutions, respectively. The bank also benefited from decreased market competition, which alleviated pressures on both deposit and loan pricing. This helped the bank to increase its net interest margin by 52 basis points, ending 2008 at 3.96%. In 2009, banks that can execute well on the basic strategies outlined above—deepening relationships, focusing on target segments, and managing costs effectively—will continue to perform better than peers. Core deposit generation remains critical for success as the cost of other funding sources rises and as deposit products (coupled with payment services) remain central to becoming the customers’ primary financial services provider and capturing the full banking relationship. BJ www.ababj.com/subscribe.html http://www.ababj.com/subscribe.html

Table of Contents for the Digital Edition of ABA Banking Journal - May 2009

ABA Banking Journal - May 2009
Contents
Editor's Column
Special Briefing on the Mortgage Cleanup
Tackling the "End of the Beginning" of Mortgage Crisis
ABA Resources
ABA Chairman's Position
Banks Wade into Social Media
Pass the Aspirin
Part 1: Banks and Thrifts Over $3 Billion in Assets
Top 25 Ranked, With Key Performance Data
Summary Data for Top 25 and All Institutions Over $3 Billion
Mobile Banking: You're Either In, or You're Out
10 Steps to Defusing Loan-Mod Bombs
Mailbox
Banker's Mart
To Advertise/Index of Advertisers
The Economy

ABA Banking Journal - May 2009

http://www.nxtbook.com/naylor/BAKS/BAKS0515
http://www.nxtbook.com/naylor/BAKS/BAKS0415
http://www.nxtbook.com/naylor/BAKS/BAKS0315
http://www.nxtbook.com/naylor/BAKS2/BAKS1014
http://www.nxtbook.com/naylor/BAKS2/BAKS0914
http://www.nxtbook.com/naylor/BAKS2/BAKS0814
http://www.nxtbook.com/naylor/BAKS2/BAKS0714
http://www.nxtbook.com/naylor/BAKS2/BAKS0614
http://www.nxtbook.com/naylor/BAKS2/BAKS0514
http://www.nxtbook.com/naylor/BAKS2/BAKS0414
http://www.nxtbook.com/naylor/BAKS2/BAKS0314
http://www.nxtbook.com/naylor/BAKS2/BAKS0214
http://www.nxtbook.com/naylor/BAKS2/BAKS0114
http://www.nxtbook.com/naylor/BAKS2/BAKS1213
http://www.nxtbook.com/naylor/BAKS2/BAKS1113
http://www.nxtbook.com/naylor/BAKS2/BAKS1013
http://www.nxtbook.com/naylor/BAKS2/BAKS0913
http://www.nxtbook.com/naylor/BAKS2/BAKS0813
http://www.nxtbook.com/naylor/BAKS2/BAKS0713
http://www.nxtbook.com/naylor/BAKS2/BAKS0613
http://www.nxtbook.com/naylor/BAKS2/BAKS0513
http://www.nxtbook.com/naylor/BAKS2/BAKS0413
http://www.nxtbook.com/naylor/BAKS2/BAKS0313
http://www.nxtbook.com/naylor/BAKS2/BAKS0213
http://www.nxtbook.com/naylor/BAKS2/BAKS0113
http://www.nxtbook.com/naylor/BAKS2/BAKS1212
http://www.nxtbook.com/naylor/BAKS2/BAKS1112
http://www.nxtbook.com/naylor/BAKS2/BAKS1012
http://www.nxtbook.com/naylor/BAKS2/BAKS0912
http://www.nxtbook.com/naylor/BAKS2/BAKS0812
http://www.nxtbook.com/naylor/BAKS2/BAKS0712
http://www.nxtbook.com/naylor/BAKS2/BAKS0612
http://www.nxtbook.com/naylor/BAKS2/BAKS0512
http://www.nxtbook.com/naylor/BAKS2/BAKS0412
http://www.nxtbook.com/naylor/BAKS2/BAKS0312
http://www.nxtbook.com/naylor/BAKS2/BAKS0212
http://www.nxtbook.com/naylor/BAKS2/BAKS0112
http://www.nxtbook.com/naylor/BAKS2/BAKS1211
http://www.nxtbook.com/naylor/BAKS2/BAKS1111
http://www.nxtbook.com/naylor/BAKS2/BAKS1011
http://www.nxtbook.com/naylor/BAKS2/BAKS0911
http://www.nxtbook.com/naylor/BAKS2/BAKS0811
http://www.nxtbook.com/naylor/BAKS2/BAKS0711
http://www.nxtbook.com/naylor/BAKS2/BAKS0611
http://www.nxtbook.com/naylor/BAKS2/BAKS0511
http://www.nxtbook.com/naylor/BAKS2/BAKS0411
http://www.nxtbook.com/naylor/BAKS2/BAKS0311
http://www.nxtbook.com/naylor/BAKS2/BAKS0211
http://www.nxtbook.com/naylor/BAKS2/BAKS0111
http://www.nxtbook.com/naylor/BAKS2/BAKS1210
http://www.nxtbook.com/naylor/BAKS2/BAKS1110
http://www.nxtbook.com/naylor/BAKS2/BAKS1010
http://www.nxtbook.com/naylor/BAKS2/BAKS0910
http://www.nxtbook.com/naylor/BAKS2/BAKS0810
http://www.nxtbook.com/nxtbooks/sb/ababj0710
http://www.nxtbook.com/nxtbooks/sb/ababj0610
http://www.nxtbook.com/nxtbooks/sb/ababj0510
http://www.nxtbook.com/nxtbooks/sb/ababj0410
http://www.nxtbook.com/nxtbooks/sb/ababj0310
http://www.nxtbook.com/nxtbooks/sb/ababj0210
http://www.nxtbook.com/nxtbooks/sb/ababj0110
http://www.nxtbook.com/nxtbooks/sb/ababj1209
http://www.nxtbook.com/nxtbooks/sb/ababj1109
http://www.nxtbook.com/nxtbooks/sb/ababj1009
http://www.nxtbook.com/nxtbooks/sb/ababj0909
http://www.nxtbook.com/nxtbooks/sb/ababj0809
http://www.nxtbook.com/nxtbooks/sb/ababj0709
http://www.nxtbook.com/nxtbooks/sb/ababj0609
http://www.nxtbook.com/nxtbooks/sb/ababj0509
http://www.nxtbook.com/nxtbooks/sb/ababj0409
http://www.nxtbook.com/nxtbooks/sb/ababj0309
http://www.nxtbook.com/nxtbooks/sb/ababj0209
http://www.nxtbook.com/nxtbooks/sb/ababj0109
http://www.nxtbook.com/nxtbooks/sb/ababj1208
http://www.nxtbook.com/nxtbooks/sb/ababj1108
http://www.nxtbook.com/nxtbooks/sb/ababj1008
http://www.nxtbook.com/nxtbooks/sb/ababj0908
http://www.nxtbook.com/nxtbooks/sb/ababj0808
http://www.nxtbook.com/nxtbooks/sb/ababj0708
http://www.nxtbook.com/nxtbooks/sb/ababj0608
http://www.nxtbook.com/nxtbooks/sb/ababj0508
http://www.nxtbook.com/nxtbooks/sb/ababj0408
http://www.nxtbook.com/nxtbooks/sb/ababj0308
http://www.nxtbook.com/nxtbooks/sb/ababj0208
http://www.nxtbook.com/nxtbooks/sb/ababj-compsurv08
http://www.nxtbook.com/nxtbooks/sb/ababj0108
http://www.nxtbook.com/nxtbooks/sb/ababj1207
http://www.nxtbook.com/nxtbooks/sb/ababj1107
http://www.nxtbook.com/nxtbooks/sb/ababj1007
http://www.nxtbook.com/nxtbooks/sb/ababj0907
http://www.nxtbook.com/nxtbooks/sb/ababj0807
http://www.nxtbook.com/nxtbooks/sb/ababj0707
http://www.nxtbook.com/nxtbooks/sb/ababj0607
http://www.nxtbook.com/nxtbooks/sb/ababj-jackhenry
http://www.nxtbook.com/nxtbooks/sb/ababj0507
http://www.nxtbook.com/nxtbooks/sb/ababj0407
http://www.nxtbook.com/nxtbooks/sb/ababj0307
http://www.nxtbook.com/nxtbooks/sb/ababj-compsurv07
http://www.nxtbook.com/nxtbooks/sb/ababj0207
http://www.nxtbook.com/nxtbooks/sb/ababj0107
http://www.nxtbook.com/nxtbooks/sb/ababj1206
http://www.nxtbook.com/nxtbooks/sb/ababjcompsurv2006
http://www.nxtbookMEDIA.com