ABA Banking Journal - June 2008 - (Page 28)

TOPCOMMUNITYBANKS Part 2: Banks and thrifts with assets under $3 billion COVER STORY Banking’s Top Performers Three strategies underscore the excellent performance of the highest-ranking institutions I f a rising tide raises all boats, then the opposite must be true. Yet though the past year was difficult for the financial services industry as a whole, banks and thrifts with total assets of less than $3 billion fared better than their larger counterparts. This has temporarily reversed the gains in profitability that larger banks had made over the past few years. According to the FDIC, 50% of community banks posted earnings gains in 2007, compared with 34% of larger institutions. By comparison, in 2006 the percentage of institutions with earnings gains was roughly the same in both asset tiers. At 3.12%, the average return on average assets (ROAA) for all top performing banks under $3 billion was just over twice the average among top performing large banks, or 1.54%. This certainly does not imply that community banks were immune to the problems that larger banks were facing. Banks and thrifts of all sizes saw margins compress, deposit growth slow, and credit quality decline. Very few heavy mortgage lenders could be found among either the top-ranked large or community banks in the 15th annual ABA Banking Journal performance rankings. Last month, Part 1 of these rankings reviewed the performance of the nation’s largest banks, bank holding companies, and thrifts. Part 2 of the rankings highlights the successes of community banks and savings institutions that exhibited outstanding performance in 2007. This year, we have introduced a new category to the three that were used in our previous rankings. Details on this change and the Ranking Methodology can be found on page 34. By Vanessa Mambrino, senior associate, Capital Performance Group LLC, Washington, D.C. The firm provides advisory, planning, analytic, and project management support to the financial services industry. www.capitalperform.com 28 JUNE 2008/ABA BANKING JOURNAL ILLUSTRATION BY KINO BROD / IMAGES.COM Three strategies in common Though community banks naturally have significant operational differences, certain characteristics and strategies used to weather last year’s storms were common to all four groups. In all groups, the top performers were more efficient than their counterparts, posting average efficiency ratios of between 47% and 52%. This efficiency was not achieved through expense control, however—the average ratio of noninterest expense to average assets among top performers of all sizes was not significantly different from the average among all institutions analyzed. Rather, higher revenue was the key. Noninterest income represented a significantly greater percentage of average assets at top performing community banks—a trend also seen among the top performing large banks. For community banks, however, the main source of this income was not fee revenue, but one-time gains associated with sales, typically signaling a company’s withdrawal from a particular market or business. The decision to make a withdrawal was one of three key strategies applied by the top community banks. Other strategies used included a focus on commercial (rather than residential real estate) lending and a focus on a particular industry sector. On the following pages, the three strategies are explored in more detail. http://www.nxtbook.com/nxtbooks/sb/ababj0508/index.php?startpage=36 http://www.capitalperform.com

Table of Contents Feed for the Digital Edition of ABA Banking Journal - June 2008

ABA Banking Journal - June 2008 Contents Editor’s Column Do Fee-based Services Have an Edge? Snapshot: Net Interest Margins Vary Sharply with Size 100th Anniversary: Then & Now Letters ABA Resources ABA Chairman’s Position "What? No Annual Surprise Bonus?" Pass the Aspirin Cover Story: Top Community Banks: How They Did... ...And How They Did It Charter Bank First East Side Savings Bank Mackinac Financial Corp. The Peoples Bank Managing the E-mail Monster In Brief Handling PEPs in the Age of "L'affaire Spitzer" Mailbox Banker’s Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - June 2008

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