CPG recently published the first part of our 19th
annual performance rankings for ABA Banking Journal
, which ranks public and private/foreign owned institutions with greater than $3 billion in total assets based on year-end return on average equity. As we described in a recent 2010 industry earnings update
, 2010 was a year of many temporary fixes to the longer term problem of revenue generation. While there were many factors that drove better than average earnings performance at our top 35 banks and thrifts (25 publicly traded and 10 privately owned) this year, some of the common strategies included:
1. Growth by Acquisition: The top performing public institution in our rankings, Bank of the Ozarks of Little Rock, AR, completed four FDIC-assisted transactions during the year and entered into a fifth in January 2011. This propelled earnings at the bank, as it expanded into five new states and benefited from a 38-basis-point boost in its net interest margin (which reached 5.18% by year end) due to higher yields on the earning assets acquired through these deals.
2. The One-Time Item: Several banks in our top 25 benefited from a one-time gain during the year, either from exiting a business or selling a securities portfolio. One such institution, Valley National Bancorp of Wayne, NJ (ranked 20th), sold its portfolio of mortgage-backed securities, recording an $11.6 million gain as these securities rose in value from the bargain basement prices seen during the financial crisis.
3. Concentrated Focus on Key Lines of Business: In both the private and public rankings, top performers benefited from a focus on key lines of business. Commerce Bancshares of Kansas City, MO (ranked 14th), outperformed its peers due to its focus on corporate card services. The bank is the 9th largest issuer in the U.S. and focused on expanding both its customer base and the fee income generated by those customers during 2010. USAA Federal Savings Bank of San Antonio, TX (ranked 10th among private banks and thrifts), broke into the top ten private institutions this year after reporting strong overall loan growth. The bank took advantage of a competitive gap in the consumer lending market to generate $2.1 billion in new auto loans, which drove a 25.5% year-over-year increase in interest income at the bank.
The financial services industry may have begun to recover from the credit crisis that began in late 2007, but obstacles to sustainable earnings performance remain. Many institutions in 2010 benefited from one-time events, such as a surge in refinancing, a decrease in provision expense, gains on securities sales, or a gain on acquisitions. In addition, regional banks can no longer rely on taking customers from struggling large national banks, which have returned in force to the ranks of the top performers. The question remains, can regional banks find sustainable strategies to overcome these obstacles?
The full article, rankings, and analysis can be found here
. Keep an eye out for Part II of our rankings, which will focus on institutions with less than $3 billion in total assets, in the June 2011 issue of ABA Banking Journal