Academic journal article ABA Banking Journal

Banking's Top Performers 2005: Part 1: Banks with Assets over $3 Billion

Academic journal article ABA Banking Journal

Banking's Top Performers 2005: Part 1: Banks with Assets over $3 Billion

Article excerpt

Banking industry returns last year were down from 2003, but they weren't too shabby considering the circumstances. Most banks benefited from excellent asset quality, as interest rates in 2004 remained low. However, the low rates also compressed margins, leaving banks scrambling for other sources of revenue. There were ominous signs in 2004 that retail banking, the engine of revenue growth over the past several years, was beginning to sputter. Free checking was beginning to show signs of age, and the mortgage boom--refinancing at least--clearly was waning. Deposit funding became more expensive as the increase in short-term rates pressured many banks to raise deposit rates to prevent outflow. Commercial loan activity, long expected to rebound as part of the economic recovery, remained slow: growth in C&I loans was only 5% between the 4th quarter of 2003 and the 4th quarter of 2004. And, on top of it all, new regulatory requirements placed heavy burdens on banks' resources. Despite these challenges, many banks came up with ways to meet their financial performance targets.

In this first part of the 13th annual ABA Banking Journal performance rankings, we review the financial results and strategies of the nation's largest banks, thrifts, and specialty lenders. Part two, which will appear next month, will highlight the top performing community banks and thrifts in 2004.

Selection criteria

Our study ranks the performance of domestic institutions with assets over $3 billion as of Dec. 31, 2004. Prior rankings included all institutions with assets over $1 billion. The change in the asset size criterion is intended to better separate community and regional institutions with localized operations from super-regional and very large banks, which are likely to have different operating models. Three groups were included in our analysis: publicly held depository institutions (banks, thrifts, and bank or financial holding companies), private depositories, and specialty lenders. A total of 154 public banks, thrifts, and holding companies and 52 private institutions qualified under our selection criteria. Given the smaller pool of banks qualifying for ranking this year, we chose to highlight 25 institutions as top performers in the public category and ten in the private category. They were ranked by return on average equity for 2004. In instances where the reported ROE was identical for two or more institutions, 2004 return on average assets was used as a secondary ranking criterion. The same methodology was used for specialty lenders, of which 18 qualified for ranking in 2004. Government Sponsored Enterprises Fannie Mae, Freddie Mac, and the Federal Agricultural Mortgage Corporation (Farmer Mac) were excluded from the specialty lender ranking.

Data was provided by SNL Financial LC as of December 2004. Securities and Exchange Commission filings were used for public company data, and regulatory filings were used for private institutions.

A look at the Top 10

Topping the bank and thrift list in 2004 is Fremont General of Santa Monica, Calif. Over 70% of the industrial bank's portfolio is real estate loans, and Fremont has profited handsomely from the state's booming real estate market. The company recognized a $4.4 million gain on the sale of loans, boosting its non-interest income significantly and fueling its 42% ROAE.

Westamerica Bancorp. of San Rafael, Calif.--profiled in the cover story (p. 29)--has become a fixture at the top of the list, along with Hudson United of Mahwah, N.J. and First Horizon of Memphis, Tenn. (formerly First Tennessee National Corp). Doral Financial Corp. and Oriental Financial Group, both Puerto Rico-based mortgage lenders, also have been consistent top performers. Doral announced earlier this year that it would re-state several years' earnings to correct improper accounting for interest-only strips.

The change in asset size cut-off caused some reshuffling of the top performers list. …

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