Academic journal article ABA Banking Journal

Banking's Top Performers, 2008: Part 1: Banks with Assets over $3 Billion: A Year When "Ordinary" Banking Was the New "Extraordinary" in Terms of Positive Results. Here's How the Best of the Large Banks Came through a Tough Year

Academic journal article ABA Banking Journal

Banking's Top Performers, 2008: Part 1: Banks with Assets over $3 Billion: A Year When "Ordinary" Banking Was the New "Extraordinary" in Terms of Positive Results. Here's How the Best of the Large Banks Came through a Tough Year

Article excerpt

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The best thing that most bankers could say about 2008 was that it was over. Not forgotten, but over. Beginning with the collapse of Bear Stearns last March, each month seemed to bring with it some new piece of bad news. By year-end, according to the FDIC, "almost one in four institutions was unprofitable..., and almost two out of every three institutions reported lower full-year earnings than in 2007."

To help address the industry's troubles, the Troubled Asset Relief Program (TARP) was signed into law on October 3rd. Government intervention in the financial services industry has since reached levels not seen in several generations. Nearly 67% of the large public banks and thrifts analyzed this year are either participating in, or approved to participate in, TARP's Capital Purchase Program (CPP; now the Capital Assistance Program). The industry, however, is not out of the woods just yet. We expect that, in 2009, banks will get back to basics, returning attention to core banking businesses and building more relationship-based business models. This year's top 25 public banks and thrifts are, for the most part, institutions that are already implementing these strategies (and most, in fact, have been doing so for several years).

In this first part of the 17th annual ABA Banking Journal performance rankings, we review the financial results and strategies of the nation's largest banks and thrifts. Though this piece focuses on top-performing publicly traded institutions, the top-performing private and foreign-owned institutions (and the strategies that they used) may be found at www.ababj.com . Part Two of our rankings, which will appear in June, will highlight the top-performing community banks and thrifts of 2008.

Selection criteria

Our study ranks the performance of domestic publicly held depository institutions with assets over $3 billion as of Dec. 31, 2008. A total of 145 public banks, thrifts, and holding companies qualified under our selection criteria. They were ranked by return on average total equity (ROAE) for 2008. In instances where the reported ROAE was identical for two or more institutions, 2008 return on average total assets (ROAA) was used as a secondary ranking criterion.

Data was provided by SNL Financial LC as of December 2008. Securities and Exchange Commission filings were the source for public company data.

The top performers

In a year where the average ROAE for the pool of analyzed institutions was -4.21%, the strong performance of this year's top 25 is all the more extraordinary. And yet, most of 2008's top performers generated strong earnings through relatively ordinary banking activities-generating low-cost deposits, making quality loans, and focusing on serving one particular segment extremely well (rather than trying to be all things to all people), all while keeping a sharp eye on noninterest expenses. The similarity between this year's successful strategies and those used in 2007 is no coincidence. Over half of the institutions in this year's top 25 are making a repeat appearance. Many of them remain among the top performers due to strategies that they have adhered to for several years, not just the past 12 months.

Returning to the core-net interest income

Noninterest income may have been essential for reaching the top of the list in 2007; however, in 2008, it was net interest income that mattered. Excluding the more specialized businesses of Northern Trust (#3) and State Street (#7), net interest income accounted for 75% of total revenue at the top 10 institutions and two-thirds of the revenue at this year's top performer, Bank of Hawaii Corp., Honolulu. At 25.54%, Bank of Hawaii's 2008 ROAE was 868 basis points higher than that of the second-place bank, Bank of the Ozarks, headquartered in Little Rock, Ark. Bank of Hawaii (BOH) has consistently been a strong performer and has been among the top 5 institutions since 2006. …

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