Academic journal article ABA Banking Journal

Banking's Top Performers 2010

Academic journal article ABA Banking Journal

Banking's Top Performers 2010

Article excerpt

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By the end of 2009, there was only one question on the minds of bankers: Is it over yet? By "it," of course, we mean the recession, the public anger, the government bailouts, the mounting loan delinquencies, and the skittish capital markets. Indeed, there are signs that the worst is behind us--capital markets have stabilized, some sectors of the economy have started to recover, trading and servicing revenues have begun to rebound, and loan loss provisions have declined.

There are also less encouraging signs. Only 65 of the 639 institutions that participated in TARP's Capital Purchase Program have repaid these funds. In addition, more than one in four banks remains unprofitable, according to the FDIC. Home prices continue to decline, though at a less precipitous pace. The unemployment rate continues to move upwards in most states. Net charge-offs continue to rise.

So, is it over yet? This year's top performing public banks and thrifts might respond to that question in the affirmative. These 25 institutions either began 2009 in an enviably strong position--like No. 3 Westamerica Bancorp or No. 8 Bank of Hawaii Corp., (no strangers to our top group)--or were able to quickly recover their footing, like Wells Fargo & Company (No. 18; up from No. 66 the previous year). All of the top 25 benefited from finding short-term opportunities in 2009 that complimented long-term strategic goals.

Part One of the 18th annual ABA Banking Journal performance rankings reviews the financial results and strategies of the banks and thrifts over $3 billion in assets. The article divides these institutions into two groups: the top 25 publicly traded institutions and the top 10 private and foreign-owned institutions. Part Two of our rankings, appearing in June, will highlight the top performing community banks and thrifts of 2009.

Selection criteria

The study ranks the performance of domestic depository institutions with assets over $3 billion as of Dec. 31, 2009. A total of 148 public banks, thrifts, and holding companies and 48 private or foreign-owned institutions qualified under our selection criteria. They were ranked by return on average total equity (ROAE) for 2009. (Return on average total assets was used as a tiebreaker.)

Data was provided by SNL Financial LC. Securities and Exchange Commission filings were the source for public company data, and regulatory filings were the source for private and foreign-owned institutions.

A closer look at the top performers

In 2009, the gap between top performers and their peers widened substantially--the average ROAE for all analyzed institutions was -5.74%, compared to an average for the top 25 of 15.43%. First and foremost, the top 25 differentiated themselves in terms of asset quality. The average ratio of nonperforming loans to total loans among top performers was 1.84%, while the average ratio across all institutions was 4.56%. The top 25 also capitalized on several short-term opportunities: FDIC-assisted transactions, a flight-to-quality of deposits, and lessened competition for loans. We identified three main pairings of short-term/ long-term factors.

1. Short-term opportunity: FDIC-assisted transactions. Long-term goal: strategic footprint expansion

This past year marked the return of the accretive acquisition. Six of the top ten benefited from an FDIC-assisted acquisition during the course of 2009. Some of these transactions were transformative, significantly increasing the size and scope of an institution's footprint; while others merely complemented an existing franchise.

The transactions that brought First Financial Bancorp of Cincinnati to the top of our list fell into the first category. Its acquisitions of People's Community Bank of West Chester, Ohio in July 2009 and Irwin Financial Corp. of Columbus, Ind., in September increased First Financial's assets by 81%, from $3. …

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