Academic journal article ABA Banking Journal

Banking's Top Performer's 2011: Opportunistic Deals and Increased Lending Led the Way

Academic journal article ABA Banking Journal

Banking's Top Performer's 2011: Opportunistic Deals and Increased Lending Led the Way

Article excerpt

The year 2010 left community banks with more questions than answers. How can smaller banks best compete with their larger counterparts in a low-rate, slow-growth environment? How will the myriad of new regulations coming out of the Dodd-Frank Act impact the bottom line? Some observers are even asking if community banks can survive in this new environment.

The fact is, community banks remain a vital part of the financial services industry. Though the full effects of Dodd-Frank (both intentional and unintentional) remain to be seen, several community banks may have already discovered the answer to the first question posed above, and, therefore, the means to drive strong earnings performance. Part 2 of the ABA Banking Journal annual bank performance rankings provides highlights of the strategies used by these top performing banks, thrifts, and bank holding companies with total assets of $3 billion or less.

Ranking methodology

Our ranking assesses the performance of four groups of community financial institutions, defined by size and corporate structure:

Non-subchapter S commercial banks, thrifts, and bank holding companies with consolidated total assets less than $100 million;

Non-subchapter S commercial banks, thrifts, and bank holding companies with consolidated total assets between $100 million and $3 billion;

Subchapter S commercial banks, thrifts, and bank holding companies with consolidated total assets less than $100 million; and

Subchapter S commercial banks, thrifts, and bank holding companies with consolidated total assets between $100 million and $3 billion.

Within the four groups identified, institutions were ranked on their return on average equity (ROAE) for 2010. The 25 institutions with the highest ROAE in each category were selected for the print edition of the rankings. All 100 top performers in each of the four categories are shown on ababj.com.

Data was obtained from Highline Financial, LLC this year, and reflects operations for the year ending Dec. 31, 2010. Due to this new data source, we have rerun last year's rankings using Highline data to provide accurate year-over-year comparisons. As a result, rankings have changed in certain cases due to the use of restated data.

All rankings are based on consolidated statistics for the highest regulatory reporting level available for each institution (further detail can be found online). Where consolidated statistics were not available but data was reported for a subsidiary that accounted for at least 90% of a holding company's assets, we used subsidiary data.

The rankings focused on institutions that offered traditional banking services; as a result, we have excluded from the analysis bankers' banks, special purpose industrial loan companies and nondepository trusts, as well as institutions with less than 10% of their assets in loans, less than 10% of their liabilities in deposits, or over 70% of their loans in credit card receivables. Companies that were not in operation for the full year also were excluded.

Highlights from the top performers

As in years past, top-performing community banks tended to be those who were best able to capitalize on recent trends--rising asset values, increased refinancing activity, and, of course, low interest rates (and costs of funding). Onetime items also continued to play a role in earnings performance. For example, at Eastern Federal Bank of Norwich, Conn. (#1 among non-S-corps between $100 million and $3 billion), performance was significantly impacted by the reversal of a securities write-off which restored $10 million of pre-tax income. On the whole, however, the top performers of 2011 were not only more successful at managing their balance sheet in a low-yield environment, but also better able to take advantage of some of the same strategies employed by their larger counterparts--FDIC-assisted acquisitions and increased opportunities to lend to creditworthy commercial customers. …

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