Academic journal article ABA Banking Journal

Top Performing Big Banks: Best Banks over $10 Billion Shrug off Refis and Move on to C&I and Other Green Pastures

Academic journal article ABA Banking Journal

Top Performing Big Banks: Best Banks over $10 Billion Shrug off Refis and Move on to C&I and Other Green Pastures

Article excerpt

Quiet, uneventful years of steady but modest profits are a distant memory in banking. With greater challenges, however, at least there are usually greater opportunities, and the top performers among the industry's big banks--with total assets of $10 billion or more--took full advantage of the upside. Among the challenges of 2013 were margin contraction and the end of the mortgage refinancing boom. Despite these speed bumps, several large banks developed and pursued strategies that enabled them to maintain or improve profitability and attain top-performer status. These included commercial loan growth, wealth management, rethinking branches, and, yes, residential mortgage lending.

Part One of the 22nd annual ABA Banking Journal performance rankings reviews the financial results and strategies of the nation's top-performing banks with total assets of $10 billion or more. Part Two of the rankings will appear in May and will highlight banks with total assets of between $1 billion and $10 billion. Part Three, which will appear in June, will examine the top-performing community banks (institutions with total assets of less than $ 1 billion).

Selection criteria explained

The report ranks the performance of federally insured, domestic depository institutions with assets over $10 billion as of Dec. 31, 2013. These were then divided into two sub-groups: publicly held depository institutions (banks and bank or financial holding companies) and private or foreign-owned depositories (described in greater detail later). A total of 66 public banks and holding companies and 16 private institutions qualified under the selection criteria. They were ranked by return on average total equity (ROAE) for 2013. In instances where the reported ROAE was identical for two or more institutions, 2013 return on average total assets (ROAA) was used as a secondary ranking criterion.

In addition, any institution with an industrial loan or nondepository trust charter, or deposits equaling less than 10% of total liabilities, or credit card loans exceeding 70% of total loans at year-end 2013 was excluded.

Securities and Exchange Commission filings were the source for public company data, and regulatory filings were the data source for private and foreign-owned institutions. Thomson Reuters, LLC, provided data for the analysis.

Top-performer threshold changes

For purposes of this article, "top performers" refers to those ranking among the top ten public banks or top five private banks. This year, it required an ROAE of at least 11.99% to place among the top ten public banks. To their credit, there were many repeat performers. Eight of 2012's top-performing large banks managed to meet or exceed the threshold again. These banks retained top-performing status by revamping last year's strategies, focusing on crosssell efforts, diversifying revenue streams, and focusing resources on attractive core markets. Only one top performer, Puerto Rico-based Popular, Inc. (No. 2), benefited significantly from one-time gains.

The average ROAE among the top performers decreased by 28 basis points to 13.15%, while the average among all banks increased by 48 bps to reach 8.18%. The slight decline in profitability among the top performers was largely due to decreases in net interest income--as a result of lower asset yields--and declines in noninterest income--as a result of reduced mortgage banking revenues. Large banks were able to control expenses and continued to benefit from reduced provisions and lower cost of funds. (To see the full rankings, visit http://tinyurl. com/2014TopBig-BFrankings)

Commercial loan growth led the way

Loan growth continued to differentiate top performers from other large banks. The median annual net loan growth among top performers was 7.9%, compared to 4.0% for all large banks. Owing to decreased activity in mortgage refinancing, this growth was led primarily by commercial and industrial loans. …

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