Magazine article American Banker

Interactive: Banks Wrestle with Growth/Margin Tradeoff

Magazine article American Banker

Interactive: Banks Wrestle with Growth/Margin Tradeoff

Article excerpt

Byline: Harry Terris

Guns or butter, loans or yields.

Comments about cutthroat price competition for loans have been a frequent refrain among bankers for months, and appear to be echoed in data on growth and return ratios. As shown in the following graphics, some lenders have posted leaps in volume a only to give up more in portfolio yield than competitors. (Interactive controls are described in the captions. Text continues below.)

At Western Alliance (WAL) in Phoenix, loans increased 16% in the year through March 31 to $4.8 billion, while the yield on the companyas loan portfolio fell 41 basis points to 5.6%. Both moves were sharper than at the vast majority of peers pictured, which are made up of holding companies with assets of $3 billion to $10 billion. (Companies that completed branch and bank acquisitions between April 1, 2011, and March 31 have been excluded to focus on organic growth, though some bought pools of loans during the period.)

Western Alliance continued to post strong loan growth in the second quarter a an annualized increase of about 20% a and said its margins would continue to erode as new loans were being booked at yields about 60 basis points lower than loans that were paying off.

The overall decline in asset yields is unsurprising in this era of low rates, however, and loan yields tell only part of the story. Cash and securities typically earn less than loans, and the growth has helped reweight Western Allianceas balance sheet toward loans, which accounted for 70% of assets at March 31, up from 65% the year before. …

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