Magazine article American Banker

Charter 1 Predicts More Retail Revenue Growth

Magazine article American Banker

Charter 1 Predicts More Retail Revenue Growth

Article excerpt

Charter One Financial Inc. on Wednesday showed analysts the numbers behind its decision to abandon its thrift charter and become a national bank.

Retail banking revenue last year at the $38 billion-asset company grew 20% from a year earlier, to $292 million, while mortgage banking revenue fell 68%, to $24.8 million.

Charles J. Koch, Charter One's chief executive officer, predicted another 20% increase in retail revenue this year.

"We are going to drive down the residential loan portfolio fairly significantly," he told investors in a conference call on the company's fourth-quarter and full-year results.

Mr. Koch said he expects the residential loan portfolio's contribution to earning assets to be whittled within three years, to 35% from its current 50%.

Equity analysts are taking notice of the Cleveland company's attempt to excel in retail banking. Keith Horowitz, an analyst with Citigroup Inc.'s Salomon Smith Barney, initiated coverage of Charter One on Tuesday with a "buy" rating and a target price of $35 a share.

"We view Charter One as one of only a handful of regional banks that are able to drive above-average profits out of retail banking as a result of its superior execution," Mr. Horowitz wrote in his research note.

Analysts applauded Charter One's aggressive sales culture and executive incentive package. "They have goals, and people do not get paid if they don't meet them," said Ken Puglisi, an analyst with Sandler O'Neill & Partners, who also has a "buy" rating on the company. "They put a lot of focus on the retail side."

Charter One's focus on deposit gathering is working. Core deposits -- checking, money market, and savings accounts -- at yearend increased 55% from a year earlier, to $14.6 billion. The company opened 131,000 checking accounts in the fourth quarter and 467,000 in the full year. …

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