By Vanessa Mambrino, consultant & Nick Robin, business analyst, Capital Performance Group LLC, Washington, D.C., a firm providing advisory, planning, analytic, and project management support to the financial services industry.  www.capitalperform.com

 

 

In a year in which the average small non-S-corporation had an ROAE of -0.03%, Bank 2 of Oklahoma City, Okla., realized strong earnings performance by focusing on a niche segment of the population. Unlike many of 2011’s other top performers, however, Bank 2’s target segment is a group of consumers, not a particular type of business. In 2001, the Chickasaw Nation decided to charter a bank to meet the financial services needs of Native Americans and, primarily, to increase levels of home ownership among this segment of the population. The resulting institution, Bank 2, ranked third among non-subchapter-S corporations with total assets of less than $100 million in this year’s community bank rankings, with an ROAE of 22.66%. 

Bank 2 is wholly owned by the Chickasaw Nation and maintains close ties with this group. “Our goal is to help build better lives,” says Ross Hill, Bank 2’s CEO. The bank received a Bank Enterprise Award from the Community Development Financial Institutions Fund in 2010 for its work towards this goal. The bank operates as a typical community bank within the state of Oklahoma, but has a national Native American Home Lending business that it uses to fulfill the mission of its founders. Of $170 million in loans originated during 2010, 89% were to Native Americans. The bank was one of the few top performers to have a loan portfolio that was heavily concentrated in real estate lending. As of year-end 2010, 85% of Bank 2’s loans were real estate loans (including commercial, residential, multifamily, and construction loans), compared to averages of 62% among the top performing small non-S-corps and 74% among all small non-S-corps. 

Bank 2 has developed expertise in the Department of Housing and Urban Development’s Section 184 Indian Home Loan Guarantee Program, more commonly known as HUD-184. The 100% loan guarantees offered through this program help Bank 2 to keep nonperforming loans at low levels—nonperforming loans accounted for 0.28% of total loans at the bank in 2010, compared to 1.31% at the average top performing small non-S-corp and 2.56% at the average small non-S-corp. Participation in government programs also helped the bank to generate fee income during 2010. The bank experienced year-over-year increases in both servicing and securitization income, leading to an increase in noninterest income as a percentage of average assets from 4.22% to 6.20%.

As mortgage refinancing activity slows down, however, will Bank 2 see a change in its earnings performance? “There is pent-up demand for homeownership among Native Americans,” says Ross Hill, who does not believe that mortgage originations at the bank will slow substantially during 2011. Nevertheless, Bank 2 is not putting all of its eggs in one basket. During 2011, the bank plans to introduce new commercial products aimed at Native American business owners through government programs offered via the Bureau of Indian Affairs and the Department of Agriculture. Bank 2 also plans to improve alternative delivery channels by adding mobile banking and by updating its internet offering to improve the ease of use for both local and national customers who apply for deposit and credit products through the online channel. “The industry may be in a wait-and-see mode,” says Hill, “but Bank 2 has to move forward and continue to develop strong niches.”

 

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[This article was posted on June 10, 2011, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2011 by the American Bankers Association.]  

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