Web Exclusive: Private & Foreign-Owned Rankings
By Vanessa Mambrino, Senior Analyst, Capital Performance Group LLC, Washington, D.C., a firm providing advisory, planning, analytic, and project management support to the financial services industry.
The events of 2008 impacted private and foreign-owned banks and thrifts with assets of $3 billion or more just as severely as their public counterparts. The average return on average equity among large private institutions dropped from 7.45% in 2007 to -2.36% in 2008. The top performing private institutions used two of the same strategies applied by top performing public institutions to counter the effects of these events—a return to core banking and a focus on niche market segments.
Core banking activities were especially important to our top 10 private banks—while the average ratio of noninterest income to average assets at these institutions remained relatively flat, the average ratio of net interest income to average assets increased from 3.16% to 3.33%. The average for all other private institutions in 2008 was 2.91%. With interest expenses decreasing by nearly 100 basis points for both the top performers and the rest of the institutions on our private and foreign-owned list, the ability to make high-yield, strong-credit-quality loans made the difference in 2008 performance.
Finally, this year’s top private banks were more likely to have a niche focus than others. For example, this year’s top performer, Midfirst Bank of Oklahoma City, Okla., focuses on FHA and VA mortgage lending and benefited from the significant ramp-up in activity under these two government programs in 2008 as the number of other secondary market participants declined. One-to-four family mortgage loans increased from 38.3% of Midfirst’s portfolio in 2007 to 44.5% in 2008. This increased lending activity brought Midfirst both additional interest income and additional servicing fee income and helped the bank to achieve its ROAE of 33.38%. Both Midfirst and the second place private institution—Intrust Financial Corp. of Wichita, Kan., also benefited from the unique tax treatment available to Subchapter S Corporations. At S-corps, income taxes are assessed on shareholder’s returns and therefore the corporation does not pay income tax. S-corps will be broken out separately in Part 2 of our analysis, which focuses on community banks. However, due to the small number of private banks and thrifts with total assets of over $3 billion, we are unable to rank S-corps separately in our large bank analysis.
Selection criteria
We examined the performance of nonpublicly traded banks, thrifts, and holding companies as well as wholly owned financial institution subsidiaries of both privately-held and publicly traded foreign financial services companies (where the company is not listed on a major U.S. exchange and the subsidiary’s results are broken out separately) with assets over $3 billion as of Dec. 31, 2008. Wholly owned financial institution subsidiaries of publicly traded companies in other industries have been excluded, as these institutions are not truly comparable to other financial institutions. A total of 44 private institutions qualified under our selection criteria. They were ranked by return on average total equity (ROAE) for 2008. In instances where the reported ROAE was identical for two or more institutions, 2008 return on average total assets (ROAA) was used as a secondary ranking criterion.
Data was provided by SNL Financial LC as of Dec. 2008. Regulatory filings were the source for all private company data. BJ
Trackback(0)
|
TrackBack URI for this entry
Subscribe to this comment's feed