This year’s top performing large banks (institutions with total assets of $10 billion or more) found opportunities in a year of significant challenges. Among the challenges of 2013 were margin contraction and the end of the mortgage refinance boom. Several large banks developed and pursued strategies that enabled them to maintain or improve profitability despite these trends. These strategies included commercial loan growth, diversification of noninterest income, and a strong focus on core markets.
Commercial loan growth led the way
The median annual net loan growth among top performers was 7.9%, compared to 4.0% for all large banks. On average, C&I loans increased 15.5% and commercial real estate loans increased 9.4%, compared to average residential mortgage loan growth of 5.7% among publicly traded large banks. Signature Bank (#5) and Texas Capital Bancshares (#9) were at the forefront in terms of commercial loan growth. First Republic Bancorp (#8) – traditionally focused on private banking for individuals – shifted its focus toward businesses and nonprofit customers. As a result, First Republic experienced C&I loan growth of 38% and commercial real estate loan growth of 18%.
Diversification of revenue streams
Declines in mortgage refinancing activity significantly reduced not only interest income, but also fee income. To maintain noninterest income, Wells Fargo & Co. (#4) and others capitalized on the favorable wealth management market conditions. Wells Fargo experienced a 29% increase in wealth, brokerage, and retirement fee income during the year. Additionally, the company achieved 12% growth in card fees and 7% growth in revenue from deposit service charges.
Core market focus
Many top performers committed resources to developing stronger positions in fast-growing or otherwise attractive markets. East West Bancorp (#7) – a bridge bank linking business owners and companies in China and the U.S. – opened a location in Las Vegas, NV, and has announced an acquisition that will strengthen its presence in Texas, a state with increasingly large Chinese investment and population.
Outlook for the rest of 2014
With many of the same challenges evident in the market today, emphasis on commercial loan growth, revenue diversification, and a focused core market approach will likely continue to be central to the success of banks.
The full article, rankings, and analysis can be found at www.ababj.com.