Banking's Top Performance 2004: Part 1: Banks with Assets over $1 Billion

In some ways 2002 was extraordinary for its ordinariness--retail ruled and banks that made mortgage loans and opened checking accounts made lots of money for themselves and their investors. In 2003 the picture began to change. Many of the top performers in the banking industry maintained their positions in the upper tiers, but they got there via different paths. Some focused on buying and selling operations and assets, while others further developed or enhanced lucrative consumer or wholesale specialty businesses. A few improved their statistics by aggressive cost control, while others spent like crazy to drive phenomenal levels of growth. Some of the one-time gains are funny money, to be sure, but tell that to investors, who sank an estimated $320 billion into the banking industry during the year. This month, part one of the 12th annual ABA Banking Journal performance rankings, reviews the financial results and strategies of the nation's largest banks, thrifts, and specialty lenders. Part two, which will appear next month, will highlight the top performing community banks and thrifts in 2003. Selection criteria Our study ranks the performance of domestic institutions with assets over $1 billion as of Dec. 31, 2003. Three groups were included in our analysis: publicly held depository institutions (banks, thrifts, and bank or financial holding companies), private depositories, and specialty lenders. A total of 311 public banks, thrifts, and holding companies and 152 private institutions qualified under our selection criteria. They were ranked by return on average equity for 2003. In instances where the reported ROE was identical for two of more institutions, 2003 return on average assets was used as a secondary ranking criterion. The same methodology was used for specialty lenders, of whom 24 qualified for ranking in 2003. Government-sponsored enterprises Fannie Mae, Freddie Mac, and the Federal Agricultural Mortgage Corp. (Farmer Mac) were excluded from the specialty lender ranking. Data was provided by SNL Financial LC as of Dec. 2003 from Securities and Exchange Commission filings. Encore! Apparently getting to the top is harder than staying there. Seven of last year's top 10 performing banks held tight in the top group, and five have the distinction of being there for three years or more. Flagstar Bancorp of Troy, Mich., always the bridesmaid and never the bride, ranked second for the third year in a row, bested only by Fremont General Corp., Santa Monica, Calif., which has an industrial bank charter. As the top performing public bank in 2003, Fremont earned a return on equity of 48.18% despite credit quality problems that persisted throughout the year. Fremont's performance was boosted by a second quarter reversal of reserves to cover potential costs of discontinuing its insurance operations, but the company's financial performance was outstanding even excluding the $44.3 million gain. Core ROE for Fremont was 39.85% for the year, placing it second to runner-up Flagstar in that category. Fremont's primary businesses are subprime wholesale mortgage lending, and commercial real estate lending. Most of the top ten banks on the list are heavily involved in either mortgage or real estate lending. First Tennessee and New York's North Fork Bancorporation were two exceptions, although they both have significant mortgage involvement. Last year's first-place performer WSFS Financial Corp., Wilmington, Del., slid to the fourth position, with results again assisted by a one-time gain resulting from a divestiture--this time of a majority-owned mortgage banking subsidiary. Humboldt Bancorp of Roseville, Calif., one-upped WSFS with a divestiture of its own, placing it third on the list. And rounding out the top five is Westamerica Bancorp. of San Rafael, Calif. Westamerica ranked among the top ten for the fifth year in a row. Puerto Rico-based mortgage lenders Oriental Financial Group (See Briefing) and Doral Financial Corp. …