Published October 2003

Local banks rank well statewide

By Bryan Corliss
Herald Business Writer

Everett-based Frontier Bank is one of the most-profitable financial institutions in a state full of money-making banks, a recent University of Washington report said.

In fact, all four of Snohomish County’s publicly traded local banks posted good results in 2002, the study’s author said.

“These four banks perform very nicely,” UW finance and business economics professor Alan Hess said. “Everett should be proud.”

Research done by Hess and several honors students this spring found that Washington banks and savings and loan associations were smart investments in 2002. Out of 52 banks and thrifts studied, 49 of them yielded strong returns.

Frontier was one of the 10 most-profitable banks in the state, Hess said. The three other publicly traded local banks — Cascade Bank, CityBank and EverTrust Bank — all performed better than the norm.

“That’s amazing,” Hess said. “Each of these banks performed well.”

Hess’ study went beyond standard bank balance sheet reports. The idea was to look at how the banks performed compared to what they were “supposed to do.”

A conservative investor who put 75 percent of his investment dollars in U.S. Treasury securities, and 25 percent in an index fund based on the Standard & Poors 500, would have seen a return of about 3.5 percent. The Washington banks and thrifts in the study, however, generated returns of 11.5 percent, Hess said.

The four Snohomish banks all did better than that, he added. Frontier’s returns were 21 percent, Cascade’s 15 percent, CityBank’s 14 percent and EverTrust’s 12 percent.

Hess praised all four, saying Lynnwood-based CityBank “has long been a really profitable bank” and adding that Cascade and EverTrust are both “doing quite nicely.”

And Frontier is impressive enough that he’d invest in it himself, Hess said.

“The investors aren’t facing much risk, and Frontier’s giving a really good rate of return.” Analyst Jay Tejera at Ragen Mackenzie, who specializes in Northwest bank stocks, agreed.

Frontier is one of the most profitable midsize banks in the country, he said.

A big part of that is because Frontier has a low cost structure, Tejera said. Banks judge their efficiency by looking at how much money they have to spend to generate $1 of revenue. The top-performing big banks, like Washington Mutual, spend 53 or 54 cents — Frontier spends 40.

Frontier succeeds in large part because it has “a simple, focused product line,” Tejera said. “They don’t try to be all things to all people.”

Frontier in particular has focused on commercial real estate lending, and “they do that very well,” he said. It’s a good business for the bank, because it brings in large revenues with small overhead.

CityBank also has found a profitable area of specialization — residential construction and lodging lending. That has allowed the bank to perform “well above the peer group for a number of years.”

“That’s a theme here,” Tejera said. “If you want to have significant returns, you have to find a niche, and the niches are relatively small.”

Tejera called Cascade a “great turnaround story” that has made great strides under a new management team.

And EverTrust is “profitable as well” and moving in new directions after changing its structure three years ago.

“It’s a good group. It’s unusual to see four strong players like that,” Tejera said. “In a gloomy business environment, it’s a nice story to tell.”

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