Members of the All-Star Banking Team 2008 stood out as much for what they didn’t do as for what they did—namely, not getting sucked into the subprime black hole. It was that kind of year.

US Banker  |  January 2008

By John Engen, Anthony Malakian, Karen Krebsbach, Joseph Rosta, Rebecca Sausner and Michael Sisk

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Richard Davis had been CEO of U.S. Bancorp for less than two months when the first signs of trouble emerged. It was a Thursday night in early February, and HSBC, the British giant with big consumer-lending operations on this side of the Atlantic, had revealed problems in its subprime loan portfolio. Sitting in a Naples, FL, hotel room prepping for a key investor presentation the next morning, Davis went into overdrive. “I immediately went from knowing something about our subprime portfolio to knowing everything about it,” he recalls. The following day, “the overriding concern [from investors] was, ‘How much subprime do you do? How much is on your books?’”

Davis won plaudits from shareholders that day—and throughout the year—for his frank talk about U.S. Bancorp’s balance-sheet risks. “In times like these,” he says, “transparency is the most important thing.” It didn’t hurt that he had a good story to tell. The company’s subprime exposure amounted to less than three percent of its loan portfolio, while big payments and wealth-management businesses continued to grow and generate fee income through the turmoil. Per-share earnings actually nudged up a penny in the third quarter, to 67 cents, while U.S. Bancorp’s return on equity for the year ending in September was a healthy 22.16 percent.

That kind of performance landed Davis and the bank on U.S. Banker’s annual All-Star Banking Team. The top bank ranking, based on year-over-year ROE figures compiled by SNL Financial, favored managements with good capital management skills. While sales and growth acumen still mattered, this time around simplicity, prudence, solid credit and risk practices—and good fee income—were most valued as the industry endured its most tumultuous year in almost two decades.

The year began with lingering concerns about inverted yield curves and lending margins. In retrospect, those look like the good-ol’ days. The subprime-loan crisis spread like a virus through the financial-services sector, sparking an almost complete shutdown of the markets for mortgage-backed paper and a stark liquidity crisis that kept many bankers in their offices through the traditional August vacation season.

As financing dried up, housing prices fell. Many borrowers with adjustable-rate mortgages were left holding the bag, their monthly payments resetting upward, even as the value of their homes plummeted. Delinquencies soared, and the rest of the economy took a hit as well.

How bad was it? A better question might be, how much worse can it get? John Stumpf, CEO of $459 billion-asset Wells Fargo, which is the nation’s No. 2 mortgage lender, invoked images of the 1920s to describe the turmoil. “We have not seen a nationwide decline in housing like this since the Great Depression,” he told investors in November. “I don’t think we’re in the ninth inning of unwinding this. …If we are, it’s an extra-inning game.”

Success is relative in times like these, and good performance can be illusory. After years of steady increases, industry profits in the third quarter were down a whopping 25 percent versus a year earlier, according to the Federal Deposit Insurance Corp. Industry loan-loss provisions, which take a direct bite out of earnings, soared to $16.6 billion in the quarter—more than double the $7.5 billion set aside a year earlier, and the highest since 1987. Signs are that fourth-quarter figures will be even higher.

In this kind of environment, barely treading water can be enough to claim superstar status, and many of the banks on this all-star team did just that in 2007. Take Hauppauge, NY-based Smithtown Bancorp, a $1.1 billion company that averaged 26.5 percent compounded EPS growth over the past decade. “This year, it’s 6.7 percent,” says CEO Brad Rock. “It’s nowhere near what we’ve done in the past, but we’re doing much better than other banks.”

Like many of the banks on this year’s All-Star Team, Smithtown—which had an ROE of 20.84 percent—pulled the reins tight on costs and underwriting, and grew core deposits without paying high rates. Rock’s secret? Old-fashioned service and several new teller-less branches that boast a “living-room-type feeling,” and have been a winner with customers.

Sierra Bancorp in Porterville, CA, generated an ROE of 22.68 percent, second best among mid-sized banks, despite being located smack-dab in the middle of the San Jaoquin Valley, which was among the areas hardest hit by the subprime crisis. Sierra’s $1.2 billion portfolio includes consumer, agriculture, corporate and institutional, commercial real estate and mortgage loans. “The key is diversity—if one sector slides, we have others to rely on,” says CEO James Holly.

The ranking contains some aberrations. By USB’s measure, the nation’s top-performing bank was $400 million Mackinac Financial Corp. in Manistique, MI, with an ROE of 33.11 percent. In the third quarter, Mackinac earned $2.35 per share, compared with 20 cents in 2006. But take out a $7.5 million gain on recognition of deferred taxes and a $470,000 judgment against a former accountant, and earnings would have been down, due to increased loan-loss provisions.

Perhaps the most impressive collective performance was turned in by the trust banks, which earned higher fees from activities generated by the market’s volatility. Northern Trust and State Street both ranked among the top 12 performers, and saw their share prices rise during the year. “Our businesses are high growth and they’re not balance-sheet intensive,” says Robert Kelly, CEO of The Bank of New York Mellon, the other big trust bank, which ranked fourth on USB’s list with an ROE of 20.13 percent.

For better or worse, location mattered. In once-sizzling Florida, plunging real-estate prices have ground the construction industry to a halt, sparking worries that even previously solid credits could wind up defaulting. “You’ve got a lot of plumbers, electricians and carpenters out of work,” says William Hickey, co-head of investment banking for Sandler O’Neill & Partners in New York. “Are they able to service their existing mortgage and car payments going forward?” The story is much the same in southern California. “Everything east of Los Angeles is a disaster,” says Mark Fitzgibbon, Sandler’s director of research. “A lot of banks in that market have really underperformed.”

On the flip side was Bank of Hawaii, No. 1 among large banks. While CEO Allan Landon’s team has done a good job of cutting costs and maintaining relatively strong profit margins—45.72 percent in the third quarter—it also cashed in on the island chain’s strong ties to Asia. “The Hawaiian banks are benefiting from a wave of Asian money pouring in through tourism and business ventures,” Fitzgibbon says. “With the dollar so weak, there’s been a big influx of activity.”

If there was one dominant theme among the top performers, it was conservatism. Century City, CA-based First Regional Bancorp was No. 1 among mid-sized banks, with an ROE of 22.9 percent. Even though its primary business line—loans to builders of apartment complexes—appears at risk, $2.1 billion First Regional had just $12,000 in non-performing assets in the third quarter. “We have never been involved in products such as subprime lending, and plan to maintain this posture,” CEO Jack Sweeney said in a statement.

It’s been 17 years—the savings-and-loan crisis of the early ’90s, to be exact—since the industry has confronted so much trouble. David Payne, CEO of $4.6 billion Westamerica Bancorp in San Rafael, CA, was around back then, and has held those lessons close. In 2003, just as the real-estate market was poised to explode, Payne dialed down his exposures. “I probably was more conservative than most bankers,” he says. “But things had already been strong for a decade, and I struggled with the notion that it could be so good for so long.”

Payne “took a lot of criticism” a few years ago, but his restraint was rewarded during 2007, as Westamerica’s levels of non-performers, delinquencies and loan losses held steady, and its ROE was 22.37 percent. But it’s easy to understand how so many bankers found themselves in trouble. In recent years, the pressure from investors to continually generate revenue growth was immense. “You had to make a choice: Follow your discipline, or show more growth and put yourself at greater risk,” Payne explains.

Times like these test the savvy of even the best management teams. Industry growth figures showed promise: total assets jumped eight percent from a year earlier, to $12.7 trillion, while deposits increased four percent, to $6.7 trillion, according to the FDIC. Even so, nearly half of the nation’s 8,560 banks and thrifts reported lower profits in the third quarter than a year earlier, and the average ROE plummeted to 8.81 percent, from 12.67 percent. Net charge offs jumped to 0.57 percent, compared with 0.4 percent; non-current loans were 1.08 percent of the total, up from 0.73 percent.

Small wonder that the Keefe Bruyette & Woods Bank Index had fallen more than 25 percent at the end of November from all-time highs reached early in the year. Some banks, including some erstwhile high fliers, such as Umpqua Holdings in Portland, OR, saw their market caps more than halved.

“We’re separating the men from the boys,” says Tony Plath, a banking and finance professor at the University of North Carolina-Charlotte. Banking, he says, remains primarily a risk-management business, with the spoils ultimately going to management teams “who best understand volatility and are prescient enough to say ‘no’ to short-term profits when the underlying viability of a business doesn’t make sense. ...A lot of people lost sight of that in recent years.”

In 2007, the industry’s excesses came shining through in brilliant clarity. After years of chasing yield and volumes with seemingly little regard to risk, some banks got caught holding the bag. BNY Mellon’s Kelly says the notion of risk premiums, so crucial to the banking business, seemed to evaporate during the housing boom. “Everyone knew it was unsustainable, and everyone was waiting for the event that would push those premiums back out,” Kelly says. “But no one knew how it would happen.”

As the crisis took hold, once-obscure terminology—negative amortization and alt-A mortgage loans, for instance, along with CDOs, SIVs and other complicated derivative packages—became part of the industry lexicon. Big-name companies became front-page news, for all the wrong reasons. And CEO heads rolled at Citigroup, Merrill Lynch and E*Trade as each announced multi-billion-dollar loses tied to these instruments.

As the industry enters 2008, there are more questions than answers. What’s next? Is the worst in the past? No one knows for sure, but the mood is subdued, and many expect things to get worse as the subprime contagion spreads to the rest of the economy. “The scary thing is: We haven’t hit bottom yet,” Plath says. “We’re going to see residential real-estate values fall further, and it’s beginning to spread to commercial real-estate and construction lending. Those are bread-and-butter businesses for a lot of banks. You’re going to see a lot of managements and boards needing to go back to shareholders and explain why profitability is flagging, because the engine of their growth is dead in the water.”

Smithtown’s Rock, who is serving as the American Bankers Association’s chairman, says many bankers feel victimized by the situation. Few community banks engaged in much, if any, subprime lending. Yet now they’re weakened by the crisis’ “spillover into the general economy,” he says.

What hasn’t changed is the industry’s Darwinian nature. While uncertainty about balance sheets and pricing promises to hold down M&A activity in the short-term, eventually the winners will be able to capitalize on the chaos and get stronger. “We’ll see more activity, but first we need more darkness, a little more despair,” says KBW vice chairman Andrew Senchak. In other words, buckle your seatbelts; the industry’s wild ride isn’t done yet.

[Top CEO]

1.

LYNN A. NAGORSKE

[Top CEO]

CEO, TCF Financial Corp.

Wayzata, MN

Age: 50

Years in position: 2

Previous position: president

Compensation: salary; $435,000; bonus, $269,000

Two thousand and seven was one of the most challenging years in banking in the last 15 years, and the bank navigated by “sticking to our knitting,” according to Lynn Nagorske, CEO of TCF Financial Corp.

Success came as much from that as from “what we didn’t do,” he says, namely no CDOs, SIVs, off-balance sheet accounting, subprime, 2/20 ARMs, option ARMs, or teaser rates—all those things that reared their ugly heads across the industry.

One factor that helped the bank keep its focus, he says, is that it holds all the residential mortgages it originates—it doesn’t sell them off. And everyone who works at the bank is a stockholder. “I tell them to think like an owner, and that makes a difference in the long run” in terms of risk management, he says.

Although the bank took a 20 percent hit to its stock price in early December, that may be due more to investors’ general skittishness about bank stocks than anything else. As of the third quarter of 2007, the $15.5 billion-asset bank notched a return on average equity of 25 percent, net income of $257.7 million and a profit margin of 31.89 percent. —MS

2.

RICHARD DAVIS

CEO

U.S. Bancorp

Age: 49; Years in position: 1

Previous position: COO, U.S. Bancorp

Compensation: salary, $625,024; bonus, $1.5 million cash “non-equity incentive” payout based on achieving performance goals

Richard Davis’s first full year as CEO could have been timed better. Then again, U.S. Bancorp fared just fine through the subprime crisis, due in large part to a conservative balance-sheet approach that Davis helped craft as COO. With little exposure to dicey loans, the $223 billion company’s third quarter EPS edged up a penny, to 67 cents, from a year ago; ROE was a robust 22.16 percent, among the best of large banks. A big believer in transparency, Davis told his story early and often—and well enough to keep shareholders in the fold, resulting in a relatively modest five percent drop in share price.

Beyond navigating chaotic times in the industry, the high-energy Davis is focused internally. U.S. Bancorp has long been recognized as one of the industry’s most efficient players, but sluggish on the revenue side. He aims to change that, and in 2007 launched a slew of initiatives—some structural, others cultural—to drive organic growth. As for Davis, he’s upbeat, as always. “If we have an advantage in these difficult times, it’s that we’re not as distracted as some of our peers,” he says. —JE

3.

ROBERT KELLY

CEO

The Bank of New York Mellon Corp.

Age: 50

Years in position: 6 months

Previous position: CEO, Mellon Financial Corp.

Compensation: salary, $864,205; bonus, $5 million

Robert Kelly feels most at home in front of a crowd. As CEO of the newly formed The Bank of New York Mellon, he regularly travels the globe, holding town-hall-style gatherings with far-flung employees in Asia and Europe. “I just show up, talk about how the company is doing, and open it up for Q&A,” he explains. “It’s very unscripted.”

A lot of CEOs wouldn’t have the confidence for such grillings, but the super-smart Kelly has a good story to tell. BNY Mellon had an ROE of 20.13 percent for the year-ended in September; total shareholder return was a lofty 43.12 percent—tops of any large bank in the country. The company is a top-10 asset manager and the world’s largest securities processor, and gets one-third of its income from outside the U.S. Recent deals in Brazil and China promise more growth. “It’s a relatively simple model that is rapidly globalizing,” he says. “Being able to focus on what we do around the world gives us a huge competitive advantage.”

A globetrotter by nature, the Nova Scotia native planted himself in New York for three months following the July merger closing. “I didn’t leave the office,” Kelly says. “I spent all my time establishing committees, attending meetings and setting the right tone.” The hard work has paid off, for Kelly and his shareholders. —JE

4.

ALLAN R. LANDON

Chairman and CEO

Bank of Hawaii Corporation, Honolulu, HI

Age: 59

Years in position: 3

Previous position: President

Compensation: salary, $750,001; bonus, $650,000

Hawaii’s island economy is based largely on tourism and real estate, which might lead one to assume that the Bank of Hawaii would be particularly vulnerable to the subprime mess. But not so; turns out that the pain is being felt most acutely by some mainland banks that stormed the island with subprime offerings earlier this decade.

Hawaii was a tempting target for mainland lenders, says CEO Allan Landon of Bank of Hawaii, because Hawaii has the lowest homeownership rate in the U.S. But that low rate is due to the very high cost of real estate, which means many people don’t qualify for conventional mortgages. “The large mainland lenders came in to show us how to do it [with subprime loans], and now the market has changed and it underlines what we’ve always done: Focus on helping customers stay within their means.”

“Our challenge has been to keep taking care of customers needs, make sure we didn’t amass a risk profile that wasn’t sustainable, and deliver solid financial results.” Specifically, Landon says he shoots to keep ROAE above 25 percent at the $10.5 billion bank, which he’s accomplished in 2007. And the bank’s profit margin of 45.7 percent has helped its stock remain even, while much of the rest of the industry has dropped more than 20 percent. —MS

5.

JACK A. SWEENEY

CEO and founder

First Regional Bancorp, Century City, CA

Age: 77; Years in position: 28

Previous position: EVP of Union Bank

Compensation: salary, $750,000; bonus, $1.3 million

For nearly three decades, Jack Sweeney has been CEO of the bank he founded, First Regional Bancorp. With that kind of experience, he has been able to draw on the past for guidance in today’s market.

Part of the reason First Regional has not been affected by the current housing market is because, as Sweeney says, “We don’t do subprime loans, never have, and we’re not a mortgage lender.” He adds that keeping credit quality strong is job No. 1. “We prepared for these times by keeping the focus on credit quality,” Sweeney says. “We look at every loan. Nobody in our bank has individual lending authority. This is paying off now.”

First Regional posted a third quarter ROE of 22.9 percent; ROA of 1.78 percent; net income of $35.9 million; net interest margin of 5.65 percent; and an efficiency ratio of 50.34 percent.

Sweeney, who founded the bank in 1979, has seen it grow from less than $100 million assets to more than $2 billion. “The market has brought our stock down with many others,” he says. “While these are challenging times, we have maintained our excellent credit quality. —AM

6.

DAVID PAYNE

Chairman, President and CEO

Westamerica Bank, San Rafael, CA

Age: 52; Years in position: 18

Previous position: Board Chairman

Compensation: salary, $371,000; bonus, $450,000

When David Payne took over the CEO reins of Westamerica Bank in 1989, little did he know that he would be walking into the housing crisis of the early 1990s. The experience he gained then is paying off now.

“I saw the last real-estate meltdown, for lack of a better term, when residential real estate really had severe problems in the ’90, ’91, ’92 time period,” Payne recalls. “We survived that time period relatively better than our competitors; we developed a real sense for conservative underwriting principles and standards.” And while many banks have been announcing large write-offs, Westamerica has stayed steady.

At the close of the third quarter, the bank had an ROE of 22.37 percent; net interest margin of 4.34 percent; net income of $91 million; ROA of 1.95 percent; and an efficiency ratio of 40.5 percent.

Payne has faced bumps in the road in the past year, most notably, he says, from competitors’ aggressive loan pricing and underwriting. He and his board have tried to stay the course even when that seemed unpopular. —AM

7.

JOHN STUMPF

President and CEO

Wells Fargo, San Francisco, CA

Age: 54; Years in position: 6 months

Previous position: president

Compensation: salary, $800,000; bonus, $0

Wells Fargo is not immune to the subprime mess, taking a $1.4 billion hit in the fourth quarter for losses, but the $550 billion-asset firm is managing the crisis better than others. Its ROAE was 19.3 percent through the first nine months of 2007, its profit margin 33.1 percent. “Our culture is about seeing the customer succeed financially” says CEO John Stumpf. ‘What value do off-balance sheet vehicles bring to the customers? ...We didn’t do negative [amortization] mortgages or option ARMs. We didn’t think it was in the customer’s interest, so it wasn’t in our interest.”

Stumpf sees many opportunities in 2008 as the subprime issue plays out. “People will still buy homes and automobiles and use credit cards, and we will continue to invest and win market share. ... We’ll be looking at in-market acquisitions to add to our distribution and footprint.” —MS

8.

WILLIAM OSBORN

Chairman (No longer CEO on January 1)

Northern Trust, Chicago

Age: 60; Years in position: 12

Previous position: President and COO

Compensation: salary, $3.54 million; bonus, $5 million in exercised options

Outgoing CEO William Osborn has much to be proud of as he looks back at his 38-year career at Northern Trust. As he eases out — he WILL continue as chairman of the board—and hands the CEO’s reins to president Frederick H. Waddell, 54, he recognizes an especially impressive year. As of the third quarter, year over year, the bank has achieved an impressive 19.03 ROE.

That was no accident. “We’re a very focused organization,” says Osborn. “We’re basically involved in asset management, fund administration and banking for institutions and high-net-worth individuals and we have worked an awful lot to build and further our capability in these areas.” Another reason for its solid results? “We’re very conservative,” he says, noting that the bank’s strict risk-management polices have prevented it from being beset by the credit or SIV troubles suffered by competitors. Northern Trust has assets under custody of $4 trillion and assets under management of $766.5 billion.

That close-to-the-vest mentality has served NT well. “This may sound strange, but our big issue has been dealing with the growth of our business, dealing with the quality,” he says. “You have to be careful that you don’t grow too fast.” Much of its client growth has been in Asia and Europe, as well as Australia and New Zealand. That growth has been more organic than external. “You don’t see us making as many acquisitions as others, so we can maintain our culture,” he says. —KK

9.

THOMAS VANN

President and CEO

First South Bancorp, Washington, NC

Age: 58; Years in position: 32

Previous position: Assistant Manager

Compensation: salary, $435,000; bonus, $269,000

Experience usually counts for a little something. And this past year, it’s counted for quite a lot at First South Bancorp. CEO Thomas Vann has been at the helm of the institution since 1975, and he recalls the tough environment when he took over, as well as that nasty stretch in 1980-1981. And then came 1984. And how about 1990? And who could forget 1994? And then ... well, one gets the idea.

The upshot is that in late 2006, Vann sensed the market was peaking and took action. The bank took advantage of a dip in interest rates to unload its mortgage holdings. It toughened its credit standards, reduced speculative construction lending, and moved to fixed-rate loans, away from adjustable-rate loans. “We slowed growth down and worked on changing our assets and liabilities,” he says. “Growth can hide a lot of problems. If [revenues stay] flat and you still earn money you know you’ve got good core underpinnings.”

And that’s exactly what First South Bancorp, with $907 million in assets, has proven—the quality of its underlying business. ROAE was 21.1 percent; net income was about $17 million, giving it a robust profit margin of 55.6 percent. —MS

10.

DANIEL MEYERS

President and CEO

Bridge Capital Holdings, San Jose, CA

Age: 47; Years in position: 7

Previous position: COO of Heritage Bank of Commerce, San Jose

Compensation: salary, $223,750; bonus, $350,000

Discipline has been the mantra at Bridge Capital Bank since its inception in 2001, says CEO Dan Meyers, a strategy that kept the rapidly growing business bank above much of the financial-sector meltdown of 2007. “We understand what cycles are, and that you have to plan beyond the current cycle that you happen to be in,” says Meyers.

Translated to strategy, this meant that despite the frothy real-estate market in Silicon Valley, Bridge grew aggressively but was careful not to let real estate overwhelm its balance sheet. “Only about half of what we do is real estate, whereas the average bank with our growth profile in California can be as high as 80 to 90 percent real estate these days,” Meyers says.

In the third quarter, the company reported net income of $2.8 million, a 19 percent increase over the year-earlier quarter. In the third quarter, year over year, ROAA was 1.36 percent; ROAE was 19.02 percent. Meyers was elected to the Board of Governors of the Federal Reserve Bank of San Francisco and began his three-year term on January 1. —RS

[Top CFO]

1.

THOMAS F. JASPER

[Top CFO]

EVP and CFO

TCF Financial Corp., Wayzata, MN

Age: 38; Years in position: 1

Previous position: EVP and CFO of TCF Equipment Finance, the holding company

Compensation: Not available

Sometimes it’s what a company doesn’t do and doesn’t have that makes the difference. That certainly seems to be the case for $15.5-billion TCF Financial Corp. and its CFO, Thomas F. Jasper. As of September 30, TCF had “no subprime-lending programs, no 2/28 ARM loans, no Option ARM loans, no loans originated with teaser rates,” according to the company’s third-quarter 2007 investor presentation. Third-quarter results included a $2 million pre-tax gain on sales of mortgage-backed securities, quite a feat in light of the meltdown of that market.

For the 12-month period ended September 30, TCF Financial attained ROE of 25.03 percent, ROA of 1.74 percent, and a 31.89 percent profit margin, a resilient performance in a challenging world of unhelpful yield curves and increasing credit costs.

The bank managed to maintain relatively robust earnings per share for the third quarter—$0.49, compared with $0.51 in the year-earlier period. TCF kept a lid on non-interest expenses, which rose 0.1 percent during the third quarter. Net interest margin stood at 3.9 percent at the end of the period versus 4.0 percent a year earlier. The bank’s tier 1 capital ratio was 8.34 percent, while its total capital ratio was 10.8 percent. Despite unsettling financial-market conditions, TCF continued its steady branch-expansion program: The bank is expected to add 20 branches during 2007, one more than in 2006. —JR

2.

ANDREW CECERE

Vice Chairman and CFO

U.S. Bancorp, Minneapolis, MN

Age: 46; Years in position: 2

Previous position: Vice chairman, Private Client and Trust Services

Compensation: salary, $400,015; bonus, $625,000

As the date neared for U.S. Bancorp’s September 4 investor conference, vice chairman and CFO Andrew Cecere grew increasingly concerned. Turbulence in the financial markets was intensifying, and “things could change so rapidly that I was unsure we’d be able to tell our story clearly,” he says. “But transparency is always a good thing.”

So is a disciplined expense and credit culture. These factors helped support the $227.63 billion-asset bank’s financials in the face of souring financial-market conditions. ROE for the 12 months ended September 30 was 22.16 percent, near the top of its peer group; ROA was 2.11 percent. U.S. Bancorp’s profit margin stood at 47.84 percent. And its capital ratios were strong: 8.5 percent for Tier 1 capital.

“We continue to grow revenues, and that requires a bit more expenditures,” says Cecere, referring to a $205 million rise in non-interest expense for third-quarter 2007, a 13.3 percent hike. Half of that increase was related to business-related growth, half to normal business expenses.

As for the subprime mess, “we are not going to be immune to the pressures all banks will experience,” Cecere says. Still, U.S. Bancorp’s diversified businesses and credit discipline allows it to manage “in a position of relative strength,” he says. In 2008, the focus will be credit. “We are heading into a more stressed part of the credit cycle,” he notes. —JR

3.

BRUCE VAN SAUN

Chief Financial Officer

The Bank of New York Mellon Corp.

Age: 50; Years in position: 6 months

Previous position: Vice chairman, The Bank of New York

Compensation: salary, $650,000; bonus, $1.17 million

Long before the merger of Bank of New York and Mellon became official in July, Bruce Van Saun was immersed in the operational details of the new entity, all while overseeing a couple of operating units: the old BNY Mellon’s asset-management and market-related activities. Those businesses outperformed expectations by 15 percent in the first half of the year. Since then, Van Saun—who spent nine years as CFO of the former BNY—has been reworking global joint venture agreements, building capital levels, boosting transparency and the like. “There have been a lot of behind-the-scenes efforts that didn’t get a lot of fanfare, but they were all important and some of them involved some tough negotiations to clean up,” he explains.

A global powerhouse in asset-management and asset-processing, BNY Mellon capitalized on the markets’ volatility, generating an ROE of 20.13 percent in the 12 months that ended in September, with total shareholder returns of 43.12 percent. “The challenge in 2007 was to take advantage of the marketplace opportunities, and address the integration,” Van Saun says. “We conducted business at a very high level and met all of our financial objectives.” That’s music to the ears of any CFO. —JE

4.

ROBERT A. THORSON

SVP and CFO

Westamerica Bancorporation, San Rafael, CA

Age: 47; Years in position: 2

Previous position: SVP and treasurer

Compensation: salary, $135,000; bonus, $97,200

Compliance occupied most of Robert Thorson’s time last year as svp and CFO at Westamerica Bancorporation “All of us had to respond to the credit situation,” Thorson notes. “Internally we focused on how Sarbanes-Oxley’s auditing standard...allows companies to reassess how financial risk is measured.” Westamerica chose to shift risk controls “to the top level of the company,” he says.

How did the $4.66 billion bank manage a 22.37 percent ROE and 1.95 percent ROA at the end of third quarter 2007, despite deteriorating financial-market conditions? “Westamerica has always been very conscious of its cost structure,” Thorson explains. “In a year marked by interest-rate-margin pressure, we reduced costs in 2007.” Cost control helped garner the bank a 55.5 percent profit margin, even as its net income dipped 9.1 percent to $22.0 million from $24.2 million in the third quarter of 2006.

The outlook for 2008 is not particularly rosy. “It will be a difficult year for many—interest-rate-margin pressure will remain a factor,” he says. “The problems are deep and it will take quite some time to work out.” Under such uneasy conditions, Westamerica will stick to what works: “You have a lot more control over costs than external factors,” Thorson observes. —JR

5.

HOWARD I. ATKINS

Senior EVP and CFO

Wells Fargo & Co., San Francisco, CA

Age: 56; Years in position: 2

Previous position: EVP and CFO

Compensation: salary, $600,000; bonus, $3.0 million

Patience is considered a virtue at $548.7 billion-asset Wells Fargo, and senior evp and CFO Howard I. Atkins was an ardent adherent in 2007. “Perhaps the biggest challenge was being patient,” says Atkins. “A lot of banks in the last year leveraged their balance sheets in an effort to boost their returns,” he continues, “and they did so in an environment where, in our view, risk wasn’t being priced right.”

Wells Fargo and Atkins’ caution yielded record net income of $2.28 billion in third-quarter 2007, up four percent from $2.19 billion in the year-earlier period. The bank’s ROE stood at 19.33 percent, while ROA was 1.79 percent, and the profit margin was 33.11 percent. Balance- sheet discipline paid off in another key area, too. “Our capital ratios went up when everyone else’s went down,” according to Atkins. The company’s Tier 1 capital ratio was 8.21 percent as of September 30, and its total capital ratio was 11.11 percent.

Although its direct exposure to subprime-backed securities is minimal, Wells Fargo is expected to take a $1.4 billion writedown in the fourth-quarter for home-equity business generated through outside wholesalers. Its own mortgage lending is conservative, states Atkins—no option ARMs, no reverse amortization mortgages. The bank, he says, “never sponsored any SIVs. We’re not big investors in hedge funds, and we’re not lenders to the LBO market.” —JR

6.

STEVEN FRADKIN

evp and CFO

Northern Trust, Chicago, IL

Age: 45; Years in position: 4

Previous position: head of corporate and institutional services, international business

Compensation: salary, $468,700; bonus, $0

While most of the industry has struggled, Northern Trust has gone gangbusters. Revenue was up 14 percent in 2007 through early December, net income 22 percent, earning per share 21 percent. And investors have rewarded the $63 billion-asset bank with a 30-plus percent increase in stock price. “By any metric, it’s been a terrific year for Northern Trust,” says Steven Fradkin, evp and CFO.

What’s sets it apart? “It starts with the business you’re in,” he says. Northern Trust caters to the affluent through its private wealth-management group—and this group is thriving, accounting for about 40 percent of the bank’s business. It is the largest personal-trust company in the U.S., with 20 percent of the Forbes 400 as clients. Another part of the bank’s business is providing corporate and institutional asset-management services for pension funds and endowments. “Compare that with writing subprime mortgages, and it’s really a different business,” he says. —MS

7.

ANITA FLOREK

EVP and CFO

Smithtown Bancorp., Hauppauge, NY

Age: 57; Years in position: 14

Previous position: SVP, comptroller and COO

Compensation: salary, $191,077; bonus, $73,212

Here’s a quote one won’t hear from many bankers these days: “Overall, it’s been a good year, not as good as previous years, but we’re happy with where we’re at.” That’s from Anita Florek, CFO at Smithtown Bancorp on Long Island.

But wait, it gets better: “At this point our loan pipeline is the largest it’s ever been, so we’re pretty optimistic,” she says.

It’s all about loan growth at Smithtown, where by the end of the third quarter loans had grown nearly 16 percent on an annualized basis. In the second quarter, the bank actually set a record value of closings at $105.7 million. “The current liquidity issues and the credit crisis have helped us,” Florek says. “Some of the conduits that would be our competition in New York City have gone away.”

In the third quarter of 2007, net income at Bank of Smithtown grew 4.6 percent to $3.8 million. Return on average equity was 20.27 percent and return on average assets was 1.41.

The biggest challenge at the bank last year was deposit gathering, with increasing competition from regional and national banks. “We’re not expecting it to be much worse than it was this year. We had slow and steady growth, and that’s what we expect next year,” Florek says. —RS

8.

KENNETH TAYLOR

EVP and CFO

Sierra Bancorp, Porterville, CA

Age: 47; Years in position: 1

Previous position: SVP and CFO

Compensation: salary, $153,540;

Bonus, $68,513

Sometimes strong performance in tough times comes from just tweaking an already-successful model. At Sierra Bancorp, consumer flight from low-cost to higher-cost accounts, and into the equity markets, put a squeeze on margins last year, but a rapid marketing response added more than 12,000 net new accounts at the bank’s 21 branches. Those new account holders aren’t providing the high balances the bank is looking for, yet, but their mere existence at least helped to drive up fee income during the year. And market conditions could lead to a turnaround in the coming months, says EVP and CFO Ken Taylor. “It’s possible that the current flight to safety might help us out a bit,” he says.

In the third quarter, Sierra produced net income of $5.3 million, an increase of eight percent over the year earlier quarter. Diluted earnings per share were 53 cents in the third quarter, up from 48 cents per share a year ago. The bank produced a third quarter return on average equity of 22.16 percent, and a return on average assets of 1.73 percent.

The strong ratios shouldn’t be too surprising, Taylor says. When the bank was founded in 2000 its creators went as far as to put a minimum ROE of 18 percent in its mission statement. —RS

9.

CAROL WHEELER

CFO

Frontier Financial Corp., Everett, WA

Age: 50

Years in position: 4

Previous position: SVP and Internal Auditor Compensation: salary, $140,000; bonus, $84,197

Carol Wheeler and her colleagues at Frontier Financial Corp. are doing exactly what you’d expect frontier bankers to do—expanding, and rapidly. The bank opened three new branches in the third and fourth quarters of 2007, closed its deal to buy the three-branch Bank of Salem, and announced a much larger deal to acquire Whidbey Island Bank, a 20 branch deal valued at $191 million.

The Bank of Salem purchase is Frontier’s first foray into the Oregon market. The Whidbey purchase will be Frontier’s largest to date, and “will take a lot of resources to absorb,” Wheeler says.

Wheeler, who began her career at the bank 29 years ago, just three months after it was founded, says Frontier has benefited from a stronger-than-average local economy, where it has concentrated heavily in real estate. Frontier’s net income for the third quarter increased 9.2 percent to $20.2 million over the year earlier period. The jump came from a pre-tax increase in net interest income of $5.5 million in the third quarter. In the same period, return on average assets was 2.28 percent and return on average equity 20.81 percent. —RS

10.

BETH SANDERS

EVP and CFO

1st Centennial Bancorp, Redlands, CA

Age: 55; Years in position: 10; Previous position: CFO and SVP

Compensation: salary, $146,109; bonus, $75,000

Though the market has zigged, 1st Centennial Bancorp has managed to zag for most of this year, watching its loan volume and deposit volume grow over the third quarter last year.

Earnings in the quarter at the $660-million bank increased 15 percent to $2.1 million over the year earlier period. Return on average equity was 18.33 percent; return on assets came in at 1.41 percent.

During the last quarter the bank made a push to increase deposits, offering customers the ability to access up to $30 million in FDIC insurance at the bank through the use of Certificate of Deposit Account Registry Services (CDARS). The effort worked, interest expenses on timed deposits increased from $692,000 a year ago to $1.1 million by the end of the third quarter. In a press release, CEO Thomas Vessey boasted of his bank’s results. “Despite all of the negative news about subprime mortgage lending (we have none) and the softening real estate market, we are pleased to report positive news. By being disciplined and adhering to our strategic plan, our performance ratios continue to excel despite many challenges facing our industry during the year.”

CFO Beth Sanders, who has been CFO at the bank since its inception in 1993, was not available for an interview. —RS (c) 2008 U.S. Banker and SourceMedia, Inc. All Rights Reserved. http://www.us-banker.com http://www.sourcemedia.com

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