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FOR
IMMEDIATE RELEASE
FROM: Nancy
Gardner (206) 543-2580
nancylou@u.washington.edu
DATE:
December 5, 2005
For the third consecutive year, banks
with headquarters in Washington state delivered an average
of 10 percent return to investors, according to researchers
at the University of Washington Business School. The study,
led by Alan Hess, UW professor of finance and business economics,
shows that returns from Washington banks exceeded the national
average return for all banks, 9.7 percent, and the national
average return for small banks, 6.7 percent respectively,
reported by the Federal Deposit Insurance Corp.
"Our state's financial institutions have done an excellent
job of managing their operating costs," said Hess. "The
discipline they exercised in managing employee wages and
benefits should be an encouraging sign to investors."
Hess and Ben Iiams, an undergraduate honors student who helped
compile the statistics, analyzed balance sheets and income
statements of financial institutions with headquarters in
Washington state. Only three of the 93 banks analyzed did
not deliver positive returns to investors. Fife Commercial
Bank had the largest return of any bank, 31.6 percent.
According to Hess, banks in the Northwest have in recent
years outperformed more traditional investments such as treasury
securities and stocks, and 2004 was no exception. Investments
in Treasury securities yielded 1.4 percent in 2004, 8.6 percent
less than Washington banks. Standard & Poor's 500 Index,
one of the most common benchmarks of overall market performance,
returned 10.87 percent, though with greater risk than investment
in Washington banks carries, noted Hess.
The research indicates the highest-performing banks in Washington
were those with the highest profit margins. Banks that best
controlled operating expenses as a percentage of revenues,
as measured by a low efficiency ratio, had the highest profit
margins. The efficiency ratio is the ratio of operating expenses
to revenue. First Savings Bank of Renton, the bank with the
best efficiency ratio, spent less than one-third of its revenues
to pay for operating expenses. The average bank in Washington
maintained operating expenses equal to two-thirds its revenue.
"If a bank can control its expenses, it has a higher
rate of return on equity," said Hess. "The efficiency
ratio provides investors with a window into how effectively
banks operate."
The research also indicated that returns were unrelated to
bank size – small banks and large banks performed similarly. "In
Washington, size does not determine performance," said
Iiams.
Banks in Washington displayed diverse returns, ranging from
minus 25.2 percent to 31.6 percent.
The most profitable banks in Washington in 2004 to complete
the top ten were Golf Savings Bank (Mountlake Terrace), Frontier
Bank (Everett), The Commerce Bank of Washington (Seattle),
Venture Bank (Lacey), Pacifica Bank (Bellevue), Security
State Bank (Centralia), Bank of Whitman (Colfax), Cashmere
Valley Bank (Cashmere), and Heritage Bank (Olympia).
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