The Financial Performance of U.S. Commercial Banks 2001-2010

Abstract

We examine the financial performance, risk, changing revenue and asset mix, prospects for future shareholder value creation and executive compensation of the 15 largest commercial banks in the US from 2001-2010. Aggregate revenue for large commercial banks in the US reached all-time highs in 2009 and 2010. Growth has slowed in traditional sources of revenue such as interest income from loans and investments, while revenue from trading activities, fees on credit cards, and service charges on deposits has grown in recent years. Charge-offs from non-performing loans and other assets continue to weigh on bank profits, however. Aggregate dividends declined by 80% from 2008-2010. The Tier 1 capital held by the banks in our sample has more than doubled in 2009-2010. Despite persistent quality problems with their loan portfolios, flagging profitability, a dramatic reduction in dividends and poor stock price performance, the total salaries and bonuses earned by executives at our sample of banks grew by 33% from 2008-2010. Executives have also been taking more of their compensation in the form of salaries (vs. bonuses) since 2005. We find that banks that received more TARP funds actually reduced their loan portfolios by greater amounts, which refutes the idea that the TARP program had a positive impact on bank lending.