Trust Firms’ Profits Stay Positive in First Quarter

Full-service banks are still fighting headwinds, but business is booming in their trust departments. More specialized trust companies are making a lot of money.

It was another bumpy season for the big banks, but when you drill down into the numbers, the trust business is ramping up in terms of both activity and profits.

Most of the publicly held names in the trust industry booked a solid first-quarter profit as trust fee income expanded by about 20% to 25%. Northern Trust, Washington Trust and Westwood Trust all improved their bottom line.

The best performers attribute the improvement to a mix of tactical business development and old-fashioned organic growth. For example, Westwood Holdings, the parent of Dallas-based Westwood Trust, boosted its trust income 24% to $3 million in the quarter.

“We’ve hired a new trust officer and are hoping he will help us grow,” William Hardcastle, the company’s chief financial officer, told me.

“But about 3/4 of our new cash flows are from referrals or new assets from existing clients,” he added. “Clients are not quite as afraid as they were. That’s very welcome.”

Northern Trust reported a 25% increase in trust and other fees. Washington Trust bumped up its wealth management revenue by 16%.

Selected Trust Institutions:
2009 Scorecard

 

Fiduciary
Assets

Fiduciary Revenue

Institution

12/31/09

Change from 12/31/08

12/31/09

Change from 12/31/08

Northern Trust (IL)

$3.9 trillion

20%

$2.2 billion

-4%

Wilmington Trust (DE)

$185 billion

10%

$288 million

96%

Bessemer Trust (NY)

$47 billion

4%

$284 million

18%

Wellington Trust (MA)

$31 billion

25%

$188 million

-4%

Glenmede Trust (PA)

$18 billion

10%

$80 million

25%

Boston Trust (MA)

$4 billion

14%

$20 million

26%

Lehman Bros. Trust (NY)

$3 billion

9%

$18 million

-29%

Haverford Trust (PA)

$3 billion

13%

$13 million

7%

Washington Trust (RI)

$2 billion

15%

$1 million

19%

Westwood Trust (TX)

$2 billion

29%

$10.3 million

-6%

Legacy Trust (MA)

$1.7 billion

38%

$8.5 million

23%

Trust Co. of Toledo (OH)

$1.7 billion

21%

$4 million

22%

Unified Trust (KY)

$1.6 billion

30%

$13.5 million

26%

Philadelphia Trust (PA)

$1.3 billion

18%

$6 million

19%

Source: Trust Performance Report, A.M. Publishing, Chicago, IL. and SEC website. Representative sample only; not a comprehensive list.

Drilling down

That’s nice for the big institutions, but most trust companies aren’t publicly traded and don’t announce their results. To get the score on smaller trust operations, we got in touch with the expert number-trackers at Trust Updates in Chicago.

First-quarter numbers are just trickling in now, but Bernard Garbo, publisher of the company’s Trust Performance Report, told me that if early indications are any guide, the rising tide is still lifting all the boats.

“Larger institutions seem to be doing fairly well, but the rest are reporting that assets are up as well,” he says.

Garbo sees the best growth potential in institutional markets like employee benefits programs and other corporate trust services. However, the biggest trend he’s noticed is that the trust companies that can squeeze the most profits out of their assets tend to be specialists.

“Institutions that tend to specialize in fewer account categories are often the most profitable,” he told me.

“That’s not to say that some full-service operations aren’t making money, but especially among the independent trust companies, it seems difficult to be all things to all clients,” he added.

Trust works when lending fails

If specialists are reaping big rewards, the reverse also seems to be true. Full-service banks where trust is only a slice of a larger service platform don’t seem to be doing so well.

Among the big integrated trust banks, Wilmington Trust lost $29 million and Marshall & Ilsley lost $140 million. Both confessed that problems in their loan portfolios dragged their results down, but it wasn’t the trust departments’ fault. In fact, both banks singled out their wealth management operations as a bright spot.

Bank analyst Richard Bove at Rochdale Securities told me this is a natural part of the business cycle.

“The trust business is all about regular fee income and incremental growth,” he says.

“Because of this, it rarely suffers when the market does poorly, and in fact can provide a buffer when the environment turns against an institution’s riskier activities.”

Wilmington has tweaked its business to take advantage of the trend. The bank saw its core trust revenue climb 11% in the first quarter and its assets under administration surge 22%, thanks in part to an aggressive new sales campaign.

“Our reputation as a superior fiduciary and service provider continues to serve us well,” Mark Graham, executive vice president of Wilmington’s wealth advisory services unit, told me, adding that new account activity is up 34% over last year.

Scott Martin, contributing editor, The Trust Advisor Blog. Steven Maimes contributed to the research.

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