Trust Updates Archive

Fiduciary Earnings Expenses Revenue Trust Performance Productivity Regulatory News Bank A.M. Publishing Bernard Garbo Revenue & Industry Challenges

(January 28, 2016 --Chicago, IL) -- Revenue performance outpaced expense increases at most trust operations, leading to improved profit margins with the notable exception of small national trust companies, according to Fiduciary Earnings & Expenses 2015, a sister publication of Trust Regulatory News. However, FEE2015 reports, many smaller and some larger players are looking to exit the market.

For sample pages of FEE2015 click here.

Most banks approach trust services as a loss leader. However, some are finding the offset--potential of higher commercial bank profits--no longer exists.

Fiduciary Earnings & Expenses' analysis suggests the trust industry remains firmly focused on improving both gross revenues and the bottom line. It was the sixth consecutive year of solid revenue growth. Nevertheless, many institutions are falling behind. Even among those generating higher revenues, this does not always translate to increased profits.

To generate higher profit margins, FEE's analysis suggests trust institutions need to focus or limit their operations and not be all things to all people.

In A.M. Publishing's annual survey of the trust industry, trust executives were asked if they were considering outsourcing or selling their operations. Only executives at bank trust divisions (excluding national trust companies) responded they were. On average, only 1 percent of institutions reported reviewing the possibility of either outsourcing or selling. However, a surprising 13 percent of Peer Group 2 institutions (those with total assets between $10 billion and $100 billion) are reviewing the option of outsourcing; none within this peer group are considering selling. Those considering selling were limited to Peer Group 5, institutions with less than $500 million in total assets.

FEE's analysis puts the threshold of assets needed for bank trust divisions to breakeven at $305 million, lower than the $400 million threshold for independent trust companies. When the smallest institutions are excluded, the average needed to break even jumps to $525 million for bank trust divisions and $552 million for independents. Exceptions exist for those who opt to specialize or limit the number of products they offer.

The high threshold required to make a profit would explain why many Peer Group 5 institutions are reviewing selling their operations. Nearly 3 out of 4 bank trust divisions have less than $500 million in assets. Indeed, half of all trust institutions have less than $100 million in assets, and a quarter have less than $10 million.

Should most small banks sell their trust operations? Based on the data, the answer is yes, though other factors can mitigate the decision.

Small fiduciary operations can be successful, but those generating solid profit margins are boutique operations that, as noted, focus operations--some in just one account category. The overwhelming majority of these are independent trust companies. These entities also operate more efficiently, based on productivity data.

There’s another reason for bank trust divisions to model themselves on independents. By a wide margin, executives at independent trust companies consistently report lower stress than do bank trust officers when it comes to hitting account, revenue, and net income goals.

For more detailed information see the upcoming issue of Trust Regulatory News.

Trust Performance Report -- annual data book, published in May, provides both industry and peer group performance data by assets, gross revenue, net income, and account category. Subscribers receive quarterly updates. TPR findings are based on its annual survey of the top 1500 fiduciary institutions. For more best practices and benchmark data see TPR. For information on ordering click here or the link below.

Fiduciary Earnings & Expenses -- annual data book comparing performance among independent trust companies to that of OCC national trust companies and to bank trust divisions. For information on ordering click here or the link below.

No statement in this issue is offered as or should be construed as legal opinion or advice or as an indicator of future performance.
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