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Breakeven Analysis Trust Assets Profits Revenue Trust Performance Report A.M. Publishing financial institutions trust companies banks Bernard Garbo Minimum to Breakeven in Trust Business Is $500 Million, Except for Boutiques

(March 18, 2015 --Chicago, IL) -- With rates of return that are pennies on the dollar, volume is required to make a profit in the trust industry. An old rule of thumb was that a $100 million asset base was the breakeven point. Recent analysis suggests that breakeven is now closer to $500 million, according to Fiduciary Earnings & Expenses, a sister publication of Trust Regulatory News. Exceptions are those who opt to specialize or limit the number of products offered.

Regardless of the high threshold required to make a profit, nearly 3 out of 4 bank trust divisions (72 percent) have less than the minimum $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.

While many banks offer trust services as a loss leader, a growing number are re-examining that strategy. For some, the potential of higher commercial bank profits from offering money-losing trust services, no longer exists. In an environment of increasing costs and greater focus on noninterest income, many bank executives and directors are questioning the full-service model.

Selling trust operations or outsourcing are growing options. According to many industry sources, it’s a seller’s market at the moment because many banks and independent trust companies want to grow trust assets through mergers and acquisitions.

Should the majority of banks sell their trust operations? The data suggest the answer is “yes,” but other factors mitigate the decision.

Most small independent trust companies maintain profitability by becoming boutique operations, offering specialized services or limiting the focus on services provided. Doing so also seems to lower staff stress. Trust officers of independent trust companies report they are more confident about meeting account, revenue, and net income goals than are bank trust officers, by a wide margin.

While limiting services seems a proven strategy to higher profits, it may not be a good fit for all banks with small trust divisions, especially where this service is seen as a loss leader.

To participate in A.M. Publishing's Annual Survey of Trust Assets, contact Scott Miller, at to obtain your institution's 9-digit access code. There is no cost to participate in the survey. Participants receive a complimentary peer analysis.

For more information on trust industry statistics and benchmarks, see the upcoming issue of Trust Performance Report 2015.
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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