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or expanding into far-off metro areas.
community bank which can achieve economies of
“They’re not really a high growth bank,” says
scale, and because we have a lot of customers
Catherine Mealor, managing director at Keefe,
which feed a lot of revenue into the bank,” Hage-
Bruyette and Woods. “Their strategy has been su-
boeck says. “It’s really not about cost cutting. It’s
perior profitability with moderate, stable growth.”
about the depth of the retail franchise.”
She notes that City still pays a dividend and reg-
City’s performance today is the result of a
ularly buys back its own shares, thus making it a
turnaround story that starts back in 2001, with
relative safe haven for bank investors.
Hageboeck and his predecessor as CEO, Gerald
City consistently performs well in Bank Di-
Francis.
rector’s annual ranking of the best banks. That
At that time, City was struggling. Then around
consistency and predictability in its results, its
$2 billion in assets, the company had suffered
focus on profitability and its basic banking busi-
losses stemming from a subprime lending business
ness model are refreshing, particularly during a
it entered in the 1990s. While those borrowers
time when bank stocks have been experiencing a
generally had high incomes, the loans were second
great deal of turmoil, analysts say. While the top
and third mortgages that were high loan-to-value.
25 RankingBanking banks saw a median total
Those loans underperformed in the first few years,
shareholder return for 2022 of 6.5%, City Hold-
and City had to write down their value and take
ing did better, with a 17.2% TSR. And through
losses on that book — though many of those bor-
July 26, 2023, City’s stock price has held up fairly
rowers eventually refinanced several years later
well, outperforming the KBW Nasdaq Bank Index
when interest rates fell. The board was sued in a
amid the tumult that bank stocks suffered more
shareholder derivative lawsuit over those losses,
broadly.
Hageboeck says, and the company was also oper-
In contrast to banks that focus heavily on com-
ating under a regulatory order at that time. A few
mercial customers, CEO Charles “Skip” Hage-
acquisitions — two banks in California and some
boeck sees retail as the bank’s bread and butter.
nonbank firms, including a printing company and
“I think it’s really, really hard to achieve great
an internet service provider — also dragged down
financial performance if you are mostly a com-
performance.
mercial lender,” he says. Relying on profit margins
“City did a number of weird things in the late
from commercial banking can be tough, he says,
90s,” says Hageboeck, who served as chief finan-
and retail banking, including businesses like mort-
cial officer during the turnaround phase. Board
gage lending and wealth management, provides
Chair Dallas Kayser, who has been with City since
some diversification that boosts profitability.
1995, describes that period as “a very difficult
A low efficiency ratio is one contributor to
time.”
City’s outperformance. The metric, which is calcu-
Francis’s team downsized City’s national busi-
lated by dividing a bank’s noninterest expenses by
nesses and sharpened its focus on growing depos-
its revenue, usually falls in the low 50% range.
its in its core markets. After spending four years
That figure stood at 44.6% in the second quarter
turning around the bank, Francis stepped down in
of 2023. Hageboeck explains that City considers
2005, and Hageboeck became CEO. Since that
efficiency to be less a matter of tightly controlling
time, City weathered the 2007-08 financial crisis
expenses than it is of generating as much revenue
with minimal losses and without accepting funds
as it can from its retail bank.
from the Troubled Asset Relief Program. The bank
“The efficiency ratio is low because we’re a large
also made it through the pandemic with earnings