Big gains, but warning signs: The top 200 publicly traded community banks

Community banks need to reinvent themselves. That's the takeaway Kevin Halsey had after compiling data for our annual ranking of publicly traded banks and thrifts with less than $2 billion of assets.

Lower taxes and higher interest rates significantly improved profitability for this group last year. The median return on average equity for the 601 institutions that fit the ranking criteria jumped 270 basis points in 2018, to 9.66%. The increase for the top 200 is even greater (an extra 10 basis points), raising their median ROAE to a very impressive 12.45%.

But Halsey, a consultant at Capital Performance Group, points out that those gains had little to do with improvements to bank operations. Particularly troubling trends include slower core deposit growth — it was 4.2% last year, down from 7.1% the previous year — and rising noninterest expenses.

Halsey said the expense growth of 6.37% could be interpreted two ways. Perhaps business demands like the need to keep up with technology are imposing an increasingly heavy toll. Or perhaps the tax savings is prompting small banks to invest. "It's probably a little of both," Halsey said.

See rankings from past years:

• Our 2018 ranking of the top 200
• Our 2017 ranking of the top 200
• Our 2016 ranking of the top 200

But even the most optimistic spin gives him pause — because the apparent investments have not boosted revenue. "They haven't funded some engine that's taken off yet," he said.

That is what needs to happen for small banks to compete effectively, though. "There is a mandate to change the way in which they do business," said Halsey, who argues that focusing on, and excelling in, particular niches like small-business banking can help. "You can't boil the ocean. You can’t be everything to everybody. You really need to pick and choose your battles.”

The number of institutions in this size range also continued to shrink, owing to the ongoing trend of bulking up to improve efficiency. Of those that qualified for this ranking last year, 15 had pumped up their asset size to more than $2 billion as of Dec. 31, including six that had been in the top 200 previously.

Click on "view table" below to see the latest ranking.

For American Banker’s paid subscribers only: If you have a paid subscription to American Banker, you can request an Excel chart with all 601 publicly traded banks and additional analysis by Capital Performance Group for a limited time. To receive a reply, the request for this subscriber bonus must be received by bonnie.mcgeer@sourcemedia.com no later than May 24 and sent from the email address tied to the subscription. Include the name of the subscriber and the name of the institution in the body of the email. Please put “top 200 ranking request” in the subject line. Subscriptions will be verified and replies will follow after May 24.