Top banks $2B-$10B: What made the best of them stand out

The top 20 U.S. community banks with assets between $2 billion and $10 billion produced substantially more revenue growth than their peers in 2021 for two main reasons: diverse business operations and a knack for outhustling rivals amid tepid loan demand.

With the coronavirus still imposing substantial uncertainty in the first half of the year, and pandemic-era government stimulus funds coursing through the U.S. economy much of 2021, consumers and businesses were relatively flush with cash and slow to take on new debt.

However, with interest rates exceptionally low last year, refinance activity proved strong. Community banks with mortgage operations and competitive commercial lines of business were among those to win loans away from competitors via refi activity and to drive organic growth, said Claude Hanley, a partner at Capital Performance Group. 

CPG ranks banks in several asset classes by three-year return on average equity for American Banker each year. [See table below showing the latest group.]

The top 20 performers within the $2 billion to $10 billion asset range were able to increase revenue in 2021 at nearly twice the rate of all institutions in the category — 15% versus 8.7%. 

The leading banks “generated significant organic loan growth that drove high revenue growth,” Hanley said in an interview. “It was really all about loan growth in a challenging environment.”

He noted that two of the top three banking companies — No. 1, State Bancshares in Fargo, North Dakota, and No. 3, Union Savings Bank in Cincinnati — have prominent mortgage operations that extend beyond their traditional footprints. The No. 2-ranked Bessemer Group in New York City, in addition to traditional banking, runs a high-end money management business that generates strong fee revenue, Hanley said.

The median return on average equity for the top 20 banks with between $2 billion and $10 billion of assets in 2021 was 20.81%, compared with 12.43% for the broader group of 308 banks.

Revenue and expenses

The top 200 publicly traded community banks

Click here for an overview of No. 1-10 on American Banker's annual list of the highest-performing banks with less than $2 billion of assets and a full breakdown of all the banks on the roster.

By Jim Dobbs

May 17

Net interest margins were under pressure throughout the industry because of low rates and modest loan yields. But the top banks posted a median NIM of 3.33%, or 11 basis points higher than the peer group, largely as a result of greater loan volumes.

The leading banks posted median net loan growth of 8.74%, far higher than the peer group’s 1.46%.

The leading banks were able to boost lending without sacrificing credit quality. Among the top 20, the median ratio of nonperforming assets as a percentage of total assets was just 0.26%. For the broader group it was 0.36%.

For 2022, the year-end results could change notably, Hanley said, given now-surging interest rates and dwindling mortgage refi activity. The Federal Reserve raised rates several times in the first half of the year to combat inflation that reached a four-decade peak in June. Fed officials have signaled that additional hikes are highly likely in the back half of the year.

That noted, Hanley said the top-performing banks often are those with above-average market share in their niche business lines. Even in mortgages, leading banks can maintain healthy loan production levels if they are able to gain more share as others retrench.

Robert Bolton, president of Iron Bay Capital, agreed. He said that, despite inflation and demand headwinds created by higher rates, the economy through the first half of the year maintained solid momentum.

Banks were expected to collectively post loan growth for the second quarter — on top of solid expansion in the first quarter — and while commentary from bankers about loan pipelines during earnings season was mixed, Bolton said many banks remain confident in their loan growth prospects for the full year.

“Higher rates, of course, have an impact, especially if they keep going up,” Bolton said in an interview. “But the bankers I talk with in markets with in-migration and steady population growth, they are still pretty upbeat and see continued growth.”