More Double-Digit Goodness: Our 2015 Ranking of Mid-Tier Banks

On several key measures banks and thrifts with $2 billion to $10 billion of assets showed improvement over the past year.

Core deposits among institutions in this size range grew a median of 8.67% in 2014 compared with the previous year, and net loans rose a median of 11.24%, an analysis by Capital Performance Group shows. That's partly because gathering core deposits has become a strategic focus for many as a means to fund higher loan demand, says Kevin Halsey, a senior analyst for CPG.

These upward trends contributed to median revenue growth of 4.97% for the overall group and, even though noninterest expenses also increased, a lot of the new revenue apparently went to the bottom line, as median net income increased 9.19%.

Three-year average returns on equity — the measure used as the basis for our ranking — also offers evidence of positive momentum. This year 40% of the mid-tiers posted double digits, up from 34% in our previous ranking and 25% in the one prior to that.

To get a sense of what helps separate the highest performers from the rest, CPG compared metrics for the top 20 institutions on this list with the overall peer group. Fee income, loan growth and net interest income were among the differentiators in 2014.

The top 20 had a median noninterest income to average assets ratio of 1.36% compared to 0.92% for peers, with net gains on the sale of loans and deposit service charges contributing to the disparity.

The top 20 also had a median net interest income to average assets ratio of 3.62%, which is 34 basis points better than the peer group. CPG attributes this to their ability to achieve better loan growth while maintaining higher yields (a median of 4.08% on average assets compared to 3.95% for peers).

Though loan growth for the mid-tiers overall was in the double digits, the median for the top 20 was a very impressive 15.92%. The growth for both groups was led in part by 1-to-4 family loans and commercial and industrial loans.

Of the 191 public and private companies included in this ranking, 20 of them grew their way into the mid-tier segment during 2014 by climbing above $2 billion of assets, according to the CPG analysis. Five others scrolled off the list because they shot past the $10 billion mark during the year.

Since those registered as subchapter S corporations are not subject to federal corporate income tax, their data is adjusted accordingly to allow for a fair comparison with their peers.

To avoid having deferred tax assets skew the results, the ranking excludes institutions for which a negative provision for taxes contributed more than 10% to net income in 2014, 2013 or 2012.

Notes: Ranking is of top consolidated bank holding companies, banks, and thrifts with total assets of between $2 billion and $10 billion as of 12/31/14 and is based on three-year average return on equity for 2012 to 2014. Additional data is for the year ended 12/31/14; year-over-year changes compare 2014 to 2013.

Excludes industrial banks, nondepository trusts, foreign-owned banks and bankers' banks. Excludes institutions with credit cards to total loans of more than 25%, loans to total assets or loans to total deposits of less than 20%, a leverage ratio of less than 5%, a Tier 1 risk-based capital ratio of less than 6%, or a total risk-based capital ratio of less than 10% as of 12/31/14. Excludes institutions that received a tax benefit of greater than 10% of net income or that did not report data for any year in the ranking period. Also excludes institutions that have fewer than 5 depository branches and are owned by a company not primarily focused on commercial or retail banking.

* Denotes institutions that operated as a subchapter S corporation for at least one quarter between 2012 and 2014. Profitability ratios were adjusted accordingly.
‡ Viewpoint was acquired between Jan. 1 and March 31, 2015.

Source: Capital Performance Group analysis of data provided by SNL Financial
© 2015 American Banker Magazine