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What makes for a high-performing bank? We take an in-depth look at what drove profitability for the institutions at the top of our annual rankings, all of which are based on three-year average returns on equity. See the list of banks and thrifts with under $2 billion in assets or the mid-tiers with $2 billion to $10 billion of assets. Stay tuned as those with $10 billion to $50 billion of assets are still to come.
May 10 -
Higher loan demand is helping banks and thrifts with $2 billion to $10 billion of assets improve their profitability. Of the 191 institutions that qualified for our mid-tier ranking this year, 40% posted a three-year average return on equity in the double digits, up from 34% in our previous ranking.
May 26 -
Of the nearly 5,000 institutions that fit our criteria for this ranking, these are the 500 most profitable as measured by their three-year average return on equity.
May 1 -
Listen to any bank earnings call these days and odds are that, at some point, executives will discuss how they are addressing the persistent lack of revenue growth by simultaneously cutting expenses and investing in new business lines.
January 2
Delivering high performance remains a challenge in spite of consecutive years of improvement to the U.S. economy. Nevertheless, some have done it.
To gain insight into how, Capital Performance Group analyzed the 2014 performance for
Median return on average equity ratios for these three peer groups in 2014 were all in the single digits, ranging between 7.29% (community banks) and 8.90% (midsize banks). Banks must devise plans to get above 10% to attract the capital needed to support growth. In other words, they need to be more like the high performers, which achieved median ROAE ratios of between 12.03% and 13.84%.
Revenue growth High performers in all three size groups had significantly better efficiency ratios than peers, which they achieved through increased revenue production rather than cost containment. For example,
Scale Size is clearly important. High-performing community banks and large banks had higher median assets than peers and were more efficient in terms of median noninterest expense to average assets ratios, illustrating the advantages of scale. M&A activity will continue to pick up as banks look to augment organic growth. Banks approaching the $10 billion threshold must plan to go over that amount in a big way if they go over at all so that the benefits of increased scale will outweigh the increased regulatory costs associated with crossing this threshold.
Loan growth Despite the industry's focus on fee income over the past decade, the ratio of noninterest income as a percentage of average assets continues to trend downward for banks of all sizes, so growth in interest income is vital. In 2014, high performers achieved higher interest income via substantially higher loan growth. Examples include Texas Capital Bancshares and
Core deposit funding Core deposits are crucial to support loan growth and will become more important when interest rates rise. Though there is strong core deposit growth across all three peer groups, the effort would benefit further from deeper customer relationships and improved product offerings.
While unique business models can deliver superior performance, the majority of banks continue to rely on traditional intermediation as the primary source of earnings. These banks need strategies that drive loan and core deposit growth while continually improving operating efficiency. Otherwise, they will struggle to attract capital and keep up with peers. We hope banks will look at not just where they are in
