Banking's Top Performers Part II: Abridged

June 09, 2011 at 12:45 PM
CPG recently published the second part of our 19th annual performance rankings for ABA Banking Journal, which ranks community banks with total assets of less than $3 billion based on year-end 2010 return on average equity (ROAE). Banks are divided into four categories to ensure comparability based on corporation type (subchapter S corps versus non-S-corps) and asset size (under $100 million versus between $100 million and $3 billion).  As we mentioned in Part I of our rankings, 2010 was a year of many temporary fixes to the longer term problem of revenue generation.  While there were many factors that drove better than average earnings performance at our top 400 banks and thrifts this year, some of the common strategies included:
  1. Growth by Acquisition: The most common driver of earnings among our large top performers (those with total assets of $100 million to $3 billion) was the FDIC-assisted transaction.  The institution that benefited the most from such acquisitions was First Michigan Bank of Troy, MI (#3, large non-S-corps).  The bank completed two assisted acquisitions during the year, growing total assets from $91.4 million in 2009 to $1.7 billion in 2010.  These acquisitions contributed a significant boost to earnings, resulting in $80.9 million of other noninterest income from both bargain purchase gains and an expanded customer base. This helped First Michigan Bank realize an increase in ROAE from 0.52% in 2009 to 36.61% in 2010.
  2.  Agricultural Lending:  The most common driver of performance among small community banks (those with less than $100 million), on the other hand, was a focus on agribusiness. Among the top 100 small S-corps, agricultural production and farm loans comprised 32.1% of their loan portfolio, compared to 26.1% among all small S-corps.  Similarly, the top 100 small non-S-corps had 29.4% of total loans in this industry, while all small non-S-corps only reported a concentration of 14.5%. One such example was Jefferson Bank of Fayette, MS (#1, small non-S-corps), which focuses on serving farmers involved in the production of soybeans, corn, rice, and cotton.  Rising commodities prices and a strong crop year led to increased loan demand. The bank reported a ROAE of 74.81% for the year, the highest across all four categories.
  3. Focus on Commercial Lending: As with the top performing large banks, many strong community banks focused on C&I and CRE during 2010.  One such bank was Citizens State Bank of Clayton, WI, the top performing small S-corp.  The bank put a heavy emphasis on commercial and industrial lending, which helped the bank boost interest income as a percentage of average assets by 14 basis points.  This was especially impressive when one considers that top performers across all four categories experienced an average decrease of 50 basis points in this metric.
The full article, rankings, and analysis can be found here. Part I of our rankings, which covered on institutions with more than $3 billion in total assets, was published in the April 2011 issue of ABA Banking Journal and can be found here.

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