Top Performing Community Banks: For the under $1 Billion-Asset Set, Regulatory and Compliance Costs Weighed Heavily, but Many Did Well, Particularly Ag Banks

By Mambrino, Vanessa; Robin, Nick | ABA Banking Journal, June 2012 | Go to article overview

Top Performing Community Banks: For the under $1 Billion-Asset Set, Regulatory and Compliance Costs Weighed Heavily, but Many Did Well, Particularly Ag Banks


Mambrino, Vanessa, Robin, Nick, ABA Banking Journal


While larger banks began to recover in 2011, community banks overall still faced a number of obstacles. Deposits continued to grow, but loan growth was sluggish and revenue growth was weak. Increased regulatory and compliance costs continued to eat away at profitability. Credit quality, while improving, remained an issue for many. As a result, pressure to consolidate weighed on large and small community banks.

Despite all this, many community banks were profitable. As demonstrated in this year's analysis, plenty developed strong niches and lines of business to bolster performance despite the sluggish business environment.

Part Three of our annual bank-performance rankings provides highlights of the strategies used by top-performing banks, thrifts, and bank holding companies with total assets of $1 billion or less. At www. ababj.com, we also provide an in-depth look at four of 2012's top performers--Bank 7 of Oklahoma City, Okla. (No. 1 among large subchapter S corporations); the Federal Savings Bank, Overland Park, Kans. (No. 1 among small non-subchapter-S corporations); Oxford Bank Corp., Oxford, Mich. (No. 1 among large non-subchapter-S corporations); and Bank of Montgomery of Montgomery, La. (No. 4 among large subchapter S corporations). The online report also shows a larger list of consolidated (and charter-level) rankings and additional summary statistics to lend more color to what separated the top community banks from the rest in 2011.

Ranking methodology changed

This year we have defined community banks as those with less than $1 billion in total assets, versus less than $3 billion as in years past. We have re-run last year's rankings as if this new classification had been applied in 2010 to facilitate direct comparisons to prior-year performance. As explained in Part One, the reclassification was prompted, in large measure, by the Dodd-Frank Act and its asset-size-based requirements. Our ranking assesses performance of four groups of community financial institutions, defined by size and corporate structure: non-subchapter S commercial banks, thrifts, and bank holding companies with consolidated total assets less than $100 million, and those with assets between $100 million and $1 billion; and subchapter S commercial banks, thrifts, and bank holding companies with consolidated total assets less than $100 million, and those with assets between $100 million and $1 billion.

Within those four groups, institutions were ranked on their return on average equity (ROAE) for 2011. The 100 institutions with the highest ROAE in each category were selected as the top performers. (The Top 25 are shown on these pages. The Top 100 can be seen online.)

All rankings are based on consolidated statistics for the highest regulatory reporting level available for each institution (further detail on this is in the online report). Where consolidated statistics were not available but data was reported for a subsidiary that accounted for at least 90% of a holding company's assets, we used subsidiary data.

The rankings focused on institutions that offered traditional banking services; as a result, we have excluded bankers' banks, special-purpose industrial loan companies and nondepository trusts, and institutions with less than 10% of their assets in loans, less than 10% of their liabilities in deposits, or more than 70% of their loans in credit card receivables. Also excluded: companies that were not in operation for the full year or had a tax benefit that was greater than 70% of net income in 2011.

Even with that exclusion, tax benefits played a substantial role in 2011 performance for non-S-corp banks. We excluded from our analysis institutions where this benefit represented the majority of net income earned during the year.

How the top performers did it

As in years past, there were several broad strategies that top-performing community banks executed during 2011.

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