Academic journal article ABA Banking Journal

Top Performing Mid-Sized Banks: As with Large Banks, Reduced Provisions Helped, but Equally Important for Banks in the $1 Billion- to $10 Billion-Size Range Was Careful Balance-Sheet Management and Fee Income

Academic journal article ABA Banking Journal

Top Performing Mid-Sized Banks: As with Large Banks, Reduced Provisions Helped, but Equally Important for Banks in the $1 Billion- to $10 Billion-Size Range Was Careful Balance-Sheet Management and Fee Income

Article excerpt

[ILLUSTRATION OMITTED]

Banks faced a great many questions in 2011: Keep or discard free checking? Build branches or invest in alternative delivery technologies? Expand into new markets and lines of business, or grow earnings? As with their larger counterparts, the successful mid-sized institutions of 2011 were those who responded with decisive action.

In Part Two of the 20th annual ABA Banking Journal performance rankings, we provide details on the financial results and strategies of the nation's top-performing banks with total assets of between $1 billion and $10 billion. Part Three, which will appear in the June issue, will examine top-performing community banks with total assets of less than $1 billion. The full rankings of the mid-sized banks, along with those of the nation's largest banks (published in April), can be found online at http://tinyurl.com/topbanks-2012.

How the rankings were done

Our analysis ranks the performance of federally insured domestic-depository institutions with assets of between $1 billion and $10 billion as of Dec. 31, 2011. In turn, we divided these institutions into two sub-groups: publicly held depository institutions (banks, thrifts, and bank or financial holding companies) and private of foreign-owned depositories (described in greater detail below). A total of 253 public banks, thrifts, and holding companies and 230 private institutions qualified under the selection criteria. They were ranked by return on average total equity (ROAE) for 2011. In instances where the reported ROAE was identical for two or more institutions, 2011 return on average total assets (ROAA) was used as a secondary ranking criterion.

As explained last month, we expanded the overall top-performer series to three groups of banks: large, midsize, and community banks. As with the large banks, we re-ran last year's rankings as if this reclassification had been applied in 2010 to facilitate direct year-to-year comparisons.

Securities and Exchange Commission filings were the source for public company data, and regulatory filings were the data source for private and foreign-owned institutions. The data for the 2011 analysis was provided by Highline Financial, LLC.

Routes to the top tier

This year's top performers made the earnings environment work to their advantage, resulting in an average ROAE of 15.64% for the top 25 banks--roughly four times higher than that of all mid-size institutions, which was 3.86%. Improved credit quality played a role. The average top performer posted a 35.1% decline in provision expense, compared to a 31.2% decline at the average mid-sized bank. Only two of the top 25--perennial top-performer WestAmerica Bancorp. of San Rafael, Calif. (No. 7), and BofI Holding of San Diego, Calif. (No. 8)--posted little to no change in provision expense. They maintained relatively solid credit quality during the recent economic contraction.

Acquisitions continued to be an important component of increased earnings. While Bridge Bancorp, Bridgehampton, N.Y. (No. 21) engaged in a traditional transaction, most of this year's acquisitions were assisted purchases. Bank of the Ozarks, Little Rock, Ark., received top honors for the second consecutive year due to benefits accruing from FDIC-assisted transactions. It acquired three institutions in Georgia, building on its Atlanta-area presence and adding locations in the state's southern region. Southern BancShares, Mt. Olive, N.C. (No. 2) engaged in a single FDIC-assisted acquisition, entering the Norfolk, Va., market. Both institutions booked bargain-purchase gains and benefited from the loan, account, and fee-income growth associated with new customers and branches.

The remaining high performers typically pursued one of two routes to top earnings performance: expanding fee-generating lines of business or adjusting balance sheets to conserve net-interest income.

Boost from trust and insurance

Like the large banks, top-performing mid-size banks spent much of 2011 focusing on developing lines of business with the potential to offset declines in fee income. …

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