Banking's Top Performers: The Following 150 Banks Have the Best Five-Year Return on Assets in the Industry. They Do It with a Mix of Basics and Specialties

By Spinard, William F.; Suter, Mark P. | ABA Banking Journal, July 1996 | Go to article overview

Banking's Top Performers: The Following 150 Banks Have the Best Five-Year Return on Assets in the Industry. They Do It with a Mix of Basics and Specialties


Spinard, William F., Suter, Mark P., ABA Banking Journal


Annual performance rankings endure not so much because they confer bragging rights upon the banks at the top of the list, but because of the important insights that can be derived from the rankings. Despite measurement problems, rankings of the top banks are an important barometer of the state of the industry. and the success of individual bank strategies. The rankings yield important data on levels of and trends in profitability, composition of earnings, and the strategies of the top-performing banks.

The strength of the annual ABA Banking Journal/Furash & Co. rankings resides in their simplicity and consistency. The rankings are based on a few select performance criteria and a consistently applied screening process. In this, our third set of rankings, we are beginning to develop a robust database that minimizes some of the measurement difficulties in all surveys of this type. (See the accompanying article by David Cates.)

Selection criteria

Historically, the return on average assets (ROA) ratio has been one of the best single measures of profitability. Even today, ROA remains an accurate gauge by which to measure industry performance, as banks generate 65% of their revenue from balance sheet sources (down from 68% in 1991).

Profitability rankings based on one-year's data can change with the wind. So many one-time influences are realized, including tax benefits, negative net chargeoffs, and restructuring fees, that the rankings may not accurately portray banks with lasting strategies. Looking at banks with a strong one-year ROA for strategic insights would be equivalent to examining a 1972 leisure suit as a predictor of current popular fashion. To counter these one-time spikes, we equate top performance with consistent profitability and use a five-year ROA, ending December 1995 with each year equally weighted, as our primary ranking criteria. The banks are ranked according to this ratio, and in the event of a tie, a five year ROE is used as a secondary ranking criteria.

Because our focus was on individual banks, not bank holding companies, and on ROA, not ROE, our results do not necessarily pinpoint which banks generate the greatest returns to their investors. In order to produce a fair comparison within the lists, we eliminated as much as possible credit card banks and specialized subsidiaries of multibank holding companies and grouped the banks in three asset-size classes. In compiling the tables, we stressed simplicity and clarity over methodological purity.

Because a high ROA can be due partially to excess capital, banks with exceptionally high capitalization levels were excluded by considering a second performance variable, total equity capital to total assets. This variable was capped at 15%. We realize, of course, that institutions excluded on the basis of high capital may have viable strategies for their long term success.

A third performance variable was employed to eliminate many of the special purpose credit card banks. The bank's ratio of loans to total deposits minus public funds had to fall between 30% and 125% for inclusion in the rankings. The objective was to limit the rankings to full-service commercial banks.

The exclusion criteria should not, and do not, eliminate institutions that have developed specialized non-lending niches that contribute to their earnings stream. The top performers in each asset size category are good examples of this: Miami Valley Bank with mortgage servicing and warehousing, First Bank of Oak Park with loans to rehabilitate multi-family dwellings, and Columbus Bank and Trust with credit card servicing.

State of the industry

Overall industry earnings, as well as those of the top-performing institutions continue to be strong. The profitability of the commercial banking industry has remained flat over the past two years with a return on total assets of 1.13% in 1995 and 1.11% in 1994, but much stronger than in 1991. …

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