The top-performing midsize banks in the U.S. navigated the
The top 10 banks — out of 86 with between $10 billion and $50 billion of assets — generated stronger profits than the group overall last year, according to Capital Performance Group. CPG compiles the rankings that are
CPG analysts Ally Akins and Claude Hanley told American Banker that the top 10 generated an average three-year ROAE of 17.44% versus 10.39% for this segment of the industry overall. They said that, while the group overall saw costs increase, the highest-ranked banks contained
Net loan growth of top performers and the segment overall exceeded 5% last year, but the strongest banks grew core deposits in 2023 by more than 2%, while the group overall saw a decline. This helped the highest-ranked banks to minimize deposit cost increases because of high rates, supporting net interest margins and bottom lines. The NIM on average for the top 10 banks were 15 basis points higher than overall.
Profits in 2023 were more than 40% higher for the top banks compared to their overall peer group.
"The top performers remained more liquid in 2023, which helped their profitability in a rising rate environment," Akins and Hanley said in a summary of their findings.
The $21.3 billion-asset Customers Bancorp in West Reading, Pennsylvania, claimed the No. 1 spot for midsize banks in 2023. It continued the momentum into early 2024 with first-quarter net income of $45.9 million.
"While we have made significant strides, especially in 2023, our opportunity in 2024 looks even stronger," Chairman and CEO Jay Sidhu told analysts after reporting first-quarter results.
"We remain very optimistic about the year with strong and growing loan and deposit pipelines," he added. "We are in an enviable position to continue to take market share."
The bank's credit quality remains pristine, as well, an important strength at a time when investors are concerned that high rates could squeeze some borrowers and result in mounting loan losses. Customers' nonperforming assets to overall assets ratio was just 17 basis points for the first quarter.
"Some of the key metrics we focus on, and which we believe differentiate the top-performing banks, include growth in revenue, [earnings per share] and tangible book value per share. We have recorded more than 15% annualized growth on each of these metrics over the last five years, and revenues have grown two times" the rate of expenses, Sidhu said.
"We have accomplished this performance without raising a single dollar of common equity and diluting our existing shareholders," he added.
The bank also continues to invest in growth. It recently hired 10 business banking teams from legacy Signature Bank, which failed last year. "We expect this will accelerate the execution of our strategic priorities, especially helping to take the quality of our deposit franchise to the next level," Sidhu said. "These teams have an incredible track record with decades of experience working together, serving an awesome client base" and "serve to further accelerate and enhance" the bank's momentum.
Merchants Bancorp in Carmel, Indiana, ranked No. 2. The $17.8 billion-asset bank also extended its fortunes into the first quarter of this year, generating net income of $87.1 million. It marked the company's highest quarterly earnings in its history. It also marked a 58% jump when compared to the first quarter of 2023 and a 12% increase from the prior quarter.
At a time when most banks are struggling to generate growth, Merchants' loans jumped 25% from a year earlier and 6% from the previous quarter.
"The momentum of our profitability continued … all while decreasing our efficiency ratio to 29.1%, increasing our return on average assets to 2.07%, and increasing our tangible book value by 28%, to $29.26 per share," Merchants Chairman and CEO Michael Petrie said in the company's earnings report.
Michael Jamesson, a principal at the bank consulting firm Jamesson Associates, said in a recent interview that the
What's more, rates that were pushed higher by the Federal Reserve over the past two years to tame inflation have leveled off this year and are poised to decline as soon as this fall. Inflation dropped from 9% in 2022 to 3% in June. Fed officials signaled that at least one rate cut is in the cards for the second half of this year, perhaps as soon as September. Declining rates could curb deposit costs and spur more loan demand for banks.
"I think the worst fears around rates appear to be behind us," Jamesson said, "and the outlook is much better."