Scale is often an advantage for banks even in the best of times, but its importance became more pronounced for banks with $10 billion to $50 billion of assets at the height of the pandemic.
The median asset size of the 10 regional banks that rose to the top of our annual ranking was $25.5 billion at year-end, which was 36% larger than the median for the overall peer group. Drawing on the reach and economies of scale afforded by their size advantage, the standouts effectively pursued as much small-business and mortgage loan volume as possible last year, capitalizing on the only two sectors that saw any borrower demand at all, said Claude Hanley, a partner at Capital Performance Group.
That lending push helped minimize a general backslide in performance. For those in the top 10, the median return on average equity for 2020 declined by 99 basis points from the prior year, to 13.27%.
That was half as much as the drop for the overall peer group, whose median tumbled 210 basis points, to 7.62%, according to data from CPG, which compiled our annual ranking.
"Success here is defined by not losing as much ground," Hanley said of the regionals.
(Click on “view table” at the end of this article to see the ranking for this year and click on the links below to go to the regional bank rankings from past years.)
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The Small Business Administration's Paycheck Protection Program helped immensely with fueling lending for the regionals, particularly among the most nimble.
"Banks in this group used their size and operational capabilities to their advantage,” outmaneuvering some of the biggest banks that struggled to keep up with demand, Hanley said.
Lending activity was especially high at Flagstar Bancorp and Midland Financial compared with 2019, propelling them into the top 10.
Flagstar made the biggest leap of all in the rankings — to No. 3 from 29. Its large mortgage business and PPP activity helped fuel year-over-year loan growth of 42.03%. (Flagstar announced a deal in April to sell itself to New York Community Bancorp.)
Net loan growth for the top 10 as a group was significantly higher than that of peers: a median of 16.02% compared with 8.92%. And that volume, in turn, helped to defray the impact of their expense growth, which also outpaced the peer group.
With interest rates at historic lows, mortgage volume was a bright spot for many of the regionals, and top performers had a much higher concentration of one-to-four-family home loans to gross loans than peers (35% versus 22.5%).
At sixth-ranked Midland Financial Co., for example, these loans made up 62% of total loans at year-end. Midland Financial, which climbed to No. 6 in the ranking, from No. 11 a year earlier, also dove into the PPP effort.
It boasted some of the highest annual loan growth of any regional bank for 2020 — 46.69%.
Ally Akins, a senior analyst at CPG, said the leading banks in this ranking also tended to do well with managing operating expenses last year. While their noninterest expense growth exceeded peers in general, their median ratio of noninterest expenses to total assets shrank 29 basis points from a year earlier, to 2.07%, compared with a smaller improvement of 16 basis points for the peer group, which posted a 2.21% median.
Hanley said he expects lending activity to continue to be a key differentiator for banks with $10 billion of $50 billion in assets. "I think top performance is going to really depend on who can take advantage of the growth opportunities that come along with the economic rebound," he said.
Click on "view table" below to see the latest ranking.
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