No participation trophies here: Our 2019 ranking of midtier banks

Midsize banks are more profitable overall than both their smaller and larger counterparts, and the strategy that some of the best performers in this group use to stand out is specialization.

The $4.1 billion-asset Bessemer Group in Woodbridge, N.J., which landed atop our ranking for institutions with assets of $2 billion to $10 billion, focuses on wealth management. Its Bessemer Trust unit has only two branches.

By contrast, the $6 billion-asset Woodforest Financial Group in The Woodlands, Texas, operates hundreds of branches — in its case inside Walmart stores. It generates returns on average equity high enough to put it in eighth place.

Kevin Halsey, a consultant at Capital Performance Group who compiles our annual rankings, said the lesson others should take away from top performers like these is to stop trying to appeal to everyone like the biggest banks do.

He advises finding a thing to focus on and doing that thing better than competitors. "Determining how they add competitive value is one of the biggest questions that midtier banks should be asking themselves," Halsey said.

Banks in general posted excellent returns in 2018, and the midtiers shined the most. The top 20 in this group posted a remarkable 16.14% median return on average equity, up 177 basis points from the previous year. The median for all 234 institutions that fit the ranking criteria was 10.44%, up 205 basis points.

(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 midtier rankings from past years.)

See rankings from past years:

• The branch-closing conundrum: Our 2018 ranking of the midtiers
• Hey, big spenders, way to go: Our 2017 ranking of the midtiers
• Why midsize banks rule right now: Our 2016 ranking of the midtiers

Though banks in the other size categories improved as well, only the group with assets of $10 billion to $50 billion also managed to post a median ROAE that hit double digits (10.22%).

But at least one metric is an area of concern for midsize banks, just as it was last year. Their deposit growth isn't keeping pace with loan growth. The ratio of net loans to total deposits rose 33 basis points from a year earlier, to 93.55%.

Almost a third of all midsize banks had a loan-to-deposit ratio of at least 100%. Without a steady source of cheap deposits to fund loan demand, profits may suffer, Halsey said.

Nonetheless, many of the top-performing midtiers have developed successful niche strategies.

For the $2.8 billion-asset Union Savings Bank in Cincinnati — which ranked No. 10 — its long-established residential mortgage business is a differentiator. About 67% of its loan portfolio consists of single-family mortgages.

Bessemer, Woodforest and Union Savings show it's possible to do well without having the size and scope of a large regional, Halsey said. "Those are three different business models. They have a clear strategy, they know what they're good at and they do it well."

Click on "view table" below to see the latest ranking.

For American Banker subscribers only: If you have a paid subscription to American Banker, you can request an Excel chart of this ranking that includes additional data and analysis by Capital Performance Group, for a limited time only. To receive a reply, the request for this subscriber bonus must be received by bonnie.mcgeer@sourcemedia.com no later than June 14. The request must be sent from the email address tied to the subscription and include the name of the subscriber and the name of the institution in the body of the email. Please put “midtier bank ranking request” in the subject line. Subscriptions will be verified and replies will follow after June 14.