The one bank metric that matters most now

Some regional banks became top performers by out-pacing their peers on loan growth, others by pursuing diverse sources of fee income. But core deposit growth might be the best indicator of which banks will have true staying power in the years ahead.

Low interest rates and a still tough regulatory environment kept net interest margins largely flat last year, but as rates inch up, banks of all sizes are going to be increasingly hungry for core deposits, said Kevin Halsey, a consultant with Capital Performance Group.

Regional banks with $10 billion to $50 billion of assets — ranked here by return on average equity across three years — generally grew core deposits at a respectable rate last year.

The 58 institutions that qualified for the ranking increased core deposits by a median of about 10% from the year before, according to CPG's analysis. But the banks at the top of the ranking attracted significantly more core deposits, with a median jump of about 13%.

"Some of the top banks have very, very robust growth in core deposits," Halsey said. "I think that will be a critical measure moving forward in 2017 and even into 2018."

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Bank of the Ozarks practically doubled its core deposits, distinguishing itself with the largest increase by far of any bank on the list. Two acquisitions that it closed last summer added about $4.2 billion in deposits to its balance sheet, said Tyler Vance, the chief banking officer and chief operating officer at the $18.9 billion-asset bank in Little Rock, Ark. But organic growth, spurred by a "relationship banking" strategy, helped almost as much, bringing in an additional $3 billion in deposits, he said. Core checking accounts are a key metric for the bank, and last year it added more than 13,000 of those accounts through its legacy branches alone.

Core deposits at Western Alliance Bancorp. in Phoenix rose about 26% last year. Dale Gibbons, its chief financial officer, attributed the increase to organic growth, saying the $17.2 billion-asset bank has focused on bringing in commercial deposits from the small and middle-market businesses in its footprint. Western Alliance last closed on an acquisition in mid-2015, when it added $1.7 billion in deposits via Bridge Bank.

Another advantage the top performers had in common was a low efficiency ratio relative to the peer group. Though noninterest expense growth was particularly high for some — 37.5% at Bank of the Ozarks and 26.5% at Western Alliance, both well over the median of 6.8% for banks in this size range — they generated hearty loan growth and plenty of revenue to offset the higher expenses. Net loans increased by a median of 13.9% for the top 10 last year compared with peers' 8.7%.

Generally speaking the regional banks as a group generated more fee income than their highest-ranking counterparts. Noninterest income as a percentage of average assets was a median of 0.96% for the peer group and 0.82% for the top 10.

Even so, both Commerce Bancshares in Kansas City, Mo. (at 1.92%), and Bank of Hawaii in Honolulu (at 1.18%) stand out on that ratio, Halsey said.

Mortgage banking provided much of the boost that the $16.5 billion-asset Bank of Hawaii had in its noninterest income last year, though asset management is an even heavier generator of fees overall. The bank reported a 72% increase in mortgage-related noninterest income, to $19.9 million, compared with the year before.

The $25.6 billion-asset Commerce has diversified its fee income across several business lines, with cards, wealth management and service charges on deposit accounts driving much of the growth, said Charles Kim, its CFO.

"We're not overly dependent on just one. It's not all cards, it's not all processing, it's not all wealth management," Kim said. "They tend to complement each other pretty well."

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The one bank metric that matters most now

Banks with $10 Billion and $50 Billion of Assets

2016 Rank 2015 Rank Institution Name Location Total Assets ($000) 3-Year Avg. ROAE (%) ROAE (%) ROAA (%) Efficiency Ratio (FTE) (%) Net Interest Margin (FTE) (%) Net Income ($000) Net Income Growth, YOY (%) Core Deposit Growth, YOY (%) Cost of Funds (%)
1 1 Bank of Hawaii Corp. (BOH) Honolulu, HI 16,492,367 15.37 15.79 1.15 57.46 2.83 181,461 12.92 8.26 0.28
2 3 Western Alliance Bancorp. (WAL) Phoenix, AZ 17,200,842 14.90 14.67 1.61 43.02 4.58 259,798 33.75 25.74 0.31
3 2 FirstBank Holding Co. Lakewood, CO 17,046,125 14.43 13.86 1.18 54.72 3.46 190,630 7.17 12.15 0.15
4 NA Bank of the Ozarks (OZRK) Little Rock, AR 18,890,142 14.33 13.04 1.89 33.66 4.92 270,080 48.14 92.26 0.50
5 5 Signature Bank (SBNY) New York, NY 39,047,611 12.97 11.59 1.09 31.82 3.19 396,324 6.23 18.20 0.52
6 7 Midland Financial Co.* Oklahoma City, OK 13,287,855 12.86 11.47 1.09 62.56 4.07 212,943 -18.07 19.22 0.71
7 6 East West Bancorp (EWBC) Pasadena, CA 34,788,840 12.84 13.06 1.30 50.99 3.31 431,677 12.22 15.78 0.36
8 4 SVB Financial Group (SIVB) Santa Clara, CA 44,683,660 11.70 10.72 0.89 55.94 2.72 390,266 4.12 -0.11 0.11
9 11 PrivateBancorp (PVTB) Chicago, IL 20,053,773 11.28 11.36 1.13 49.06 3.30 208,357 12.44 12.91 0.51
10 8 Commerce Bancshares (CBSH) Kansas City, MO 25,641,424 11.27 11.09 1.13 60.54 3.04 276,854 3.70 4.93 0.15
11 10 Bremer Financial Corp. Saint Paul, MN 11,570,247 11.20 11.18 1.06 61.75 3.62 118,233 2.81 10.78 0.29
12 9 BankUnited (BKU) Miami Lakes, FL 27,880,151 10.46 9.64 0.87 59.24 3.73 225,741 -10.30 11.42 0.81
13 14 Cullen/Frost Bankers (CFR) San Antonio, TX 30,196,319 9.95 9.95 1.06 57.77 3.52 304,261 8.93 6.56 0.05
14 12 Texas Capital Bancshares (TCBI) Dallas, TX 21,697,134 9.70 9.03 0.74 54.73 3.11 155,119 7.09 13.86 0.33
15 NA Hope Bancorp (HOPE) Los Angeles, CA 13,442,488 9.67 8.47 1.10 47.08 3.75 113,747 23.29 70.37 0.66
16 13 Hilltop Holdings Inc. (HTH) Dallas, TX 12,738,062 9.57 8.24 1.21 82.33 3.76 147,944 -30.41 4.78 0.60
17 NA Pinnacle Financial Partners (PNFP) Nashville, TN 11,194,623 9.57 9.47 1.27 53.08 3.60 127,225 33.21 26.13 0.45
18 18 Cathay General Bancorp (CATY) Los Angeles, CA 14,520,769 9.45 9.88 1.31 49.99 3.38 175,099 8.68 19.77 0.71
19 19 TCF Financial Corp. (TCB) Wayzata, MN 21,441,326 9.12 9.26 1.05 68.25 4.34 221,717 7.72 2.53 0.46
20 NA United Community Banks (UCBI) Blairsville, GA 10,708,655 9.04 9.50 1.00 56.49 3.36 100,656 40.62 14.23 0.28
21 17 International Bancshares (IBOC) Laredo, TX 11,804,041 8.78 7.82 1.13 55.51 3.34 134,796 -1.40 3.11 0.43
22 16 Prosperity Bancshares (PB) Houston, TX 22,331,072 8.62 7.69 1.25 40.56 3.35 274,466 -4.25 -1.95 0.24
23 20 Webster Financial Corp. (WBS) Waterbury, CT 26,072,529 8.55 8.35 0.82 62.36 3.12 207,127 1.17 8.90 0.46
24 15 BOK Financial Corp. (BOKF) Tulsa, OK 32,772,281 8.27 6.93 0.72 70.73 2.62 232,281 -20.52 9.99 0.29
25 NA Chemical Financial Corp. (CHFC) Midland, MI 17,355,179 8.22 6.98 0.90 54.60 3.60 108,032 24.42 69.78 0.28
26 27 Washington Federal (WAFD) Seattle, WA 14,873,654 8.18 8.62 1.15 48.55 3.07 170,197 8.40 4.76 1.08
27 25 Central Bancompany (CBCYB) Jefferson City, MO 12,693,896 8.14 8.63 1.16 58.36 3.30 142,028 16.90 8.87 0.22
28 21 Trustmark Corp. (TRMK) Jackson, MS 13,352,333 7.97 7.14 0.84 67.32 3.53 108,411 -6.57 6.66 0.22
29 23 United Bankshares (UBSI) Charleston, WV 14,508,892 7.97 7.67 1.10 46.34 3.60 147,083 6.61 18.54 0.40
30 22 EverBank Financial Corp. (EVER) Jacksonville, FL 27,838,086 7.90 7.64 0.53 66.76 2.81 144,931 11.04 7.91 1.07
31 24 Old National Bancorp (ONB) Evansville, IN 14,860,237 7.88 7.84 0.98 66.47 3.58 134,264 15.03 25.32 0.38
32 NA Great Western Bancorp (GWB) Sioux Falls, SD 11,422,617 7.64 8.02 1.18 45.62 3.94 127,695 13.18 16.59 0.39
33 34 BancorpSouth (BXS) Tupelo, MS 14,724,388 7.63 7.80 0.93 68.75 3.52 132,728 4.11 3.60 0.24
34 33 Wintrust Financial Corp. (WTFC) Rosemont, IL 25,668,553 7.58 8.11 0.85 64.31 3.26 206,875 31.98 18.71 0.42
35 30 Fulton Financial Corp. (FULT) Lancaster, PA 18,944,247 7.56 7.69 0.88 66.91 3.18 161,625 8.11 8.80 0.52
36 42 Synovus Financial Corp. (SNV) Columbus, GA 30,104,002 7.45 8.40 0.84 61.58 3.24 246,784 9.16 7.88 0.47
37 29 F.N.B. Corp. (FNB) Pittsburgh, PA 21,844,817 7.35 6.84 0.83 55.20 3.38 170,891 7.04 32.79 0.38
38 28 UMB Financial Corp. (UMBF) Kansas City, MO 20,682,532 7.32 8.01 0.81 71.67 2.88 158,801 36.81 11.55 0.16
39 38 PacWest Bancorp (PACW) Beverly Hills, CA 21,869,767 7.31 7.85 1.66 39.59 5.40 352,166 17.54 18.91 0.33
40 NA First Horizon National Corp. (FHN) Memphis, TN 28,555,231 7.22 8.86 0.87 68.55 2.94 238,511 145.10 13.78 0.37
41 NA First Midwest Bancorp (FMBI) Itasca, IL 11,422,555 7.12 7.47 0.84 61.97 3.60 92,349 12.53 9.95 0.30
42 32 First Citizens BancShares (FCNCA) Raleigh, NC 32,990,836 7.06 7.51 0.70 73.38 3.14 225,482 7.18 6.33 0.15
43 36 MB Financial (MBFI) Chicago, IL 19,302,317 6.93 7.65 1.03 64.08 3.73 174,287 9.47 24.02 0.28
44 35 Valley National Bancorp (VLY) Wayne, NJ 22,864,439 6.63 7.46 0.76 64.39 3.16 168,146 63.32 11.56 0.76
45 40 Associated Banc-Corp (ASB) Green Bay, WI 29,139,315 6.59 6.63 0.70 64.35 2.80 200,274 6.36 4.31 0.33
46 43 Iberiabank Corp. (IBKC) Lafayette, LA 21,659,190 6.52 7.08 0.92 60.53 3.56 186,777 30.76 8.71 0.39
47 48 Sterling Bancorp (STL) Montebello, NY 14,178,447 6.36 8.05 1.09 45.79 3.53 139,972 111.71 18.88 0.52
48 31 Arvest Bank Group Bentonville, AR 16,700,806 6.24 6.90 0.59 80.44 3.00 98,818 61.62 6.88 0.25
49 41 Hancock Holding Co. (HBHC) Gulfport, MS 23,975,302 6.18 6.06 0.64 62.71 3.23 149,296 13.57 5.00 0.36
50 NA Flagstar Bancorp (FBC) Troy, MI 14,053,000 5.79 11.68 1.23 71.61 2.66 171,000 8.23 9.25 0.79
51 46 People's United Financial (PCBT) Bridgeport, CT 40,609,800 5.59 5.78 0.71 62.53 2.80 281,000 8.04 7.27 0.45
52 45 Umpqua Holdings Corp. (UMPQ) Portland, OR 24,813,119 5.50 5.97 0.97 61.71 4.04 232,940 4.67 7.91 0.33
53 39 Investors Bancorp (ISBC) Short Hills, NJ 23,174,675 5.34 6.06 0.88 52.63 3.01 192,125 5.85 15.55 0.84
54 NA New York Community Bancorp (NYCB) Westbury, NY 48,926,555 5.26 8.19 1.00 44.73 2.91 495,401 NM -7.80 0.90
55 44 Astoria Financial Corp. (AF) Lake Success, NY 14,558,652 5.26 4.23 0.48 72.36 2.35 71,529 -18.79 2.21 0.96
56 47 Apple Financial Holdings New York, NY 12,947,697 5.20 6.07 0.49 54.86 1.86 62,853 56.12 9.85 0.62
57 37 Stifel Financial Corp. (SF) Saint Louis, MO 19,129,356 5.02 3.19 0.52 92.97 1.87 81,520 -11.71 73.99 0.62
58 49 Third Federal Savings Cleveland, OH 13,189,828 4.18 4.84 0.53 59.82 2.21 66,816 14.27 -2.81 1.06
Median: All Institutions 19,215,837 7.93 8.03 0.97 60.17 3.30 172,644 8.68 9.97 0.39
Median: Top 10 Institutions 19,471,958 12.92 12.31 1.14 52.85 3.30 264,939 9.69 14.34 0.33
Average: All Institutions 21,179,942 8.52 8.60 0.98 58.98 3.32 193,076 16.16 15.44 0.46
Average: Top 10 Institutions 24,713,264 13.19 12.66 1.25 49.98 3.54 281,839 12.26 20.93 0.36

Source:

Capital Performance Group
analysis of data provided by SNL Financial.

Ranking is of top consolidated bank holding companies, banks, and thrifts with total assets of between $10 billion and $50 billion as of 12/31/16 and is based on three-year average ROAE from 2014 to 2016. Additional data is for the 12 months ended 12/31/16; year-over-year changes compare 2016 to 2015. Financials are from SEC filings. If unavailable, regulatory financials were used. Excludes industrial banks, nondepository trusts, foreign-owned banks, and bankers' banks, as well as institutions with credit cards to total loans of more than 25%, loans to total assets of less than 20%, or loans to total deposits of less than 20% at 12/31/16. Excludes institutions with a leverage ratio of less than 5%, Tier 1 risk-based capital ratio of less than 6%, or total risk-based capital ratio of less than 10% during any quarter in the ranking period. Excludes institutions that received a tax benefit of greater than 10% of net income or that did not report data for any year in the ranking period. Also excludes institutions that have fewer than five depository branches and are owned by a company not primarily focused on commercial or retail banking. Ties broken using the 2016 ROAE and subsequently the 2015 ROAE.

* Denotes an institution that operated as a subchapter S corporation for at least one quarter between 2014 and 2016. Its profitability ratios were calculated from regulatory financials and adjusted using an assumed tax rate.

© 2017 American Banker Magazine