Northeast Boasts Best-Performing Banks: Sandler O'Neill

BBCN Bancorp (BBCN) in Los Angeles is less than a year old and already it's a banking all-star.

Buoyed by strong loan and earnings-per-share growth, the $5 billion-asset company, formed in late 2011 through the merger of Nara Bancorp and Center Financial, was one of 25 banks and thrifts named this week to Sandler O'Neill's eighth annual small-bank all-star team.

BBCN was one of 10 newcomers to make the list -- and one of just banks two based in the western U.S.

As was the case last year, the bulk of the top performers are clustered in the Northeast and Mid-Atlantic regions, where the economy has held up better than in most other parts of the country.

Of the 25 all-stars, there are five in New Jersey, four in Virginia, three in Pennsylvania and one each in Vermont and New York. This is a stark reversal from just four years ago, when most of the top performers came from Sunbelt states and nearly one-third hailed from California. (For the complete list, click here.)

Sandler narrowed the list from more than 460 publicly traded banks and thrifts with a market capitalization of less than $2 billion, examining their performance relative to their peers for the 12 months that ended June 30.

Among the top 25, the median return on average equity was 11.5%, compared to 6% for their peers, and the median growth in earnings per share was 37.7%, versus 16.6% for the peer group, according to data compiled by SNL Financial and Sandler O'Neill.

The top 25 also have significantly lower levels of problem loans than other banks and thrifts and also showed stronger loan and deposit growth over the one-year span.

In some cases, the growth was aided by a merger. BBCN's total loans rose 76% over the one-year stretch, for example, primarily because the deal combined two similarly sized balance sheets.

In other cases the growth was more organic. Total loans at Cardinal Financial (CFNL) in McLean, Va., climbed 20.9% year over year as the company continued to capitalize on the relative strength of the Washington, D.C., area economy. Cardinal is the only bank among the top 25 that has appeared on the list in three consecutive years.

The report's authors, Mark Fitzgibbon and Casey Orr, noted that while median returns on equity improved year over year, "the performance metrics remain well below historical standards, evidence of the continued challenging environment for banks and thrifts."

Nonetheless, for prospective investors, the current crop of all-stars "represents a valid starting point in identifying high quality, small-cap companies before they are discovered by Wall Street," they wrote.

The banks and thrifts range in size from the $354 million-asset Somerset Hills Bancorp (SOMH) in Bernardsville, N.J., to the $13.2 billion-asset UMB Financial (UMBF) in Kansas City, Mo.

Including Cardinal, six banks returned from last year's rankings, the largest being the $11.4 billion-asset Investors Bancorp (ISBC) in Short Hills, N.J.

Apart from BBCN, other newcomers include the $1.2 billion-asset Bridge Capital Holdings (BBNK) in San Jose, a boutique bank that caters largely to the technology sector; and the $1.5 billion-asset Meta Financial (CASH) in Storm Lake, Iowa, a community bank that also runs a nationwide electronic payments division.

Bridge and BBCN were the only banks on the list based in either the Mountain of Western time zones, an indication of how much the economies in those regions have slowed in recent years.

In Texas, the best-performing bank is once again ViewPoint Financial (VPFG) in Plano, a one-time credit union that appeared on Sandler's list for the second straight year. Also hailing from Texas was Dallas-based Texas Capital Bancshares (TCBI), which returned to the rankings after a four-year absence.