Lending niches helped these banks to outperform their peers

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While 2024 was a slow year for borrower demand — as election-related uncertainty and high interest rates put pressure on lenders' commercial clients — the top-performing banks with between $10 billion and $50 billion of assets saw far faster loan growth than their peers.

For the most part, they posted those strong results by tapping into high-growth markets where they offer specialty lending verticals, fighting through tepid demand in the wider market to drive profitability.

These banks' unusually strong lending operations helped them to offset stubbornly high deposit costs and lower-yielding assets that tamped down on bottom lines throughout the industry.

Customers Bancorp in Pennsylvania delivered far-above-average loan growth by focusing on verticals like mortgage finance, fund finance and health care lending.

Customers, which finished in 10th place, down from first in 2023, buoyed its earnings by recording the biggest jump in net loans among the top performers, at 11.1%.

Sam Sidhu, the CEO of Customers' banking subsidiary, told American Banker earlier this year that the bank has spent the past few years narrowing in on niche verticals and expanding its commercial business.

"You can't be everything to all people," Sidhu said. "You have to pick and choose the verticals and business lines you enter into."

The bank expects to continue delivering lending ahead of peers, projecting 7% to 10% loan growth in 2025.

Claude Hanley, founder and partner at the consulting firm Capital Performance Group, which compiled the rankings, said that operating in faster-growing geographies seems to have been a factor in the strong loan growth at several of the lenders on the top-10 list.

Four of those 10 banks were headquartered in the Sun Belt— ServisFirst Bancshares in Alabama, BancFirst Corp. in Oklahoma and International Bancshares and First Financial Bankshares in Texas — as the region continued to see strong inflows of residents and businesses. 

Those four banks, along with Customers, saw some of the strongest loan growth of the top performers.

The banks were ranked by Capital Performance Group based on their three-year average return on average equity, or ROAE, according to data from year-end 2024.

Merchants Bancorp in Carmel, Indiana, which grew its loans by 6.43% last year and was fourth on the top-performers list, prioritized a short-duration loan portfolio that focused on loans across products such as multifamily housing and mortgage warehousing. But the bulk of Merchants' revenue came from a unit that includes its nationwide origination of bridge loans and residential mortgages, as well as community banking services in its home state of Indiana.

Commercial real estate loans made up a smaller percentage of the top-performers' portfolios, on average, than their peers. Some community and regional banks have been working to shave down their exposure to commercial real estate loans in recent years — as interest rate hikes, skewed valuations and remote work have put the sector under the microscope of both regulators and investors.

ServisFirst Bancshares, based in Birmingham, Alabama, was an outlier. It managed to maintain both strong profitability and a CRE-heavy loan portfolio.

The $18 billion-asset bank grew its net loans by 8.2% last year, compared with the 2.63% median growth across the 83 banks in the $10 billion-$50 billion asset tier. ServisFirst emphasizes its traditional banking business model of "loan making and deposit taking," per a May investor presentation. 

The company has used a branch-light strategy to expand into cities across the South and Southeast, such as Atlanta, Tampa, Nashville and Charlotte.

ServisFirst said in the May presentation that it focuses on middle-market commercial customers "that have been neglected or pushed down to branch personnel" at larger banks. Commercial and industrial loans make up about one-quarter of the bank's book. More than one-third of its C&I loans are in the retail, manufacturing and health care sectors.

Loans weren't the only propeller of profits

But loan growth was not the only way banks found to turn a big profit and crack the top 10. 

Commerce Bancshares reported flat loan growth, but still landed third on the list — it was one of only two banks among the top performers that didn't shine in lending.

Instead, the Kansas City, Missouri-based bank's fee-based businesses helped it log a 10.15% year-over-year increase in net income growth. Commerce's noninterest income, which comes from areas such as credit cards, wealth and payments, made up 37% of the bank's total revenue in 2024.

"In that environment, fees were also very important because loan growth was tough," Hanley said. "They just have these fee-based businesses that are going to serve them well, regardless of the rate environment."