2019 RankingBanking: Regional All-Stars

December 18th, 2018

RankingBanking.pngI.pngt seems easy to identify a high-performing bank—but what are the components that create it?

Each bank has its own unique markets, strategy and focus—some of which result in a higher level of performance than others. The 2019 RankingBanking study seeks to better understand these high performers.

To do this, we selected a group of 20 best-in-class banks—five within four regional categories, as defined by the U.S. Census Bureau: South, West, Midwest and Northeast. Within each region, Bank Director identified the top five publicly-traded retail and commercial banks with more than $10 billion but less than $250 billion in assets, based on profitability (average return on assets and average return on equity) over a three-year period, as well as total shareholder return over a 10-year period. This naturally weights the selection of the banks we ranked toward current performance, with a slight balance toward long-term performance as a public company.

We limited the analysis to banks between $10 billion and $250 billion in assets for several reasons. First, we excluded banks above $250 billion in assets because, in many ways, these banks operate in a different universe. Regulatory restrictions have prevented most of them from participating in M&A, for example, which has restricted their growth. In fact, banks between $10 billion and $50 billion have been much more active acquirers in recent years. And to compare banks around the $100 billion asset mark—such as M&T Bank Corp. in Buffalo, New York, Huntington Bancshares in Columbus, Ohio, and Fifth Third Bancorp in Cincinnati—to banks below $10 billion would be misleading. Due to the Dodd-Frank Act, banks above $10 billion are subject to enhanced regulatory oversight, and economies of scale are more potent at that size.

The banks were evaluated in 10 categories that are important factors in bank performance. These are:

For each category, Bank Director’s research team gathered quantitative data from sources such as the Federal Deposit Insurance Corp. and company filings. Qualitative data, in the form of case studies and analyst opinions, were also collected. An algorithm was developed specific to each category, in which both qualitative and quantitative data were ranked on a 1 to 5 scale per region, with the lower score indicating a better performance. This determined the winner for each region. The regional winners were then scored again and compared against each other to determine each overall category winner.

A similar methodology was developed to determine the overall winner for the 2019 RankingBanking study. Each category score factored into this algorithm, with three key categories receiving extra weight: the board category, given the important role directors play in their oversight of a bank; the core deposit category, due to the importance of growing sticky deposits to fund loan growth in today’s rising-rate environment; and finally, the score for appealing to millennial employees, given the important role the millennial workforce will play in the future growth and sustainability of a bank. The millennial category also includes metrics that touch on a bank’s reputation in the marketplace.

To balance the category scoring with long-term performance, total shareholder return over a five-year period was included in the algorithm. A safety and soundness score was also tabulated using each bank’s net charge-off ratio and common equity tier 1 capital ratio as of June 2018, based on FDIC data.

Proving that biggest doesn’t mean best, South State Corp. won the overall ranking. The Columbia, South Carolina-based financial services company, with $14.5 billion in assets, earned the top spot due to its strong overall performance in retail banking and its ability to attract younger employees who will help grow the business in the future. It was also a regional winner in the corporate citizen, branch network, core deposit and commercial lending categories, and it scored second in the South for its acquisition and technology strategies.

In fact, South State scored first or second within its region in eight of the 10 categories in this ranking.

“They’ve been successful organically growing both consumer and commercial” sides of the business, says Chris Marinac, director of research at FIG Partners. While many banks opt to focus more on the commercial side, “South State has a much more balanced attack. Their plan has always been to do a large consumer business, which is primarily local, and it drives more deposits,” he says. “It’s also given them a more defensible revenue stream.”

Bank OZK—formerly Bank of the Ozarks, and based in Little Rock, Arkansas, with $22 billion in assets—placed second overall in the South. An active acquirer that has snatched up seven banks in Arkansas, Georgia, Florida, North Carolina, Texas and New York over the past five years, Bank OZK topped the region on the strength of its acquisition strategy, its board, its core deposit strategy and its technology strategy. Nearby Conway, Arkansas-based Home Bancshares, with $15 billion in assets, placed first in the region for its small business strategy. BankUnited, in Miami Lakes, Florida, with $32 billion in assets, scored well within the South for its board, as well as its appeal to millennial employees and its community outreach initiatives. FCB Financial Holdings, with $12 billion in assets, scored third within the region for its retail strategy, commercial lending strategy, acquisition strategy and appeal as a millennial employer. The Weston, Florida-based holding company has been acquired by $32 billion asset Synovus Financial Corp. The deal is scheduled to close in 2019.

Webster Financial Corp., based in Waterbury, Connecticut, with $27 billion in assets, was the top performer in the Northeast and scored second overall. Webster topped its region for its board, and its small business and technology strategies, and ranked second regionally for its commercial lending strategy, community outreach initiatives and work in attracting millennial employees.

M&T came in second in the Northeast, and was an overall winner in the corporate citizen category. It also tied for an overall win in the M&A category. The $117 billion asset bank also topped the region for its retail strategy and millennial hiring practices. Coming in third was Dewitt, New York-based Community Bank System, the smallest bank in the study at $11 billion in assets and the overall winner for its core deposit strategy. Sterling Bancorp, with $31 billion in assets in Montebello, New York, came in fourth, and topped the region for its branch network and commercial lending strategies. New York-based Signature Bank, with $46 billion in assets, rounded out the region, drawing note for its branch-light strategy, earning a second place in that category regionally.

Screen Shot 2018-12-08 at 1.18.51 PM.pngEmerging at the top in the Midwest, and third overall, Huntington, at $106 billion in assets, was the overall winner for its small business and commercial lending strategies, and finished first in the region on the strength of its board makeup and branch network strategy. Fifth Third, with $142 billion in assets, placed second in the region and was the overall winner for its technology strategy. It also earned regional wins for community outreach and its strategy around hiring millennials. In third, $25 billion asset Commerce Bancshares, headquartered in Kansas City, Missouri, topped the core deposit, branch network and retail categories within the region. Detroit-based Chemical Financial Corp., with $21 billion in assets, placed fourth, earning second place within the region in the retail, small business, community outreach and M&A categories. Great Western Bancorp, based in Sioux Falls, South Dakota, with $12 billion in assets, topped the region for its acquisition strategy.

Finally, $96 billion asset First Republic Bank topped the West and placed fourth overall. The San Francisco-based bank, which focuses on affluent customers, was the overall winner in the branch network category, and a regional winner for its retail strategy and millennial appeal. It also scored highly for its core deposit, commercial lending and technology strategies.

Bank of Hawaii Corp., based in Honolulu with $17 billion in assets, placed second in the West and was the overall winner in the board category. It was a regional winner in the corporate citizen and technology categories, and placed second within the region for its millennial hiring and retail strategy.

In third, Phoenix, Arizona-based Western Alliance Bancorp., with $22 billion in assets, tied with M&T as the overall winner in the M&A category, and led the region for its commercial lending and core deposit strategies. In fourth, East West Bancorp, based in Pasadena, California, with $39 billion in assets, topped the region for its small business strategy. Los Angeles-based Cathay General Bancorp, with $16 billion in assets, earned a regional second place for its small business and acquisition strategies.

Transparency and brand awareness were not direct factors in scoring the performance of these banks, but they did indirectly contribute to our analysis. While this is a business-focused, rather than a consumer-focused ranking—meaning, our purpose is to understand how each line of business or area of interest benefits the bank, rather than the customer—the study uses publicly available information to better understand each bank, from their retail offerings to how they present themselves to prospective employees. Banks that better convey their mission and culture, and products, services and delivery channels to the world—through digital platforms, social media channels and other forms—provided more information for our examination. Doing so also makes it easier for prospective clients and employees in their markets to choose a bank, which is vital to building a brand and driving future performance.

How The Top Regional Banks Ranked

      SCORE ASSET SIZE (MILLIONS) TICKER
OVERALL WINNER: South State Corp. 2.29    
           
Northeast
  1 Webster Financial Corp. 2.38 $27,346 WBS
  2 M&T Bank Corp. 2.71 $116,828 MTB
  3 Community Bank System 2.78 $10,660 CBU
  4 Sterling Bancorp 2.90 $31,261 STL
  5 Signature Bank 3.67 $45,871 SBNY
Midwest
  1 Huntington Bancshares 2.47 $105,652 HBAN
  2 Fifth Third Bancorp 2.73 $141,685 FITB
  3 Commerce Bancshares 2.87 $25,062 CBSH
  4 Chemical Financial Corp. 2.97 $20,905 CHFC
  5 Great Western Bancorp 3.34 $12,009 GWB
South
  1 South State Corp. 2.29 $14,522 SSB
  2 Bank OZK 2.63 $22,087 OZK
  3 Home Bancshares 3.05 $14,913 HOMB
  4 BankUnited 3.21 $31,514 BKU
  5 FCB Financial Holdings 3.37 $12,433 FCU
West
  1 First Republic Bank 2.52 $96,094 FRC
  2 Bank of Hawaii Corp. 2.63 $16,992 BOH
  3 Western Alliance Bancorp. 2.90 $22,176 WAL
  4 East West Bancorp 2.98 $39,073 EWBC
  5 Cathay General Bancorp 3.37 $16,462 CATY

Bank Director Research Group