Who Are the Top Growth Banks?


bank-growth-5-20-16.pngTo every rule there is an exception—or in this case, 10 of them.

Conventional wisdom says that revenue growth at commercial banks and thrifts in the current environment is challenged by continued downward pressure on net interest margins as the competition for loans remains fierce. But there is a group of banks that are thriving in today’s banking market despite the competitive pressures facing the industry. Working with Atlanta-based Bank Intelligence Solutions, a Fiserv subsidiary that collects and analyzes performance data on depository institutions, Bank Director identified 10 banks and thrifts that exhibited strong top line growth over a five quarter period ending March 31. Bank Intelligence Solutions CEO Kevin Tweddle admits that the industry’s growth performance over that period of time has not exactly been stellar. “These aren’t numbers that jump off the page,” says Tweddle. “It’s a really tough environment.” Still, these companies have been able to rise above the environment and post strong performances—which are all the more impressive given the economic headwinds that most banks have to deal with. The ranking includes public and private institutions over $1 billion in assets.

The issue of growth will be addressed at Bank Director’s Growing the Bank conference, which is scheduled for May 23-24 in Dallas. Included on the agenda are sessions on how to grow your business through smart branching decisions, collaboration, partnerships and acquisitions.

The conference attendees could also learn a thing or two from the 10 banks on our ranking, where the order was determined by their compound average growth rate in revenues over the five linked quarters. The top ranked bank—Sioux Falls, South Dakota-based MetaBank—led the pack with a growth rate of 19.3 percent over that period. The $3 billion asset bank is well diversified across multiple business lines, although lending still accounts for a significant part of its growth and profitability. MetaBank operates from 10 branches in Iowa and South Dakota, and reported 22 percent loan growth in its most recent fiscal year, which concluded September 30, 2015.The bank also saw 10 percent loan growth in the first two quarters of its 2016 fiscal year, which ran through March 31. Loan growth was particularly strong in commercial and agricultural sectors, although MetaBank also benefited from its December 2014 acquisition of AFS/IBEX, then the seventh largest U.S. insurance premium finance company. This unit makes loans to commercial businesses to fund their property/casualty insurance premiums, and it grew at an annualized rate of 52 percent between the date of acquisition and Meta’s fiscal year end in September of last year. MetaBank’s is also one of the country’s largest prepaid card issuers in the country, and in fiscal year 2015, that business grew its deposits by 25 percent and fees by 16 percent.

MetaBank also has a significant tax related business following its September 2015 purchase of Refund Advantage, which provides tax refund transfer software to electronic return originators (EROs) and their customers. An ERO is a tax preparer who has been authorized by Internal Revenue Service to submit tax returns to the IRS in an electronic format, and MetaBank earned significant software usage fees during its second quarter which ended March 31. Although the prepaid card and tax related operations are run as separate businesses from the retail bank, they are included in MetaBank’s overall results for reporting purposes.

The third ranked bank on our growth list, San Diego-based BofI Federal Bank, is a digital bank that operates nationwide through online and mobile platforms. The bank’s compound average growth rate through the five-quarter period was 11.93 percent. Of late, BofI has been seeing considerable growth in jumbo single family loans, small balance commercial real estate and commercial and industrial loans. It has also benefited from its August 2015 acquisition of H&R Block Bank, which provided BofI with 257,000 new deposit accounts and the opportunity to cross-sell its products to that bank’s customers.

Growing revenues in the current economic environment is a challenge even for most of the banks on this list, although their performance shows that strong growth can be achieved. One thing that MetaBank and BofI have in common is a degree of specialization—agricultural loans and prepaid debit cards for MetaBank, jumbo mortgage loans for BofI. And if there’s one secret to cracking the revenue growth code, it might be having a niche that differentiates your bank from the rest of the pack.

The Top 10 Banks for Growth
Rank Bank Headquarters Assets (millions) Growth Percentage*
1 MetaBank SD 3,071 19.3
2 Academy Bank, N.A. CO 1,034 18.13
3 BofI Federal Bank CA 7,696 11.93
4 HarborOne Bank MA 2,246 11.49
5 Sterling Bank and Trust FSB CA 1,766 11.21
6 Beverly Bank & Trust, N.A. IL 1,012 10.62
7 WashingtonFirst Bank VA 1,755 9.74
8 First Foundation Bank CA 2685 9.7
9 Franklin Synergy Bank TN 2,298 9.7
10 TD Bank USA N.A. NJ 19,675 8.6

Source: Bank Intelligence Solutions and bank call reports
* CAGR based on revenue for bank for five trailing quarters through March 31, 2016
** MetaBank’s results include significant fee income from card and tax service related activities that are reported as part of its results.

FAST Act Extends Popular JOBS Act Registration Threshold to S&Ls


JOBS-Act-2-1-16.pngOn December 4, President Obama signed the Fixing America’s Surface Transportation Act, or the FAST Act, which included several amendments to federal securities laws. Among the changes, the law amended Section 12(g) of the Securities Exchange Act of 1934 so that savings and loan (S&L) holding companies will be treated in the same manner to banks and bank holding companies for the purposes of registration or suspension of their Exchange Act reporting obligations. Not too long ago, the Jumpstart Our Business Startups (JOBS) Act raised the threshold under which a bank or bank holding company may terminate its Securities and Exchange Commission (SEC) registration and reporting requirements to 1,200 shareholders of record from 300.

One thrift, Alpena, Michigan-based First Federal of Northern Michigan Bancorp, which has $338 million in assets, has already taken advantage of the new ruling and voluntarily deregistered and de-listed its stock from the NASDAQ stock market on December 18. The company’s stock now trades on the OTCQX market, the top tier of the over-the-counter markets operated by OTC Markets Group Inc.

In its press release about the rule change, the bank said that “the continuing increased costs and administrative burdens of public company status, including our reporting obligations with the SEC, outweigh the benefits of public reporting.”

The bank said it will continue to file quarterly interim financial statements and provide its shareholders with an annual report with audited financials, among other items, all of which are requirements on the OTCQX market.

The JOBS Act Deregistration and De-Listing Wave
Twenty banks and bank holding companies have deregistered and de-listed from a national stock exchange since the passage of the JOBS Act. Approximately half have moved to the OTCQX market.

Most banks have cited the high costs and regulatory compliance of being an SEC reporting company as the reason for their decision, as well as the ability to focus more of management’s time and resources on growing the business.

In a letter to shareholders following its de-listing, First Federal of Northern Michigan Bancorp said that deregistering and de-listing it shares would allow its management team to “spend more of its time focused on the core operations of the bank, including strategic planning and market expansion, thereby helping to create shareholder value.”

Wheeling, VA-based First West Virginia Bancorp, Inc., with $347 million in assets, said in an October 26 press release that deregistering and de-listing its securities from the New York Stock Exchange’s NYSE MKT market would allow its senior management “to devote more time and resources to focus on customers and profitable growth of the [c]ompany as opposed to the considerable time and effort necessary to manage compliance with SEC reporting requirements.”  The company’s stock now trades on the OTCQX market under its same symbol, FWVB.

Attorney’s fees, printing costs and exchange listing fees aren’t the only expenses banks stand to save from by de-listing from an exchange. Directors and officers (D&O) liability insurance is also higher for SEC-registered companies than for non-SEC reporting companies and can provide a significant cost savings to smaller banks.

Trading on the OTC Market Versus on a National Stock Exchange
The unique structure of the OTC market, which is based on a network of broker-dealers rather than a centralized matching engine, can also help reduce volatility in the trading of small bank stocks and provide better visibility into trading activity.

“For a very thinly traded bank on NASDAQ, a trader may not want to commit capital to inventory 20,000 shares of stock when those shares may represent six weeks’ worth of volume, and computers are changing the bid and ask every few minutes. Maybe that capital is better committed someplace else. Don’t get me wrong, NASDAQ is a fantastic place to be but maybe not for some of the more illiquid banks,” says Tom Dooley, senior vice president of Institutional Sales at Boenning & Scattergood.

On OTCQX, banks are required to appoint a FINRA-member broker-dealer who can provide guidance on the trading of their stock, as well as help facilitate relationships with institutional investors, investment bankers and other key market participants. OTCQX bank advisors can also help their clients handle changes in their shareholder base and correct imbalances between the number of buyers and sellers of their stock.

Small S&L companies that are interested in taking advantage of the new law should examine the various costs and benefits to their business and their shareholders. There is much to be gained from deregistering and de-listing your securities if you do it the right way.