Banking's Top 5 Total Return to Shareholders: 2024 Edition

There have been some humbling moments in Top 5 recognitions, with some award recipients failing and one voluntarily liquidating. Although we seek long-term performance in our 5-year lookback to mitigate the risk of banks that stoke performance with risky bets, we are reminded that banking is a long game. Business models built to endure do so over different economic cycles. And in today's world, economic cycles tend to last more than five years. Having said that, I am here to count numbers with minimal subjectivity (although there is some), and if they have the best five-year total return to shareholders within the criteria mentioned below, they are most likely on the list.

For the past thirteen years, I searched for the Top 5 financial institutions in five-year total return to shareholders because I support long-term strategic decision-making that may not benefit next quarter's or even next year's earnings. And I am weary of the persistent "get big or get out" mentality of many industry pundits. If their platitudes about scale are correct, then the largest FIs should logically demonstrate better shareholder returns, right?

Not so over the thirteen years I have been keeping track. The first bank to crack the Top 5 over $50 billion did so in 2020. As a reference, the best SIFI bank in five-year total return this year was JPMorgan Chase at 46th overall. Although one might argue that First Citizens BancShares of Raleigh is a SIFI as it had $220 billion of total assets, roughly the size of Silicon Valley Bank when it failed. The  FDIC designated SVB as systemically important.

My method was to search for the best banks based on total return to shareholders over the past five years. I chose five years because banks that focus on year-over-year returns tend to cut strategic investments come budget time, which hurts their market position, earnings power, and future relevance more than those that make those investments. I call this "pulling into the pits" in my book: Squared Away-How Can Bankers Succeed as Economic First Responders. Short-term focus is a common trait of banks that focus on shareholder primacy over stakeholder primacy.

Total return includes two components: capital appreciation and dividends. However, to exclude trading inefficiencies associated with illiquidity, I filtered out those FIs that trade less than 1,000 shares per day. I changed this from 2,000 shares as it was pruning too many fine institutions. But the 1,000 shares/day minimum naturally eliminates many of the smaller, illiquid FIs. I also filtered for anomalies such as recent merger announcements as a seller, turnaround situations (losses suffered from 2018 forward), mutual-to-stock conversions, large ECIP recipients, and penny stocks. 

As a point of reference, the S&P US BMI Bank Total Return Index for the five years ended December 6, 2024 was 34.55%.

Before we begin and for comparison purposes, here are last year's top five, as measured in December 2023:

#1.  M&F Bancorp, Inc. (OTCPK: MFBP)

#2.  The Bancorp, Inc. (Nasdaq: TBBK)

#3.  Citizens Bancorp Corporation (OTCPK: CZBS)

#4.  First Citizens BancShares, Inc. (Nasdaq.GS: FCNC.A)

#5.  FFB Bancorp (OTCQX: FFBB)

Here is this year's list:

#1. The Bancorp, Inc. (Nasdaq: TBBK)

Founded in 2000, this $8.1 billion financial institution remains one of the few banks in the U.S. that specializes in providing private-label banking and technology solutions for non-bank companies ranging from entrepreneurial start-ups to those in the Fortune 500.  They provide white-label payments and depository services (think Paypal, Chime) and deploy that funding into specialized lending programs such as lending to wealth management firms, commercial fleet leasing, and real estate bridge lending. Note their asset size, because their value as the BaaS bank for Chime is that they are under $10 billion in total assets and not subject to the Durbin Amendment portion of the Dodd-Frank Act that fixes interchange income pricing. It has not been all sunshine and rainbows for TBBK. They were under an FDIC consent order from 2014 through 2020 relating to their BSA and OFAC compliance and their relationship with third parties seeking access to the banking system. So in 2019, when our 5-year measurement period began, they were under that cloud. Bankers considering becoming a BaaS provider to such third parties should read their order. Having said that, they posted a 2.75% ROA and 26.56% ROE year-to-date and that surpassed their aspirational goal (which they disclosed) of having a >2% ROA and >20% ROE. They put it out there and got it done! And have delivered a 397% five-year total return to their shareholders and third straight Top 5 accolade and topping our list this year! 

#2 Northeast Bank (NasdaqGM: NBN)

Northeast Bank is a full-service bank headquartered in Portland, Maine that had $3.9 billion in total assets and seven branches at September 30, 2024. It offers personal and business services to the Maine market, and sports a national lending platform which purchases and originates commercial loans, mostly secured by real estate, and SBA loans, on a nationwide basis. It has a nationwide digital bank, ableBanking, that offers online savings products to consumers nationwide to assist in funding its nationwide lending program. The Bank is currently offering shares for sale at-the-market to support future growth. Its national lending program represents all but a small percentage of its entire loan portfolio. Two thirds of its deposits are time deposits, resulting in an LTM (their fiscal year ends September 30th) cost of funds of 4.16%. By way of comparison, we do a quarterly flip book for Massachusetts that shows all MA banks cost of funds was 2.48%. New England financial institutions generally have higher cost of funds. But not that much higher. This is because there are a lot of loans to fund! And the bank's yield on loans was 9.30%. I know what you're thinking, but so far their NPLs/Loans was 1.31% at September 30th. With a net interest margin of 5.06%, having relatively higher NPLs than those with NIMs with a 2-handle makes sense.  This resulted in a 1.97% LTM ROA and 17.09% ROE and a 370% 5-year total return to shareholders. Well done!

#3. Coastal Financial Corporation (Nasdaq: CCB)

Since 1997, Coastal Community Bank, the wholly owned bank subsidiary of Coastal Financial Corporation, has delivered a full range of banking services to small and medium-sized businesses, professionals, and individuals throughout the greater Puget Sound (Washington) area through a traditional community bank branch network in its three-county market. The bank consists of two segments: 1) the traditional community bank, and 2) CCBX, which is its Banking as a Service (BaaS) division started in 2018. Prior to starting CCBX and for the year ended 2017, the Company had $806 million in total assets and $5.4 million in net income for an ROA of 0.73%. As of or for the latest twelve months ended September 30, 2024, the Company had $4.1 billion of total assets, $40.9 million net income and a 1.10% ROA. Their CCBX segment continues to evolve, particularly with enhanced regulatory scrutiny of BaaS banks. CCBX is focused on expanding products with existing partners rather than partner growth. What has this bifurcated business model delivered? A 351% five-year total return and place on the JFB Top 5 in two of the last three years! Well done!

#4 First Citizens BancShares, Inc. (NasdaqGS: FCNC.A)

First Citizens Bank was founded in North Carolina in 1898 as the Bank of Smithfield. In 1935, R.P. Holding was elected Chairman and President of First-Citizens Bank & Trust, a family legacy of leadership that lasts to this day.   First Citizens includes a network of more than 500 branches and offices in 30 states spanning coast to coast, and a nationwide direct banking business. In January 2022, First Citizens did a tangible book value accretive merger of equals with CIT Group. And followed that savvy deal with another tangible book accretive deal by completing the failed Silicon Valley Bridge Bank acquisition in the first quarter 2023. Concern about maintaining SVB accounts has dissipated as the bank has more loans and more deposits now than in the first quarter 2023. For the LTM ended September 30, 2024, net interest margin was 3.68%, ROA was 1.19%, and ROE was 12.74%. Its efficiency ratio pre-SVB was 61% and now it is 55%. Economies of scale were realized. All this accretive deal making and prudent management has resulted in a brass ring for shareholders in the form of a 327% five-year total return. Congratulations!

#5 GBank Financial Holdings, Inc. (OTCQX: GBFH)

New to the JFB Top 5 is Las Vegas based GBank Financial Holdings, Inc. Like most things Vegas, this is a unique financial institution. Founded in 2007, GBank operates two full-service commercial branches in Las Vegas. It conducts business nationally through its SBA lending business that is a top 10 national 7(a) lender by volume. Through its partnership with BankCard Services (BCS), it has established relationships with gaming companies, skills gaming companies, and payments and wallet provider companies. This likely explains why the CEO of MGM and general counsel of Great Canadian Gaming Corporation are on the company's board. It has also struck an agreement with MasterCard to provide pre-paid card services. At and for the LTM ended September 30, 2024 it had a mere $1.0 billion in total assets but had net income of $13.4 million leading to an ROA of 1.82% and ROE of 16.54%. This is the smallest bank in our Top 5, yet it enjoys an average daily trading volume of over 15,000 shares. Only in Vegas! Congratulations for your Top 5 recognition and huzzah to your shareholders who enjoyed a 294% 5-year total return! 

There they are. Interesting there is no bank that I would deem a traditional community bank. Be it BaaS, nationwide lending, focus on a niche such as v/c and p/e ecosystems, or gaming. All 5 have a unique path to delivering to their shareholders. And 4 of 5 are less than $10 billion in total assets. GBank is 1/10th that size.   

The evolution of this august list tells me that having something other than "plain vanilla" is driving performance and shareholder returns. 

~ Jeff

Note: I make no investment recommendations in this article or this blog.

Banking's Top 5 Total Return to Shareholders: 2022 Edition

For the past eleven years I searched for the Top 5 financial institutions in five-year total return to shareholders because I support long-term strategic decision making that may not benefit next quarter's or even next year's earnings. And I am weary of the persistent "get big or get out" mentality of many industry pundits. If their platitudes about scale are correct, then the largest FIs should logically demonstrate better shareholder returns, right?

Not so over the eleven years I have been keeping track. The first bank to crack the Top 5 over $50 billion did so in 2020. As a reference, the best SIFI bank in five-year total return this year was JPMorgan Chase at 82nd overall. 

My method was to search for the best banks based on total return to shareholders over the past five years. I chose five years because banks that focus on year over year returns tend to cut strategic investments come budget time, which hurts their market position, earnings power, and future relevance more than those that make those investments. I call this "pulling into the pits" in my book: Squared Away-How Can Bankers Succeed as Economic First Responders. Short-term focus is a common trait of banks that focus on shareholder primacy over stakeholder primacy.

Total return includes two components: capital appreciation and dividends. However, to exclude trading inefficiencies associated with illiquidity, I filtered out those FIs that trade less than 1,000 shares per day. I changed this from 2,000 shares as it was pruning too many fine institutions. But the 1,000 shares/day minimum naturally eliminates many of the smaller, illiquid FIs. I also filtered for anomalies such as recent merger announcements as a seller, turnaround situations (losses suffered from 2017 forward), mutual-to-stock conversions, stock dividends/splits without price adjustments, and penny stocks. 

As a point of reference, the S&P US BMI Bank Total Return Index for the five years ended December 9, 2022 was -1.21%.

Before we begin and for comparison purposes, here are last year's top five, as measured in December 2021:

#1.  Silvergate Capital Corporation (NYSE: SI)

#2.  MetroCity Bankshares, Inc. (Nasdaq: MCBS)

#3.  Triumph Bancorp, Inc. (Nasdaq: TBK)

#4.  Live Oak Banchsares, Inc. (Nasdaq: LOB)

#5.  SVB Financial Group (Nasdaq: SIVB)

Here is this year's list:

#1. Communities First Financial Corporation (OTCQX: CFST)  

Communities First Financial Corporation is the bank holding company for Fresno First Bank, which opened in December 2005 dedicated to meeting the banking needs of businesses, professionals, and successful individuals in Central California. Its headquarters is the only location. Each employee has an ownership stake in the bank through its Employee Stock Ownership Plan. In 2021, the bank expensed over $530 thousand to the ESOP to benefit employees. Twenty-six percent of the bank is owned by the Board, Executive Management, and the ESOP. I would call that stakeholder alignment. Since 2016, over 50% of total deposits are non-interest bearing, driving superior cost of funds and net interest margin. In addition, the bank developed a niche in the payments business, sponsoring multiple independent sales organizations (ISOs) specializing in bankcard and ACH payment solutions, generating $2.5 billion in processing volume in the third quarter of this year. All this generated a year-to-date ROA / ROE slash line of 2.23% and 29.56% respectively, and a 225.3% five-year total return to shareholders. Welcome to the top of the heap!

#2. Coastal Financial Corporation (Nasdaq: CCB)

Since 1997, Coastal Community Bank, the wholly owned bank subsidiary of Coastal Financial Corporation, has delivered a full range of banking services to small and medium-sized businesses, professionals, and individuals throughout the greater Puget Sound (Washington) area through a traditional community bank branch network in its three-county market. The bank consists of two segments: 1) the traditional community bank, and 2) CCBX, which is its Banking as a Service (BaaS) division started in 2018. Prior to starting CCBX and for the year ended 2017, the Company had $806 million in total assets and $5.4 million in net income for an ROA of 0.73%. As of or for the year-to-date September 30, 2022, the Company had $3.1 billion of total assets, $36.7 million net income (YTD annualized), and a 1.27% ROA. Their CCBX segment continues to evolve, with 19 active partners, two in testing, five signed letters of intent, and three in wind-down as the bank focuses on larger and more mature relationships. What has this bifurcated business model delivered? A 221.5% five-year total return and #2 on the JFB Top 5! Well done!

#3 OFG Bancorp (NYSE: OFG)

San Juan based OFG Bancorp is a financial holding company under U.S. and Puerto Rico banking laws and regulations. Founded in 1964, OFG's banking subsidiary, Oriental Bank, is one of Puerto Rico's largest banks, and is focused on the island and the U.S. Virgin Islands. OFG also has Trust and Insurance services, which represent 1.9% and 2.6% of total revenues, respectively. The Company has grown to $10.1 billion in total assets at September 30, 2022, fueled by organic growth and acquisitions. The bank has a diversified loan portfolio of residential, commercial, and consumer loans. Most consumer loans are auto loans which represent 28% of the total loan portfolio. Loan yields for the YTD ended September 30th was 7.32%. Which compensates for an annualized net charge-off rate of 1.16%. Risk versus Reward. Demand deposits represent 61% of the deposit base, driving a net interest margin of 4.96%. The result: a 1.57% ROA and 15.25% ROE and a robust 219.4% five-year total return. Awesome!

#4 First BanCorp (NYSE: FBP)

First BanCorp is a full service financial institution with operations in Puerto Rico, the British Virgin Islands, and Florida. Its vision is grounded in the principle that investing in its employees, supporting the communities it serves, and providing an outstanding experience to customers is paramount to being successful and delivering shareholder value long-term... i.e. they pursue stakeholder primacy, and here they are in the Top 5 total return to shareholder list. At $18.4 billion in total assets, it is the largest among our Top 5 all stars. Their net interest margin popped 30 basis points from year end 2021 to present because the balance sheet is chock full of core deposit funding accompanied by a heavy dollop of variable rate loans. This helped drive down their efficiency ratio to under 48%. But there's more! In their investor deck they told shareholders that the efficiency ratio was likely to gradually rise to 50% as they continue to invest in people, technology, and capital projects. In other words, they are pulling into the pits to further pursue stakeholder primacy and make the investments needed for a long-term future. Refreshing! Oh and they delivered 203.5% five-year total return to shareholders. That too.

#5 The Bancorp, Inc. (Nasdaq: TBBK) 

Founded in 2000, this $7.8 billion financial institution remains one of the few banks in the U.S. that specializes in providing private-label banking and technology solutions for non-bank companies ranging from entrepreneurial start-ups to those in the Fortune 500.  They provide white label payments and depository services (think Paypal, Chime) and deploy that funding into specialized lending programs such as lending to wealth management firms, commercial fleet leasing, and real estate bridge lending. Note their asset size, because their value as the BaaS bank for Chime is that they are under $10 billion in total assets and not subject to the Durbin Amendment portion of the Dodd-Frank Act that fixes interchange income pricing. It has not been all sunshine and rainbows for TBBK. They were under an FDIC consent order from 2014 through 2020 relating to their BSA and OFAC compliance and their relationship with third parties seeking access to the banking system. Bankers considering becoming a BaaS provider to such third parties should read this order. Also, The Bancorp posted a $96.5 million loss in 2016, just outside the window the JFB Top 5 looks back to determine if it's a turnaround that drove total return. There probably is some of that in their ranking. But they posted a 1.69% ROA and 18.30% ROE year-to-date and have an aspirational goal (which they disclosed) of having a >2% ROA and >20% ROE. They put it out there! And have delivered a 202.2% five-year total return to their shareholders. Welcome back! 

There they are. Interesting that three of the top 5 have some sort of BaaS operation. And there are two Puerto Rican banks. There were two major hurricanes, Maria and Fiona, during this measurement period and I'm confident that this impacted trading activity in these banks' stocks, although I can't articulate how. 

The evolution of this august list tells me that having something other than "plain vanilla" is driving performance and shareholder returns. 

I would be remiss not pointing out that the #1 total return bank for 2020 and 2021, Silvergate Capital Corporation, had a five-year total return of 71.6%. Not bad considering the -1.21% for the same period for the S&P US BMI Bank Total Return Index. But Silvergate's current 1-year total return was -87.1%, knocking it decidedly off the JFB Top 5 list (currently ranked 45th). Putting most of your eggs in the crypto basket has its highs and lows. Perhaps diversify?

~ Jeff

Note: I make no investment recommendations in this article or this blog.

Banking's Total Return Top 5: 2013 Edition

For the past two years I searched for the Top 5 financial institutions in five-year total return to shareholders because I grew weary of the "get big or get out" mentality of many bankers and industry pundits. If their platitudes about scale and all that goes with it are correct, then the largest FIs should logically demonstrate better shareholder returns. Right?

Not so over the three years I have been keeping track.

My method was to search for the best banks based on total return to shareholders over the past five years... capital appreciation and dividends. However, to exclude trading inefficiencies associated with illiquidity, I filtered for those FIs that trade over 1,000 shares per day. This, naturally, eliminated many of the smaller, illiquid FIs.

For comparison purposes, here are last year's top five, as measured during December, 2012:

#1.  BofI Holdings, Inc.
#2.  Bank of the Ozarks, Inc.
#3.  Access National Corporation
#4.  Hingham Institution for Savings
#5.  Texas Capital Bancshares, Inc.

This year's list is in the table below:

BofI Holdings celebrates its third year on this august list. Congratulations to them. A summary of the banks, their strategies, and links to their website are below. 

#1. BofI Holdings Inc. (Nasdaq: BOFI)

BofI Holdings Inc. and its subsidiary BofI Federal Bank aspire to be the most innovative branchless bank in the United States providing products and services superior to their competitors, branch-based or otherwise. In its latest investor presentation, BofI claims that its business model is more profitable because its costs are lower. It supports the claim by highlighting its efficiency ratio compared to peer banks (38.7% versus 68.5%, respectively) and its operating expenses as a percent of average assets compared to peer banks (1.66% versus 3.09%, respectively).So, as a branchless bank, BofI has leveraged its significantly lower operating expenses into profit. That profit led to the top spot in five year total return to shareholders, three years running. Well done!

#2. Marlin Business Services Corp. (Nasdaq: MRLN)

Continuing the theme of niche banks, Marlin is a direct lender providing financing to business so they can acquire new equipment and technology while preserving capital. Since 1997 Marlin has extended $3 billion in financing to small and mid-sized companies acquiring computer software and hardware, telecommunications, medical equipment, and other office equipment. I considered excluding Marlin from my rankings because it started as a straight finance company. But why exclude niche players? Especially if I believe community banks must increasingly be known for some niche to differentiate. I first became aware of Marlin at the Utah Bankers Association Executive Development Program, where a Marlin Business Bank officer was attending. Marlin Business Bank was chartered in 2008 so Marlin could fund its various financing activities. The Bank sports a year-to-date ROA of 2.90% and ROE of 19.6%. Not too shabby.

#3. Fidelity Southern Corporation (Nasdaq: LION)

One of the largest bank holding companies in the Atlanta area, you would first think that Fidelity Southern is the first plain vanilla community bank in the Top 5. But you would be wrong. How often have we seen banks pursue fee-based line of business strategies to augment their spread business but have failed miserably at running these businesses profitably? I know I have seen it more often than not. But Fidelity Southern's fee income to total revenue is between 50%-60%! Nearly half of the fee income comes from their mortgage banking business, boasting over 300 employees throughout the southeast, and ranking 2nd in the Atlanta MSA in purchased home volume. But their spread business is unique also. Over 50% of the loan portfolio is indirect auto, with originations coming from Tennessee to Florida.  Indirect auto portfolios, as many of you know, performed well during the past recessionary period. And Fidelity Southern shareholders have benefited. The bank achieved a year-to-date ROA of 1.24% and ROE of 14.16%. And earned a spot in the JFB Top 5 with a 517% five-year total return. Well done! 

#4. Eagle Bancorp, Inc. (Nasdaq: EGBN)

EagleBank, founded in 1998, is a traditional community-based business bank, serving the metro Washington DC market. The Company has posted 19 consecutive quarters of increased net income at September 30... a consistent financial performer. It had a 4.31% net interest margin and a 52% efficiency ratio for the third quarter. Commercial real estate and commercial and industrial loans make up 74% of its loan portfolio. Loans are funded 86% with core deposits, allowing the bank to maintain a superior net interest margin. Another key to the bank's strong efficiency ratio is average deposits per branch. At September 30, the bank had $3 billion in deposits with only 18 branches, for an average of $166 million per branch. Eagle is run by Ron Paul, a highly respected real estate investor/developer. Interesting how so many high performing financial institutions have CEOs from other industries. I salute Eagle's 463% five-year total return to their shareholders.

#5. Bancorp, Inc. (Nasdaq: TBBK)

Founded in 2000, The Bancorp creates customized banks for affinity partners in the healthcare, payments, and institutional banking industry. According to its third quarter investor presentation, the bank's greatest revenue comes from pre-paid cards (35% of revenue), followed by revenues from a traditional community bank (22% of revenues) that manages $1.4 billion of the $4 billion asset balance sheet. The branchless community bank operates in the Wilmington-Philadelphia market. Yet another niche bank for our Top 5. The strategy delivered a year-to-date ROA of 0.59% and ROE of 6.89%, and a 453% five-year total return to shareholders. Congratulations! 

There you have it! The JFB all stars in top 5, five-year total return. The largest of the lot is $4 billion in total assets. Bank of America... not here. Jamie Dimon, ditto. PNC, sports a Steelers-like record. But, congratulations to all of the above that developed a specific strategy and is clearly executing well. Your shareholders have been rewarded!

Are you noticing themes that led to these banks' performance?

~ Jeff

Note: I make no investment recommendations in my blog. Please do not claim to invest in any security based on what you read here. You should make your own decisions in that regard. FINRA makes people take a test to ensure they know what they are doing before recommending securities. I'm sure that strategy works well.