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: 2023 Edition

What a difference a year makes! Although the 2022 Top 5 are holding their own and two of them remain in today's Top 5, the 2021 edition included one bank that failed (SVB Financial Group) and one that is voluntarily liquidating (Silvergate). So as with all lists, and especially banking lists where risks don't rear their ugly head until calamity, readers should evaluate each financial institution on their own. I am here to count numbers, and if they have the best five-year total return to shareholders within the criteria mentioned below, they are on the list.

For the past twelve 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 29th overall. Although one might argue that First Citizens BancShares of Raleigh is a SIFI as it climbed to the 19th largest in the country with its Silicon Valley Bridge Bank acquisition from the FDIC, and that 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, and penny stocks. 

As a point of reference, the S&P US BMI Bank Total Return Index for the five years ended December 7, 2023 was 23.32%.

Before we begin and for comparison purposes, here are last year's top five, as measured in December 2022:

#1.  Communities First Financial Corporation (Now FFB Bancorp) (OTCQX: FFBB)

#2.  Coastal Financial Corporation (Nasdaq: CCB)

#3.  OFG Bancorp (NYSE: OFG)

#4.  First BanCorp (NYSE: FBP)

#5.  The Bancorp, Inc. (Nasdaq: TBBK)

Here is this year's list:

#1. M&F Bancorp, Inc. (OTCPK: MFBP)  

M&F Bancorp, Inc. is the bank holding company for M&F Bank, headquarted in Durham, NC. The bank was founded in 1907 and has operated continuously since 1908 with branches in Durham, Raleigh, Charlotte, Greensboro, and Winston-Salem. It is a Minority Depository Institution (MDI) and is one of only a few North Carolina banks designated by the U.S. Treasury as a Community Development Financial Institution (CDFI). As both an MDI and CDFI, it applied for and received $80 million from the Emergency Capital Investment Program (ECIP) distributed by the U.S. Treasury to be used to help underserved communities bounce back from the Covid-19 pandemic. Prior to the ECIP investment the bank had $370 million in total assets and $40 million of equity. It had $447 million of assets and $121 million of equity at September 30, 2023. So the relative size of the ECIP investment was very significant. The additional capital, according to the bank, will be used to support businesses in low-income communities that have been disproportionately impacted by the pandemic and further its mission to provide capital, resources, and support communities that continue to be affected by systemic neglect. Prospective shareholders must believe in them, resulting in a 601% 5-year total return to shareholders. Well done and best of luck leveraging the ECIP capital for good!

#2. The Bancorp, Inc. (Nasdaq: TBBK)

Founded in 2000, this $7.5 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. They posted a 2.53% ROA and 26.12% 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 334% five-year total return to their shareholders and their second straight Top 5 accolade! 

#3 Citizens Bancshares Corporation (OTCPK: CZBS)

In 1921, Citizens Trust Bank opened its doors on Auburn Avenue in Atlanta. Its founder, Heman Perry, served as the first chairman of the board. The bank was the brainchild of Perry because he was denied being served in a white-owned store. So that Black businessmen could own and operate businesses independently of white-owned financial institution, Perry and four other partners, collectively known as the "Fervent Five", formed Citizens Trust Bank. Like M&F Bank above, CTB received over $95 million of ECIP, in addition to a $5 million investment from TD Bank as a result of its MDI and CDFI status. As a result of these investments, the bank has grown over 65% since 2019. Although deposits declined 20% since year end 2022, the bank has delivered a 2.01% year to date ROA and a 23.10% ROE. This growth and performance resulted in a 303% five-year total return. Well done Citizens Bancshares and Citizens Trust. You are doing well by doing good!

#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. For the third quarter 2023, net interest margin was 4.10%, ROA was 1.42%, and ROE was 14.95%. All this accretive deal making and prudent management has resulted in a brass ring for shareholders in the form of a 261% five-year total return. Congratulations!

#5 FFB Bancorp (OTCQX: FFBB) 

FFB Bancorp is the bank holding company for FFB Bank. You might recognize it from being number 1 in in last year's Top 5 as Communities First Financial Corporation and Fresno First Bank. No merger. They changed their name. The Bank opened in 2005 dedicated to meeting the banking needs of Central California businesses and individuals through their sole location in Fresno and online. At the end of 2021, prior to the Fed starting to raise interest rates, the Bank's yield on loans was 4.99%. For the YTD ended September 30, 2023, after the Fed raised rates 525-550 basis points, the yield on loans was 6.30%, or a 1.31% increase. For deposits, the Bank's cost of funds increased 34 basis points for that same period, from 7 basis points to 41. How you ask? Sixty five percent of their deposits are non-interest bearing. Takes pressure off in a rising rate environment. Net interest margin went from 4.22% to 5.09%. Looks like their interest rate risk model was spot-on. This performance led to a five-year total return to shareholders of 204% and a second straight year on the JFB Top 5. Congratulations! 

There they are. Interesting that two of the top 5 were MDIs and CDFIs that received ECIP capital. I am rooting that they will continue to deliver to shareholders as they serve their higher purpose improving the economic mobility of their customers. 

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.

Jeff For Banks: Top Five Posts of 2021

I don't expect followers of my blog to read every post. And my blog page shows the top five posts of all time. In fact, the content in my book, Squared Away: How Can Bankers Succeed as Economic First Responders, was driven by the top 20 most-read posts of all time.

But what about recently? Here are the top five most-read posts of 2021. In case you want to read them.

1. The Death of the Community Bank

Pundits make predictions. And I jumped in with both feet with a presentation I made in 2008. When I dug it out of my archives, I reviewed those past predictions with what actually happened. Where was I right? Where was I wrong?

2. CFPB: Are They Coming To Get You?

Written in March in response to questions a bank trade association CEO asked me as he was penning an Op-Ed, I did not know how prescient this piece would be. The questions were relating to the CFPB director contemplating taking "aggressive action" against those that were perceived to engage in Covid relief violations. Well that turned out to be the first piece of popcorn on the trail of a far more aggressive CFPB that is likely to get the majority of good banks sucked into the vortex with the few bad ones.

3. Squared Away: How It Happened

Since I had never published a book, I had no idea how to approach writing a book. Perhaps many of my readers are contemplating putting pen to paper and sharing what they've learned with a larger audience. And this drew them to how it came about for me. Hint: It wasn't all sunshine and rainbows. It took discipline. Except for the title. That was a family fun brainstorming session.

4. Memorial Day: Remember Maurice "Maury" Hukill

One thing I have learned about community bankers is they truly appreciate the sacrifices others made that allowed them to pursue a career in community banking. I highlight a fallen service member every Memorial Day. And this one had the most views of all of them. Perhaps it was boosted because Maury was a native of my hometown, and I pushed this out to my Facebook friends too. So there were probably a bunch of views that were not bankers. But still, I salute you, my readers, for elevating this tribute.

5. Bankers: Seven Questions to Determine if You Have a Strategic CFO

The consulting firm Deloitte posited seven questions to determine if the reader was (if he/she was a CFO) or has a strategic CFO. I posted the questions, provided the Deloitte meaning, and then connected it to banking. I hope you or your CFO fit the bill.

My Pick

Probably because it was such an important and high-level issue, Banking's Execution Imperative was my favorite. Although it did not take home Top 5 hardware. I rarely see bankers determine their strategy willy-nilly. Instead they put in the effort. Get executives and the Board involved. Dig through data to come up with the best strategy for their bank, in their current situation. And a year later when we follow up on progress, we hear about their "day job." If you're an executive, strategy development and execution is your day job. 

Honorable Mention

Guest Post: Financial Markets and Economic Update by Dorothy Jaworski. 

Although this post was published in November 2020, it still had enough legs to be one of the top read of 2021. Dorothy has been a mainstay of our blog. She had been writing her commentary for some years for physical distribution to her bank's customers. Finally, the Marketing Department was on to her and began posting directly to the bank's website. She'll be missed on these pages. But you can catch her on our next This Month in Banking podcast waxing eloquent on what bankers should do in this uncertain interest rate environment. That release date is January 26th. Get it here or wherever you get your podcasts.

Thank you to all of my readers. I don't take you for granted and will continue to be thoughtful in how I, and my colleagues at The Kafafian Group, can bring value to you and your teams. WE WANT YOU, YOUR EMPLOYEES, CUSTOMERS, COMMUNITIES AND SHARHOLDERS TO WIN!

~ Jeff

Banking's Top 5 Total Return to Shareholders: 2021 Edition

For the past decade 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 ten years I have been keeping track. The first bank to crack the Top 5 over $50 billion did so last year. As a reference, the best SIFI bank in five year total return was Bank of America at 26th 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 than those that make those investments. 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 2,000 shares per day. This, naturally, eliminated many of the smaller, illiquid FIs. I also filtered for anomalies such as recent merger announcements as a seller, turnaround situations (losses suffered from 2016 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 27, 2021 was 60.4%.

Before we begin and for comparison purposes, here are last year's top five, as measured in December 2020:

#1.  Silvergate Capital Corporation (NYSE: SI)

#2.  Live Oak Bancshares, Inc. (Nasdaq: LOB)

#3.  Fidelity D&D Bancorp, Inc. (Nasdaq: FDBC)

#4.  Silicon Valley Financial Group (Nasdaq: SIVB)

#5.  Bank First Corporation (Nasdaq: BFC)

Here is this year's list:

#1. Silvergate Capital Corporation (NYSE: SI)

Here we are again. The first crypto currency bank to crack the Top 5 has landed the top position two years running, delivering a 1,257% 5-year total return. You read that right. Silvergate had $150 million in total revenue over the past twelve months, and has a market capitalization of $4.7 billion, or 31.4x revenues. It's five-year compound annual growth rate ("CAGR") in earnings per share was a very strong 27.2% (actually 5.75 years starting full-year 2016 ending LTM 9/30/21). It's Price/LTM EPS is 57x. Investors must be expecting much faster earnings growth to earn the valuation this bank currently enjoys. Average digital currency customer deposits were $11.2 billion at September 30, 2021. Silvergate also facilitates payments between crypto exchanges via its Silvergate Exchange Network, or SEN. It's current performance for the LTM ended September 30, 2021 was a 0.78% ROA and 10.04% ROE, which doesn't merit the valuation, so growth and greater profitability must be what investors see. Here is Silvergate CEO Alan Lane after third quarter earnings announcement on CNBC. Give Silvergate credit, they picked a niche and are executing on it to the delight of investors. Crypto is blazing hot!

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

MetroCity Bankshares, Inc., and it's banking subsidiary Metro City Bank are headquartered in Atlanta. The bank was founded in 2006 and operates 19 full-service branch locations in multi-ethnic communities in Alabama, Florida, Georgia, New York, New Jersey, Texas and Virginia. Quite the geographic expanse, but not uncommon for ethnic banks. What is unique is, after reviewing the management team and board, there are people of Korean, Malaysian, Indian, and Chinese descent in leadership positions. At least that is what I can tell from the bios. The bank has grown over $1 billion in assets over the last twelve months, from $1.7 billion at September 30, 2020 to $2.8 billion at September 30, 2021. This was fueled mainly with loan growth. No acquisitions during this period. MCBS, with a market cap of $705 million, and LTM revenues (net interest income plus fee income) of $125.5 million, trades at 5.6x revenues. And it had an eye popping LTM ROA of 2.49% and ROE of 21.3%. We see these numbers from heavy SBA or, more recently, heavy residential mortgage producers. And for sure, MCBS is both, but it looks like they have been booking their residential mortgages, showing no YTD gain on sale from their residential mortgage loan production. Given that residential mortgages make up 73% of their loan portfolio, and their yield on loans was 5.16%, it makes me think they do a significant volume of non-conforming loans. But still, they have delivered a five-year total return of 439%! Well done!

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

Triumph Bancorp, and it's subsidiary TBK Bank, SSB were founded in Dallas, Texas in 1981 and provides commercial and consumer banking products focused on meeting client needs in Texas, Colorado, Kansas, New Mexico, Iowa and Illinois. Triumph also serves a national client base with carrier payment solutions through TriumphPay, invoice factoring through Advance Business Capital LLC d/b/a Triumph Business Capital, insurance through Triumph Insurance Group, Inc. and equipment lending and asset based lending through Triumph Commercial Finance. Phew! Needless to say, they have diverse revenue streams and geographies, which produced a LTM net interest margin of 6.35%, driving an ROA/ROE of 1.98% / 15.42%. Profit numbers were aided by an allowance recapture. You would think such a margin would come with higher non-performing assets to total assets but no, as NPAs/Assets were 30 basis points at September 30th. The bank has nearly doubled in size in the past five years, aided by three whole-bank and one multi-branch acquisition. But during that span they delivered a 375% total return to shareholders. Wow!

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

After being conspicuously absent from prior JFB Top Fives, LOB makes it's second showing in a row.  It has been an industry darling due to its dedication to technology experimentation. It was the brain child for the nCino platform, which it formed in 2012 and spun off in 2014. Live Oak was founded in 2007 to provide business loans, primarily Small Business Administration (SBA) guaranteed loans, to select industries, like dentists and veterinarians. Live Oak is now the largest SBA 7(a) lender in the United States. They opened in 2007! But it goes beyond traditional banking. Subsidiaries, in addition to the bank, include: Live Oak Private Wealth, LLC, a registered investment advisor; Canapi Advisors, LLC that provides investment advisory services to new funds focused on providing venture capital to new and emerging fintechs; Live Oak Ventures, Inc. that invests in businesses that align with the company's focus on fintech; Government Loan Solutions, Inc., a management and technology consulting firm that engages in the settlement accounting, and securitization process for SBA and USDA guaranteed loans; and, get this, Live Oak Grove, LLC, which is their on-site restaurant for employees in Wilmington, North Carolina. It's five year total return: 371%! Well done!

#5. SVB Financial Group (Nasdaq: SIVB)

SVB Financial Group, formerly Silicon Valley Financial Group is the parent company of Silicon Valley Bank, long considered a go-to bank for startups. At $191 billion in total assets, SVB remains the largest financial institution to ever break into the Top 5 Total Return to Shareholders. It's going to be difficult to describe what they do in summary. But here I go. They are a diversified financial services company that operates through four segments: Global Commercial Bank, which provides traditional banking services plus some not so traditional like mezzanine lending, acquisition, finance, and corporate working capital facilities, foreign exchange, export/import and standby letters of credit, vineyard development loans, and on and on I could go. SVB Private Bank segment offers traditional private banking and wealth services. The SVB Capital segment provides venture capital investment services that manage funds on behalf of third party limited partner investors. SVB Leerink segment engages in capital markets activities, M&A, and investment banking services. SVB operates through 30 offices in the USA, Canada, UK, Israel, Germany, Denmark, India, Hong Kong, and China. It was founded in 1983. It's largest acquisition in the last five years was Boston Private Holdings, but it has been active in its other segments, including the acquisition of Leerink. It has a LTM ROA of 1.50%, and an ROE of 19.91%. Even at it's relatively large size and battling the law of large numbers, SVB remains known for it's niche in the venture capital and founders space. It's not easy to fight "general bank", but they seem to be doing it. And delivered a 296% five-year total return!  Nice!

There you have it! The JFB Top 5 all stars. As in all prior years, no SIFI banks on the list. Increasingly on the list, though, are niche financial institutions that are making strategic bets that are being rewarded by their shareholders in the form of higher valuations. In fact, all on the list are niche financial institutions. #Instructive

Congratulations to all of the above that developed a specific strategy and is clearly executing well. Your shareholders have been rewarded!

~ 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.

And please consider reading my book: Squared Away-How Can Bankers Succeed as Economic First Responders. 

Ten percent of author royalties go to K9sForWarriors.org, who work to bring down the suicide rate among our veterans. 

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