U.S. bank stocks have been on a tear since the November presidential election. The KBW Nasdaq Bank Index is up 23% since that time, with investors expecting interest rates to rise, propelling bank profits, and for President-elect Donald Trump to ease regulation of the sector.
It has been a turbulent decade for the banking sector. Banks have mostly recovered from the late 2000s financial crisis after a multitude of asset write-downs, settlements and fines. There have been only 13 bank failures the past two years, compared to 297 during 2009 and 2010. “The banking industry is healthy. Across the board, banks are well-capitalized and credit quality is strong,” says Chris Vanderpool, Senior Analyst at S&P Global Market Intelligence. “Despite those things, loan growth has been sluggish and profit margins are compressed.”
To gauge the financial condition of the biggest banks, Forbes turned to S&P Global Market Intelligence, for data regarding growth, credit quality and profitability for the 100 largest banks and thrifts by assets. The result: America’s Best Banks 2017. The 10 metrics used in the rankings are based on regulatory filings through Sept. 30. The data is compliments of S&P Global Market Intelligence, but the rankings are done solely by Forbes (click here for a detailed methodology and a complete ranking of the 100 banks).
The No. 1-ranked bank this year is Los Angeles-based PacWest Bancorp, the holding company for Pacific Western Bank. The $21 billion-in-assets bank scores in the top 20 in eight of the 10 metrics we measured, including a 5.4% net interest margin, third-best among the 100 largest banks, and 1.6% return on average assets, which ranked fourth.
PacWest offers commercial banking services at 77 branches throughout the state of California. The firm also has one office in Durham, N.C., acquired in the fourth quarter of 2015 when PacWest bought 10-year-old Square 1 Financial for $815 million -- it focuses on lending to venture capital and private equity investors. The Square 1 purchase added $3.1 billion in assets and was the 28th acquisition for PacWest since it was founded in 1999.
PacWest’s stock is up 38% over the last 12 months, but it still trades at just 1.5 times its book value compared to an average of 2.1 times book for the rest of the banks ranked in the top 20.
Ontario, Calif.-based CVB Financial ranks second this year, down one spot from 2016. CVB is the holding company for Citizens Business Bank, which like PacWest is focused on the California market. CVB is the second smallest of the 100 largest banks with assets of $8 billion, but it is has been incredibly consistent with 158 straight quarters of profitability and 109 consecutive cash dividends.
CVB ranked in the top 10 in half of the 10 metrics we used to rate the banks, with its net chargeoffs as a percent of average loans second lowest in the country. CVB is expected to close its acquisition of Valley Commerce Bancorp in the first quarter, which will add more than $400 million in assets.
Rounding out the top five are Community Bank System, Western Alliance Bancorp and Glacier Bancorp.
The four biggest banks in the U.S. have a combined $8.5 trillion in assets, or nearly $4 trillion more than the combined total of the next 100 biggest banks and thrifts. Yet, none of the Big Four could crack the top 50 of America’s Best Banks thanks to low net interest margins, weak revenue growth and high levels of net charge-offs as a percent of loans. JPMorgan Chase was the best performer at No. 57, followed by Wells Fargo (No. 63) and Citigroup (No. 72).
Bank of America ranks No. 97. The $2.2 trillion-in-assets financial behemoth only ranked in the top half of banks on one of 10 metrics (risk-based capital ratio) and operating revenue was down over the past 12 months. “The metrics in this report are backward-looking and don’t reflect the current performance of Bank of America,” according to a BofA spokesperson.
Wells had the biggest drop of the Big Four, down 11 spots. The bank had a brutal year with revelations of a cross-selling scandal in which Wells’ sales staff created up to 2 million unauthorized consumer accounts in order to hit sales goals. Embattled CEO John Stumpf retired amidst the scandal after 10 years in charge of the country’s third biggest bank.