The media seems obsessed with lists as readers are assaulted daily by top ten or best of articles spanning a number of different categories and industries. I recently found the web site for Bank Director.com, which publishes Bank Director magazine, a niche publication targeted to those involved with the banking industry. While examining the archives I came upon a list of America's Best Banks, which was the cover story in the fourth quarter of 2006.
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Since this article came out just prior to the start of the financial crisis and recession, I thought it would be an interesting exercise to see which banks were listed, and how they fared over the last five years.
The magazine covered the 150 largest banks and thrifts and used a number of different criteria to generate its ranking. These include profitability measures like return on average assets and return on average equity, as well as capitalization strength using Tier 1 capital and leverage ratios. The final criteria involved asset quality measures including nonperforming asset ratio and reserve coverage. (Find out how economic capital and regulatory capital affects risk management, check out How Do Banks Determine Risk?)
The Florida Condo Effect
The best banks prior to the financial crisis were a diverse set of institutions ranging from niche or regional players to large national banks. Corus Bankshares was ranked as the top bank and was clearly the biggest blunder as this institution was closed down by the government in late 2009. The bank specialized in condominium loans, and reported "strong profitability" in 2006. The magazine did note that the bank was continually plagued by investor concern about loan concentration in the Florida condo market.
Commerce Bankshares (Nasdaq:CBSH), Glacier Bancorp (Nasdaq:GBCI), City National Corp. (NYSE:CYN) and Park National Corp. (NYSE:PRK) were ranked two through five on the list. All have survived the last five years with varying degrees of damage.
Some of the damage was self inflicted as Park National decided that it wasn't growing fast enough and decided in early 2007 to purchase Vision Bancshares, an institution headquartered in Panama City, Florida. Park National has now been dealing with bad loans inherited here for more than four years, and has reported cumulative net losses from Vision Bancshares of approximately $220 million.
The magazine was also wrong on Synovus Financial Corp. (NYSE:SNV), which was the sixth best bank on the 2006 list. Synovus has struggled all through the financial crisis and while other banks have recovered, this stock is still down 90% from its peak price five years earlier.
The Right Call
The magazine did have some prescient calls. The best bank with assets over $100 billion was U.S. Bancorp (NYSE:USB), which was generally regarded as one of the healthier banks during the financial crisis. U.S. Bancorp also finished ninth on the overall list.
Bank Director Magazine was also dead right on NetBank, which finished last on the list. This bank was a product of the internet only bank mini craze of the mid to late 1990s and was closed by the government in late 2007. (Read Analyzing A Bank's Financial Statements.)
The Bottom Line
It's not fair to bash this magazine too badly as the list got most of the banks right. The rankings were also based mostly on a backward looking and static set of ratios and statistics. Also, no one could have predicted the depth of the financial crisis that was about to strike a fairly complacent industry. Investors should not rely too much on media reports that proclaim the top or best of as it is difficult to incorporate much in depth research into these lists.
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