The largest banks in the United States demonstrated that there is no singular approach to achieving profitability in the financial sector last year. As smaller banks focused on attracting low-cost deposits and managing expenses, institutions with assets exceeding $50 billion leveraged a variety of strategies to bolster their revenue streams, according to a report by the consulting firm Capital Performance Group.
While smaller banks typically rely on spread-based business models, they face challenges as their balance sheets grow and competition for loans intensifies. Claude Hanley, a founder and partner at Capital Performance Group, stated that these institutions often compensate for shrinking margins by expanding their fee-based services. “When you get big, you’re going to have a different model,” he noted, highlighting the need for larger banks to diversify their income sources.
Among the 37 banks evaluated, the top ten increased their ratio of noninterest income to average assets by 19 basis points in 2023, while the average increase across all peers was just one basis point. The rankings were based on the three-year average return on average equity, utilizing data from year-end 2024.
Successful Models Across the Board
The top performers on the list varied greatly, from traditional lenders in Texas to global wealth management firms. This diversity illustrates that there are multiple avenues to success. For instance, JPMorgan Chase, which is significantly larger than many banks within its asset tier, managed to achieve record profits in 2024, largely due to fees generated from investment banking.
In contrast, Raymond James, which secured the second position, capitalized on its wealth management services rather than traditional banking operations. While it does offer loans and operate branches, these activities contribute minimally to its overall revenue. The company’s ratio of noninterest income to average assets stood at 13.77%, vastly surpassing the median of 1.12% for its asset tier.
Another example is East West Bancorp, based in Pasadena, California, which predominantly serves Asian and Asian American markets. This bank’s targeted services helped it achieve a strong position, ranking third on the list. Last year, during a Lunar New Year campaign featuring certificates of deposit, East West successfully attracted deposits.
Mergers and Acquisitions as Growth Strategies
Mergers and acquisitions also played a crucial role in the financial performance of some banks. First Citizens BancShares topped the list for the second consecutive year, largely due to its acquisition of the failed Silicon Valley Bank in 2023. Such acquisitions can significantly enhance a bank’s size at a discounted cost, although they carry risks associated with rapid growth.
The North Carolina-based bank quadrupled in size over four years and continued to see growth in loans and deposits in 2024, albeit at a slower pace than the previous year. While its return on average equity soared to 63.92% in the year following the acquisition, First Citizens’ performance had stabilized, reflecting a more average standing in 2022 and 2024.
Meanwhile, UMB Financial made its top-10 debut this year after surpassing $50 billion in assets. The Missouri bank has cultivated a strong fee income business, particularly from its health savings account portfolio, which provides low-cost deposits and interchange revenue. UMB also experienced the highest growth in loans and core deposits among the top performers.
Despite a median asset size of $156 billion for the banks evaluated, the median size of the top ten was just $82 billion. Hanley reiterated that size alone does not guarantee superior performance, stating, “It’s not all about size. There’s always this sense that ‘We need to get bigger.’ Well, size alone isn’t a driver of top performance.”
Investors’ views on big banks’ financial performance also reflect a mixed landscape. In 2024, stock prices for many large banks increased, driven by optimism surrounding potential economic growth under the Trump administration. However, the stock performance did not consistently correlate with financial results. The median stock prices for the banks rose by 28%, while the top ten performers saw an increase of 30%.
Ultimately, the diverse strategies employed by major banks underscore that success in the financial sector is not confined to a single formula. As competition evolves and market dynamics shift, these institutions will continue to adapt, highlighting their unique strengths and approaches to profitability.
