Achieving a ratio at the top of your peer group is easier said than done. And yet, most banks are turning in credible ROAs these days. Reviewing call report data, BankBeat found 27 banks in the region that topped 2.5 percent pre-tax. We narrowed our research to banks with more than $50 million in assets, but fewer than $1 billion. We used year-end 2024 numbers.  

We spoke with leaders at six of these banks to glean some knowledge about what they are doing to earn these impressive numbers. This is what they said:

There aren’t a lot of people in Aurora County, S.D. — just 2,747 according to the latest Census. There are way more cows — nearly 40,000 — and buying and selling them at a time of record high prices has been good for cattle ranchers and the bank that supports them.

“We’re running pretty hot …,” said Charles Christensen, president of Farmers and Merchants State Bank, of Plankinton, S.D. “Loan demand is strong. There are a lot of cattle feeders in our area.”

Farmers and Merchants, with both the headquarters and its lone branch in Aurora County, had $160 million in assets at year-end 2024 and posted an ROA of 2.63 percent. Christensen teased that “we’re doing a little bit better so far in 2025.” (Cattle prices have steadily climbed this year). 

Farmers and Merchants handles commercial and consumer loans. But this is ag country, both for ranching and farming. Christensen had just finished speaking with a farmer who was well diversified, with 1,000 acres of corn, 800 acres of soybeans, 500 acres of wheat, 200 acres in alfalfa and the rest as grass land to feed cows. That totals 2,500 acres, a sizable farm to be sure, but typical to the area. Cattle feeders run to 6,000 or 7,000 acres, sometimes more. Land prices have been on a long upward trend, so that helps support loans.

The bank also finances farm equipment and strives to stay competitive with equipment lender AgDirect. Luckily for this sector, tractors and combines have not fallen into the zero-percent rut that auto financing has found itself in.

Cattle loans are typically short term. The bank either creates a new loan for a subsequent borrowing, or extends the maturity on an existing loan. Either way, the interest rate may change. And the paperwork? 

“There’s a lot of paper pushing,” Christensen said. Fortunately, he said the bank tends to “run pretty lean” on efficiency. At the close of Q1, the bank’s efficiency ratio was 41.50 percent, with almost $12 million in assets per employee. 

Patience proves to be a virtue for Iowa bank

It’s been a long time coming — a very long time — but finally all those loans that State Central Bank made during the Great Recession of 2008-09 have flipped from under-performers to performers. The result is that this $52 million bank, in Bonaparte, Iowa (population 357) has posted an ROA of 4.5 percent.  

Dan Logan, president and CEO of State Central, said the bank got roughed up by a lot of participation loans. It jumped into commercial real estate and found itself taking part in multi-family projects in Florida, some 1,400 miles from its home turf in southeast Iowa. There were loans in Utah, loans in Washington, D.C. There was a loan to a dredging company working on canals in the Florida Keys.

“I don’t think I saw a dime off that one,” Logan said. When appraisals got marked down from full value by 50 percent, well, tough times came to State Central. They closed offices and departed Keokuk, the Mississippi River town that is the hub for this corner of Iowa. 

State Central worked with borrowers. Logan said they got tangled up with a condo project in Sarasota that was left unfinished but they worked with the broker and he even remembers some dealings with Home Depot to get the project completed. 

“We have stayed with our customers, and almost went broke doing it,” Logan said.

State Central is one of the oldest family-owned businesses in the United States. It was chartered in 1858 in Keokuk and since 1890 has been owned by the Logan family. Dan Logan is the fifth generation.

The Florida housing market is nowhere near the train wreck of 2008-09, but nowadays State Central is not inclined to have any part of it. Or any far-off loan, for that matter. 

“We’re staying local this time,” Logan said. “We stay with people we know.” 

The bank believes in small business and visits borrowers. It has moved back into Keokuk. It still does long-term business loans, in the 20-year range although Logan said “we like to do 15 years if we can.” 

Loans are typically interest-only until the project is built out. They carry no penalty for early payoff. The trick now, Logan said, will be to keep that ROA up with today’s loans. 

Lots of opportunity under Montana’s big sky

Freedom Bank operates in a small town in a big valley tucked into a great big state. The Columbia Falls, Mont., bank with assets of $139 million, specializes in small business loans, seeing them as an opportunity to fill a space that President Don Bennett thinks big banks overlook.

Small business would make sense as there aren’t any categorically big businesses, per se, in Freedom Bank’s 5,000-population home town (a 1,500-employee aluminum smelter closed in 2015). There are lots of small businesses, though, with many catering to the tourism industry. The timber industry and aluminum have given way to tourism — Columbia Falls is almost at the doorstep of the entrance to Glacier National Park. The Flathead River that runs along the south and east edge of town is known for “excellent fly fishing,” and the town has an outsized number of motels, and bed and breakfast inns that serve anglers and park visitors. 

So Freedom Bank works with people and businesses tied to tourism and the general economy. Landscapers, small manufacturers, rain gutter installers and even lawn mowing services will be heard out.

“There’s nothing too small that we won´t take a look at,” said bank CEO Don Bennett.

Most of the loans are at variable rates. If they are fixed, Bennett said they typically reset after three years. Loans typically are made only to local businesses, although in the past Bennett said they have teamed up with other Montana banks for loans elsewhere in the state. There are 115,000 people in Flathead County, where the bank operates, so there are enough people, and businesses, to keep loan officers busy. There seems to be as much paperwork involved with a small loan as a big one. To make the process more efficient, Freedom uses a software package that Bennett personally designed around the time he founded the bank in 2005. The entire process is automated. Bennett calls this AMP loans, for Advanced Management Platform. It’s proprietary, although he said he has sold it to a few other banks elsewhere in the country.

Freedom Bank´s ROA for 2024 came in at 2.65 percent. Through June of this year it has risen slightly, to 2.72. 

Bennett said good management of the net interest margin (5.76 percent at the end of Q1) has helped support the ROA. 

Minneapolis bank at center of national mortgage network

A lot of companies claim they are unique — maybe in their service, or product, or the way they pay attention to customers. Luminate Bank, in Minneapolis, may actually live up to that boast by CEO Marc Campbell due to its concentration on home loans in Minnesota and across the country. 

In 2024 Luminate, one of dozens of banks that have crowded into the Twin Cities, originated $3.5 billion of mortgage loans. They’ve done this by way of mortgage loan production offices in at least 21 states that feed loans to Minneapolis.

“We’re a relatively small bank with a big fee income generator,” said Campbell of the fees that come off all that mortgage lending.

Luminate has plenty of originators in Sun Belt states like Arizona and Florida, but it also hasn’t overlooked opportunities that lie in Kansas, or Delaware. The bank has a very experienced leadership team on its mortgage side, Campbell said.

Luminate covers the mortgage waterfront, with conventional loans and jumbos, refis, non Q-M, renovation and construction, and even reverse mortgages. 

Campbell said Luminate — “We’re everywhere you need us to be” — takes some time during the loan process to try to coax those borrowers in Kokomo and Houston into signing on as customers of the bank. It has seen success, with assets topping the $400 million mark at mid-year after a start to 2025 at $335 million.

Its ROA has floated upward alongside the other growth areas and at year-end stood at 3.35 percent.

Luminate offers construction loans, which it keeps on its books. They’ll do an occasional portfolio loan, Campbell said. And they also work in the C&I and CRE spaces. Single family mortgages have an outsized presence, however. And with many states still lacking a Luminate loan office, that may be the spot where Campbell said “there are still opportunities for us.”

Nebraska bank stayed short on bonds, leaving funds for lending

Sometimes you just have to stand pat on your hand. When you’re dealt lousy cards, bide your time and maybe the other guy will come up with a crummier hand.

Heritage Bank in Wood River, Neb., basically stood pat on its money in 2021 and 2022, and did not buy long-term, low-yielding Treasury Bonds. Some banks were doing that at the time, as loan demand was slow and they wanted to put their cash to work if only for a small, yet safe, return. A 10-year Treasury bond sold at the start of 2021 carried a coupon rate of 0.91 percent.

“We didn’t buy five or 10-year bonds,” said Cam Moyer, president of the $580 million bank in central Nebraska. Moyer said they figured the rate was so low it just wasn’t worth tying it up for any length of time. 

Heritage Bank´s ROA was very low at the time, because they were just sitting on cash. At 2.95 percent today, its ROA is a completely different story. Interest rates have risen, and once loan demand perked up they’ve found they have the money to loan out at 7 percent.

“That’s the gist of it,” Moyer said. “We’re not doing anything special… We were not buying three-year bonds at 25 bps.”

Moyer is proud to say Heritage Bank doesn’t have any low-yield bonds on its books. Banks that bought them are now stuck with them, Moyer reasoned, unless they want to take a hit on an early cashout. Absent that, they have tied up money that could otherwise be loaned out at today’s better rates. 

Heritage Bank covers a lot of territory in central and south central Nebraska. Its branch at Broken Bow is 156 miles from its branch at Norfolk. In between are a lot of farms, ranches and feedlots, so the bank plays to its strong suit of ag lending. Here, Moyer said loan demand is up a bit. Cattle prices are hitting new highs every month, although corn (it is the Cornhusker State, after all) and soybeans are under pressure. But the bank has the money to loan, and isn’t tied down to those bonds. It works very efficiently, said Moyer, which plays into the solid ROA.

Loyal customers fuel North Dakota bank’s strong financials

Covid, in a roundabout way, takes a big share of the credit for the 2.72 ROA that the First State Bank of Golva has reported to the FDIC. Or maybe post-Covid, but in any case it showed the $107 million bank that the mutual loyalty between it and its customers has been beneficial. 

Dee Ann Baertsch, president of the bank in far western North Dakota, explained that she was presented with a problem in 2022 when interest rates began to rise. Indeed, the Federal Funds rate that started January of 2022 at 0.08 percent had climbed to 1.68 percent by July. By year’s end, it had spiked to 4.10 percent. (It topped out at 5.33 percent in December, 2023, and has backed off a bit to now stand at 4.33 percent). 

This surge in interest rates led banks to raise their savings rates — a lot. Almost overnight it became common to see CD rates offered at 5 percent, maybe 5.5 percent. And these rates were being advertised nationally, as electronic banking had taken hold and deposit-hungry banks in Florida and Texas were soliciting new accounts from New Jersey and Illinois, and North Dakota. So customers of First State Bank could easily move their money to any of these high-CD banks, which sometimes offered bonuses if the new customer opened a checking account and set up an auto deposit program.

First State Bank didn’t get into the high-rate CD game. And it found that its customers didn’t run after them elsewhere.

“They were sticky,” Baertsch said of First State Bank clients. “They didn’t leave…,

“They could have chased those high CDs. They didn’t.”

So First State Bank maintained its asset base, and had cash on hand to loan when demand picked up. Their net interest margin runs around 4.0 percent, which bolsters that ROA. They have three branches in two of the sparsest counties in the nation — 2,855 people spread across 2,155 square miles. With Golva counting just 85 inhabitants, First State Bank may be able to claim their headquarters city as the smallest in the country to host a bank. But those inhabitants are loyal.

“We’re a small local ag bank,” Baertsch said. “We have a strong local base.”

Full Article