What Ranking 300 Banks Taught Me About Finding Winners & Losers

Here’s a question, do you remember when you learned that Santa Claus wasn’t real?

I don’t, but I can promise you that when it happened, I was probably not very happy about it. And I probably threw some kind of tantrum but then by next year I really only cared if there were still presents under the tree. Life is funny like that, the things we think are important at the time end up being inconsequential in the long run. Almost insignificant.

And what does that have to do with bank investing? Well, quite a bit actually.

A few years ago I built this thing called the Relative Growth Score (RGS). A mythical, magical screener that would bring gifts of bank stock alpha to those who believed in it, just like Santa. It looked at trailing revenue per share, earnings per share, and tangible book value per share growth over different time periods and ranked banks by who was on the nice list and who was on the naughty list. If your RGS was better than the rest, you got the presents. And if your RGS was worse than the rest, you got coal in your portfolio.

And for a long time, I thought this was true. But it isn’t, my version of Santa is not real. And if you read on, you’ll see the data behind this claim, but more importantly you’ll see that investing in banks can be far easier than it seems.

A quick note on how I did this. RGS ranks banks on how much revenue per share, EPS, and tangible book value per share grew over the prior three years, then averages the three rankings. Claude and I tested whether the highest-ranked banks performed better over the next one and three years by buying each bank equally and repeating the test every quarter. We used only numbers investors could have known at the time, waited at least 45 days after each reported quarter, included dividends, and left every valid extreme in. The test runs from March 2013 through March 2026, with 278 banks in the broad universe and about 240 with enough history for an RGS.

At the end of the post are the full double-checked results, you’re more than welcome to poke, prod, and run your own analysis on it.

Now onto the 6 truths, an M&A question, and some odds and ends. I personally think #6 is the biggest source of alpha in the space.

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The rest of this piece, and the sortable rankings, are in the Terminal.

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