For a credit analyst writing a peer memo on community and regional banks, the decision is not just which bank has the lower efficiency ratio. The decision is whether a lower ratio reflects repeatable expense control, a stronger revenue base, or a denominator that moved for reasons that may not last.
Bottom line: within this Q4 2025 screen, Five Star Bank is the clearest expense-led improvement because expenses fell while the ratio improved. Hingham Institution for Savings, California Bank of Commerce, and Orrstown Bank look more revenue-led, while The Bank of Missouri and Bangor Savings Bank still need verification before anyone calls the improvement cost cutting.
This screen uses Q4 2025 public data in Deep Digital Ventures Banking to separate two questions: which banks improved their efficiency ratio, and whether the improvement appears to come from lower noninterest expense, faster operating revenue, or a mix change that needs more work before anyone gives management credit.
What the Efficiency Ratio Measures
The common bank efficiency ratio is noninterest expense divided by operating revenue. For a Call Report-based read, the numerator starts with the FFIEC Call Report[1] income statement line for total noninterest expense. The denominator usually starts with net interest income plus total noninterest income. Analysts then decide whether to exclude securities gains, securities losses, merger costs, amortization, or other non-core items, but that adjustment should be documented instead of hidden inside the ratio.
The timing matters. Schedule RI is the income statement schedule, and December 31 filings are year-to-date unless a data provider converts them into a quarter-only metric. The FDIC current-quarter Call Report forms and instructions page[2] listed March 2026 reporting forms and the most recent FFIEC 031, 041, and 051 instruction updates dated December 31, 2025. Use the same definition across all peers before ranking a bank.
A lower ratio is useful only after the driver is named. In this post, expense-led means the ratio improved while total noninterest expense declined. Revenue-led means the ratio improved while expense still grew modestly, so the denominator did most of the work. Needs review means expense growth was above 5%, the current ratio remained elevated, or the screen does not yet show enough evidence to credit management with durable cost discipline.
Methodology: how this screen was built
- Screening universe: U.S. banks in the Deep Digital Ventures Banking Q4 2025 public Call Report-derived dataset with roughly $3 billion to $7.5 billion in assets.
- Why these six: the table highlights banks in that asset band with large year-over-year efficiency-ratio improvement and enough variation in expense growth to separate expense-led from revenue-led cases.
- Formula: total noninterest expense divided by net interest income plus total noninterest income, using Schedule RI lines 7.e, 3, and 5.m.
- Period treatment: figures are presented as Q4 2025 screen values. Because December 31 Call Report income statement fields are year-to-date, treat the ratio as a year-to-date read unless your data provider has explicitly converted the fields into quarter-only values.
- Expense growth: year-over-year change in the same reported expense measure used in the screen.
- Exclusions: no securities gains or losses, merger costs, amortization, tax effects, or other non-core adjustments were excluded unless separately documented by the analyst.
- Field map for follow-up: use Schedule RI for income and expenses, RC-K for average balances, RC-C for loan mix, RC-E and RC-O for deposit detail, RC-N, RI-B, and RI-C for credit quality, and RC-R for capital context.
Examples From the Q4 2025 Screen
| Bank | State | Assets | Efficiency Q4 2025 | Efficiency Q4 2024 | Improvement | Expense growth | Classification |
|---|---|---|---|---|---|---|---|
| Hingham Institution for Savings | MA | $4.54B | 39.8% | 63.9% | 24.1 pts | 3.4% | Revenue-led |
| California Bank of Commerce, N.A. | CA | $4.03B | 52.5% | 73.0% | 20.6 pts | 3.4% | Revenue-led |
| Bangor Savings Bank | ME | $7.35B | 73.0% | 93.2% | 20.2 pts | 8.8% | Needs review |
| The Bank of Missouri | MO | $3.04B | 63.8% | 83.6% | 19.8 pts | 6.0% | Needs review |
| Five Star Bank | NY | $6.24B | 54.5% | 73.3% | 18.8 pts | -9.8% | Expense-led |
| Orrstown Bank | PA | $5.54B | 53.4% | 69.3% | 15.9 pts | 3.8% | Revenue-led |
Within this six-bank sample, Five Star Bank is the first cost-control candidate because the screen shows an 18.8 percentage-point efficiency improvement and -9.8% expense growth. That does not prove permanent cost reduction, but it tells the analyst where to start: confirm whether salaries, premises, and other noninterest expense lines support the drop.
Hingham Institution for Savings and California Bank of Commerce show larger ratio improvement than Five Star, but each also shows 3.4% expense growth. Orrstown Bank has the same basic pattern at 3.8% expense growth. That is not a problem by itself. It means the memo should test whether operating revenue grew faster than expense and whether average balances support recurring earning-asset growth rather than a one-period item.
Bangor Savings Bank improved by 20.2 percentage points, but its Q4 2025 ratio is still 73.0% in the screen and expense growth is 8.8%. The Bank of Missouri improved by 19.8 percentage points while expense grew 6.0%. Those rows should not be labeled cost cutting without a follow-up read of the revenue side. The practical question is whether each bank moved from a high expense base toward a normal peer range, or whether revenue got a temporary lift while the cost base kept rising.
Cost Cutting vs Revenue Growth
Use the peer comparison view first, then pull the public filing fields behind the ratio. A short workflow keeps the screen from becoming a headline list.
- Step 1: Rebuild the ratio from the same numerator and denominator used in the methodology box.
- Step 2: Split expense into salaries, premises, intangible-related costs, and other noninterest expense.
- Step 3: Split revenue into net interest income, total noninterest income, and any securities gains or losses if your ratio definition includes them.
- Step 4: Test repeatability against average balances, loan growth, deposit mix, charge-offs, allowances, and past-due loans.
- Step 5: Assign one label. If the expense evidence and revenue evidence point in different directions, leave the bank in needs review.
| Pattern in the screen | How to label it | What to verify before citing it |
|---|---|---|
| Efficiency ratio falls and expense growth is negative | Expense-led | Confirm the expense decline across the main noninterest expense components before calling it durable. |
| Efficiency ratio falls and expense growth is positive but modest | Revenue-led | Compare revenue growth with average balances to see whether the denominator improvement is recurring. |
| Efficiency ratio falls but the current ratio remains high | Needs review | Check whether the bank is improving from a weak base rather than operating near a stronger peer range. |
| Efficiency ratio falls while expense grows more than 5% | Needs review | Identify the revenue line that grew faster than total noninterest expense before giving management cost-credit. |
Related Diligence Checks
The efficiency ratio is not a sponsor-bank diligence tool by itself. If a bank is being reviewed for fintech partnership, CRE exposure, or a credit recommendation, pair the ratio with the 2023 interagency third-party risk guidance[4], FDIC FIL-45-2024 on bank arrangements with third parties[5], the interagency CRE concentration guidance[3], and public enforcement searches at the FDIC, OCC, and Federal Reserve[6][7][8]. Those checks belong after the ratio analysis, not inside the ratio.
What to Watch in the Next Quarter
- Refresh timing: FIL-10-2026 says March 31, 2026 Call Reports are due April 30, 2026 for most institutions, with May 5, 2026 for certain institutions with more than one foreign office, so do not update Q1 peer rankings before the relevant filings are available.
- Expense line movement: if total noninterest expense falls, confirm whether the change came from compensation, occupancy, intangible-related costs, or other operating expense.
- Revenue quality: if the denominator improved, check net interest income and total noninterest income before crediting management for expense discipline.
- Credit pressure: if revenue rose while past-due loans, charge-offs, or allowance data weakened, treat the ratio improvement as incomplete.
- Peer set discipline: rerun the screen against banks with similar asset size, business mix, geography, and balance-sheet growth before making a ranking claim.
- Related risk context: for sponsor-bank candidates or banks with visible CRE exposure, run the related diligence checks separately so the efficiency ratio does not carry more weight than it should.
Why This Screen Matters
An efficiency screen is a triage tool. It can surface banks where expense control may be real, such as a row with negative expense growth and a lower ratio. It can also surface banks where revenue grew faster than expense, which may be just as valuable if the revenue is recurring and supported by average balances, loan growth, deposits, and clean credit metrics.
The decision rule is simple: call it cost discipline only when the ratio improved and expense lines support the claim. Call it revenue-led improvement when expense still rose and the denominator did the work. Call it needs review when the ratio improved but the current ratio remains high, credit metrics are worsening, deposit mix is changing, or an enforcement search turns up a relevant public order.
FAQ
Are the Q4 figures quarter-only or year-to-date?
Treat December 31 Call Report income statement fields as year-to-date unless a data provider explicitly converts them into quarter-only values. That is why the methodology matters before comparing one screen with another.
How were these six banks selected?
They were selected from a Q4 2025 public Call Report-derived screen of banks in roughly the $3 billion to $7.5 billion asset range. The point is not to declare them the only improving banks; it is to show how similar ratio improvement can come from different drivers.
What does this screen exclude?
The screen does not make bank-specific adjustments for merger costs, securities gains or losses, amortization, tax effects, or other non-core items unless the analyst documents them separately. Those exclusions can change the interpretation for a single bank.
What can this screen not prove?
It cannot prove permanent cost reduction, management quality, sponsor-bank readiness, or credit strength. It can only point to where the analyst should rebuild the ratio, classify the driver, and decide whether the improvement is repeatable.
Sources
- FFIEC CDR public Call Report search and filing data: https://cdr.ffiec.gov/public/
- FDIC current-quarter Call Report forms, instructions, and related materials: https://www.fdic.gov/bank-financial-reports/current-quarter-call-report-forms-instructions-and-related-materials
- OCC Bulletin 2006-46, Interagency CRE Concentration Guidance: https://www.occ.treas.gov/news-issuances/bulletins/2006/bulletin-2006-46.html
- Federal Reserve SR 23-4, interagency guidance on third-party risk management: https://www.federalreserve.gov/supervisionreg/srletters/sr2304.htm
- FDIC FIL-45-2024, agency statement on bank arrangements with third parties to deliver deposit products and services: https://www.fdic.gov/news/financial-institution-letters/2024/agencies-issue-statement-bank-arrangements-third-parties
- FDIC enforcement orders database: https://orders.fdic.gov/s/
- OCC enforcement actions: https://www.occ.gov/topics/laws-and-regulations/enforcement-actions/
- Federal Reserve enforcement actions: https://www.federalreserve.gov/supervisionreg/enforcementactions.htm