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A list of Banks with Double-Trouble nonperforming loans is featured on page 7 - immediate download just $25.
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As promised, this week we have provided a list of U.S. banks that deserve scrutiny for their high levels of nonperforming loans and/or their insufficient levels of loan loss reserves.
Bauer has always adhered to the belief that measuring delinquent loans and the level of reserves a bank has to cover those loans is an extremely useful tool when evaluating a bank’s financial strength and future viability. Bauer’s Double-Trouble Nonperforming Bank Loan List does that quite nicely. It measures the combination:
Trouble #1: In typical times, nonperforming assets should represent less than 2% of assets. In good times they should represent less than 1%. After peaking at 3.4% in 2009, the banking industry’s nonperforming asset ratio has been continuously declining and is currently under 1% (0.96%).
That’s great for the industry, but it’s an industry average. The banks on page 7 all have more than 8% of their tangible assets nonperforming (excluding those with government guarantees).
Trouble #2: In addition to these high levels of nonperforming assets, loan loss reserves at all but three of the banks on page 7 represent less than 50% of delinquent loans. (The 3 don’t currently have any delinquent loans, but have high repossessed real estate numbers.) Generally speaking, to cover a worst-case scenario, Bauer likes to see enough reserves to cover 100% of delinquent loans.
There were 54 banks that fell into this “Double-Trouble” classification based on March 31, 2016 financial data; those rated 2-Stars or below are listed on page 7. Two that would have been on this list failed during the quarter: First CornerStone Bank, King of Prussia, PA and Trust Company Bank, Memphis, TN. Both were rated Zero-stars for several quarters prior to their failures.
Those rated 3-Stars or better have capital cushions large enough to absorb the shock of breakdown in their loan portfolios; that’s why they were omitted from this list. On the other hand, a negative Bauer’s Adjusted CR indicates the bank would be in deep doo-doo in a worst-case scenario.
The chart below compares the first quarter 2016 (blue) with the first quarters of 2015, 2013 and 2011 (gold). (This data comes from the FDIC’s Quarterly Banking Profile, which does not distinguish between government guaranteed or not.) Overall, you can see that the banking industry has improved considerably. Credit card banks, as we reported last week, are an exception. Yet, at 0.88%, credit card banks still have among the lowest overall delinquency and OREO rates.
With 1.84% of their assets either noncurrent or repossessed, mortgage lenders have shown the least improvement to date. Georgia was the hardest hit state during the recession; over 25% of its banks failed. Even so, over 30% of the banks listed on page 7 are headquartered in Georgia. Illinois is also represented abundantly on page 7; the Prairie State lost 10% of its banks to failure from 2008 through 2015.
View Sample of Bauer's Credit Union Director's report.