Consumer Debt Increases at Community Banks

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Total loans and leases grew 4.6% at the nation’s banks during the 12 month period ending September 30, 2019. While Commercial and Industrial loan growth led the way at an annual rate of 6.3%, consumer loans (including credit cards) were not far behind, growing $89 billion (5.3%) during the 12 months. Credit card loans account for roughly half of the total.

At the end of the third quarter, credit card loans at the nation’s banks totaled $893 billion. Of those:

  • 1.4% are 30-89 days past due;
  • 1.4% more are 90 days or more past due (and still accruing); and
  • 3.9% were charged-off.

That is the largest charge-off rate, by far, of any loan category. Second place goes to “other loans to individuals” in which 0.9% were charged-off.

Community bank loan growth outpaced that at  noncommunity banks both quarterly and annually as nearly three-quarters of community banks reported higher year-over-year loan balances.

At the end of the third quarter, loans to consumers at community banks totaled $66 billion (an increase of 4% from the previous year). While only $2.1 billion are credit card loans, as the vast majority of credit cards are issued by Big Banks, credit card loans did increase nearly 17% over September 2018. Of those:

  • 2.5% are 30-89 days past due;
  • 1.2% more are 90 days or more past due (and still accruing); and
  • 5.9% were charged-off.

Unlike big banks, though, credit card loans at community banks represent just 3.2% of consumer loans. So, instead of breaking out credit cards from consumer loans on page 7, we are focusing this week on community banks with the most growth in total consumer loans.

The fist bank listed, 5-Star FinWise Bank, Murray, UT, does not report any credit card loans at all. Its nearly $30 million in consumer loans consist of $0.5 million in auto loans and a  small fraction of revolving credit lines, but no credit cards. The rest of its consumer loans are classified as “other loans to individuals”. Yet, those “other” loans grew over 200% in 12 months, dwarfing its 59% total loan and total assets asset growth over the same period.

At 5-Star Axiom Bank, N.A., Maitland, FL, number 4 on the list, total assets grew just 5% over the 12 month period; total loans and leases actually dropped. Conversely, its consumer loans over the time-frame, grew by more than 80%. A closer look Axiom Bank’s financials reveals a bank divesting in certain types of loans and reconfiguring its portfolio.

Axiom seems to be steering away from real estate and construction loans, in particular, in favor of agriculture and consumer loans. It is part of a longer term structure change. In 2017, Axiom Bank (formerly known as Urban Trust Bank) changed its structure from a Federal Savings Bank to a National Bank.

Like most of the banks listed on page 7, FinWise Bank and Axiom Bank made conscious decisions to change their lending operations. And, like most of the banks listed, their financial conditions are holding up very well: FinWise Bank has been recommended by Bauer (rated 5-Stars or 4-Stars) for 25 consecutive quarters and Axiom Bank for 24.

That’s not the case for all of them. 1-Star Liberty Bank, Salt Lake City, UT,  has been losing money for years. In the past year, Liberty Bank’s real estate loans more than halved while consumer loans grew 40%. Unlike other banks that are forging their own future, Liberty Bank has been operating under FDIC enforcement actions for years. The bank is actually doing a little better than it was a year ago, but at a cost. Its assets are less than $10 million and continue to drop. Only time will tell if will be able to pull itself up.

While this week’s list focuses on banks with high consumer loans growth, next week we will turn our attention to consumer loan  delinquency rates and which banks are of potential concern due to consumer loans.

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