All New Star-Ratings & Data This Week
Bank Star-Ratings have all been updated based on December 31, 2019 financial data. (Credit Union Star Ratings will be out in the next week or two.) With these new ratings we are looking at the highest percent of Recommended Banks (i.e. rated 5-Stars or 4-Stars) and the lowest percent of Troubled and Problematic Banks (those rated 2-Stars or Below) in Bauer’s history. At the same time, it seems to be a tale of two groups of banks: Community Banks and Non-Community Banks.
For example, looking at the entire industry (5,177 banks), income for 2019 declined 1.5% from 2018 and fourth quarter income was down 6.9% from the fourth quarter of 2018. Net interest income made its first annual decline in over six years while noninterest expense (salaries and benefits) rose 3.2% from the fourth quarter 2018.
Arguably the most alarming aspect of the fourth quarter reports, was that net charge-offs rose $1.3 billion (over 10%) from year-end 2018. Commercial & Industrial (C&I) loans soured the most with an increase of 34.3% followed by credit card (CC) loans which registered a year-over-year increase in charge-offs of 5%.
When we remove the Big Banks from the mix, which represent fewer than 10% by number, we see that the Community Banks turn most of those negatives into positives. Quarterly net income at the nation’s 4,750 community banks was up 4.4% and income for the full year was up 7.5% from 2018. Higher operating revenue and greater realized gains on securities were credited as they more than made up for growth in noninterest expenses.
Loan sale revenue in particular, generated a good chunk of the noninterest income boosting that operating income. Growth in interest income was attributed to an increase in earning assets (more than 70% of community banks reported loan growth) as the net interest margin actually declined.
Net charge-offs increased at community banks (as they did for the industry), but the increase was a slight 3 basis points. C&I loan charge-offs led the rise for community banks, up 14 basis points (to 0.52%) from a year earlier; consumer loans followed with a 12 basis point rise (to 1.10%). (Big Banks make the lion’s share of C&I and CC loans.)
In spite of everything community banks have in their favor, every bank currently listed on BauerFinancial’s Troubled and Problematic Bank Report is a community bank. Twenty-four of them are listed on page 7. These banks are each rated 1-Star or below (and/or are less than Well-Capitalized by regulatory standards. One already failed on February 14th. Another 37 banks are rated 2-Stars based on year-end 2019 financial data but are not listed on page 7. They can all be found, with financial highlights, on BauerFinancial’s Troubled and Problematic Bank Report.
During 2019, the number of community banks declined by 230. Four of those were failures, the remainder were lost to mergers and acquisitions. Twelve new community banks joined the ranks in 2019. It’s still a trickle, but we are pleased to see the number of de novos is on the rise.