It’s been quite a year so far. And with so much going on, one very important change in bank reporting has gone largely unnoticed by the public and the media. In an effort to ease regulatory burden for well-capitalized community banks, a new reporting option is now available to many banks: CBLR.
In general, this Community Bank Leverage Ratio (CBLR) option is available to community banks with:
- A Leverage CR > 9% (temporarily lowered to 8% due to COVID-19, but will phase back up to 9%);
Total assets < $10 billion;
- Off-balance sheet exposure not more than 25% of total assets; &
- Trading assets and liabilities not more than 5% of total assets.
The idea is that these banks are more traditional community banks, in the business of lending and far less likely to get into trouble with risky assets. In principle, we agree.
Well-capitalized community banks were penalized along with Big Banks for the risky and careless lending that led to the housing bubble and the Great Recession of the 2000s. Logically speaking, if a bank does NOT engage in risky lending and is “Well-Capitalized”, it can be a waste of resources to require them to fill out the associated paperwork. (It is akin to requiring all tax payers to file all schedules, regardless of what deductions they are claiming.)
However, that also means that one of the ratios you are accustomed to seeing on our rate pages will no longer be available for these banks. You will simply see “N/A” in the Total Risk-based CR column.
We know there are over 1,500 community banks that have opted for CBLR reporting. To make things even more interesting: due to the disruption caused by COVID-19, banks were allowed an extra month to file their first quarter call reports. Almost 500 banks took advantage of the extra time, some of which could also be CBLR reporters.
We couldn’t list all 1,500 CBLR reporters on page 7 so we looked for those that would most likely impact you as a JRN subscriber. The 50 banks on page 7 have the highest dollar volume of Jumbo CDs on their books AND are CBLR reporters. Many you will recognize as JRN listees.
You can see on page 7 that almost all CBLR banks are recommended by Bauer (i.e. rated 5-Stars or 4-Stars). In fact, over 94% of the CBLR reporters fall into these top two tiers. Another 4% are rated 3½-Stars, also a good rating. And 1% are rated 3-Stars or Adequate.
That leaves eight, so far, that are relegated to Bauer’s Troubled and Problematic Bank Report. All eight are rated 2-Stars. Three are due to delinquent/nonperforming loans. But here is where we come to the part where we agree “in principle” with CBLR:
Five of the eight banks that elected CBLR reporting are operating under enforcement actions. Four out of the five actions are loaded with deficiencies in areas of recordkeeping and infer incompetent and/or incapable management. Bauer does not believe that any bank with questionable book-keeping or leadership should be allowed to avoid risk-weighted reporting.
The fifth is worse yet. 2-Star HomeBank of Arkansas, Portland, AR’s Consent Order requires specific minimum capital ratios, including risk-based capital ratios. This is a gaping hole in the CBLR rule that should be addressed. Until such time as it is, however, you can always rely on Bauer’s Star-Ratings.
The star ratings for most banks have been updated with March 31, 2020 data both on our website (bauerfinancial.com) and on our rate pages. The late filers are simply missing at this time and will return as soon as we have them evaluated, which we expect to be before month-end.
California Pacific Bank, San Francisco, CA was downgraded from 3½-Stars to 3-Stars and has, therefore, been dropped from our rate pages. While its capital ratios are quite high, its delinquency to asset ratio jumped to 9.6% in the first quarter. It will have to get a handle on its bad loans to get back up to 3½-Stars.