All bank star-ratings are now updated in Jumbo Rate News and on our website (bauerfinancial.com); credit union star ratings and reports will be updated in early September.
We are pleasantly surprised at how well our Nation’s banks are holding up under the stress that COVID has wreaked. Six banks managed to climb out of the well of Troubled & Problematic Banks (i.e. rated 2-Stars or below) by earning a third star based on June 30th data.
Three others were removed because they were acquired. The first, ZERO-Star First National Bank of Vinita, OK was certainly no surprise. Not only had it failed to earn a single star for three consecutive quarters, it was operating under two OCC Enforcement Actions.
The first action was a Cease and Desist Order signed in July of 2020. The bank submitted a response in December, but it was not sufficient to appease the regulator. After much back and forth on the issues, much of which pertained to a high Commercial Real Estate (CRE) loan concentration and delinquencies, (its delinquency to asset ratio was 4.09% at year-end then 4.64% at March 31), the OCC remained skeptical.
So skeptical, in fact, that a PCA (Prompt Corrective Action) was ordered in January of 2021 requiring the bank to hire a forensic auditor to look at its books going back to 2015. That was it. In February, First NB&TC of Vinita entered into an agreement to be acquired by 5-Star BancFirst, Oklahoma City, OK. The transaction was finalized on May 1st.
The next is also a case of a community bank finding it necessary to merge into a multi-billion dollar non-community bank. However, at 2-Stars, First NB of Tahoka, TX was not nearly as desperate to sell. It was established in 1907 in the small town south of Lubbock. After 114 years, it still operated through a single location in the South Plains of Texas; total assets were just $58 million.
FNB of Tahoka merged on June 4th into 5-Star Happy State Bank, Happy, TX. Happy State Bank likes to think of itself as a family-oriented community bank. Boasting $6.2 billion in total assets and operating 61 branches in 45 Texas communities, that may be a stretch. What is clear is that FNB’s customers will benefit from products and services that they had no access to prior to the merger.
The third T&P bank lost to merger also hailed from Texas. 2-Star Business Bank of Texas, Austin was the only one of the three to find another community bank with which to merge: 5-Star Lone Star Capital Bank, N.A., San Antonio, TX. Established in 2007, right before the housing collapse, Business Bank of Texas had a tough road from the start.
Established in 1999, Lone Star is a 22 year-old bank. This was its third acquisition in that time. When Business Bank of Texas got hit with its second enforcement action in October 2020, the two community banks found each other. A match made in the Lone Star State. The merger was completed on May 1st.
That’s the story of the banks that disappeared from Bauer’s Troubled & Problematic Banks list this quarter. The total number of banks now relegated to that list is now down to 59 after these three new additions were made:
Delinquencies jumped significantly at Texico State Bank, from 0.24% of assets at March 31st to 1.21% at June 30th. Its quarterly loss of $157,000, when annualized is more than its entire net worth. Texico is also operating under an enforcement action.
With a leverage capital ratio of just 6.4%, BancCentral is only “Adequately Capitalized” by regulatory standards. It’s delinquency to asset ratio exceeds 4% and it lost $5.6 million in the second quarter.
In spite of these two new additions, the number of banks rated 2-stars or below has been declining steadily. The 58 currently represent just 1.2% of the industry and less than 0.1% of industry assets.
The number of 5-Star banks dropped this quarter to 3,740 but still represents 76% of the industry and over 60% of industry assets. Recommended banks (those rated either 5-stars or 4-stars) rose for the fifth quarter in a row. So far, they are holding up well.