All Bauer bank star-ratings and reports are now updated with year-end 2023 financial data.
What we are paying particular attention to with this set of data is loan quality.
U.S. banks reported year/year increases in all nonperforming loan categories: delinquent loans (including all loans 90 days past due and those no longer accruing) and short-term (30-89 days past due).
All New Bank Star-Ratings and Data
All Bauer bank star-ratings and reports are now updated with year-end 2023 financial data. (Credit union ratings and data will be available by mid-March.)
What we are paying particular attention to with this set of data is loan quality. Total assets increased negligibly over the course of 2023; total loans increased slightly more, but still less than 2%. That is also a very low increase by historical standards (previous year growth was 8.7%). This phenomena is likely a combination of:
- Americans trying to limit spending;
- Banks tightening underwriting standards; and
- Higher interest rates curbing loan demand.
As a group, Americans are not good at limiting spending, so credit card balances still rose while other loans did not. U.S. banks reported an increase of more than 10% in credit card loan balances during 2023. At the same time, they reported an increase of more than 50% in both 90 days or more past due and those in nonaccrual status.
Expounding on last week’s article, 80% of 4-Star Discover Bank, DE’s loan portfolio is credit cards. During calendar 2023, those credit card loans grew by 13.5%. Credit card loans past due 90 days or longer (and still accruing) jumped 88% while nonaccruals increased 12%. On the bright side, credit cards reported as 30-89 days past due decreased by 25% at Discover Bank.
That deserves a pat on the back.
5-Star Capital One NA, VA’s credit card loans look slightly better than Discover Bank’s with 12.7% growth in balances. Capital One, while one of the nation’s top credit card lenders, has a much more diversified loan portfolio than Discover so the fact that credit cards 90 days or more past due grew 54% is not alarming. That is not reflective of Capital One’s overall loan portfolio.
(Please note: we are showing you these increases as an indication of the plight of the credit card holders, not to criticize the banks.)
The fact is, even with hefty increases in delinquent loans, Discover Bank still has a nonperforming asset ratio well below 2% (1.5%). Not great, but good. And, thanks to the diversity in its loan portfolio, Capital One’s nonperforming assets to total assets ratio is even better at 1.2%.
As an industry, however, U.S. banks reported year/year increases in all nonperforming loan categories: delinquent loans (including all loans 90 days past due and those no longer accruing) and short-term (30-89 days past due). As we predicted, the “modest” increases in loan quality last quarter (JRN 40:35) have become more robust.
Naturally, there are fluctuations based on the type of loan (as we just demonstrated) as well as on the location. We will delve into this further in the coming weeks.
We are quickly approaching the one year anniversary of “Bank Run 2023”, which claimed the likes of SVB (Silicon Valley Bank), Signature Bank and First Republic Bank. These banks represent the third, fourth and second largest bank failures, respectively, in FDIC history. (The largest was the failure of Washington Mutual in September 2008.)
Zero-Star Silvergate Bank, CA is still (barely) limping along as it continues to divest itself. Silvergate, once boasting assets exceeding $16 billion now has less than $270 million.
Silvergate is one of 54 banks rated 2-Stars or below based on December 31, 2023 financial data. (They can be found on page 5.) Eighteen banks have joined this list since the last time we published it in JRN (JRN 40:34). Thirteen others were removed. Of those, three no longer exist and ten are now rated 3-Stars.
Of the 18 newly added banks, three have multiple-billions in assets. As a result, in the past six months, the total amount of problem assets rose by 134% (JRN 40:34).
At least part of the increased number of banks rated 2-Stars or below has been caused by new (and valid) scrutiny by regulators over non-bank banking partners. A federally-insured bank is responsible for ensuring that any company it does business with is playing by regulatory rules and must have a detailed plan for orderly termination with such companies if and when the time comes. The latest to be slapped with an enforcement action for not doing either was 2-Star Lineage Bank, Franklin, TN. It was not the first, nor will it be the last.
Whether due to regulatory scrutiny or just common sense, some banks are now looking at creating their own fintechs rather than partnering. That would be difficult for a small bank like Lineage, which began relying on Fintechs during the pandemic. Fintechs allowed it to offer services it otherwise could not. But safety must be paramount, of course.
Arizona Gains a New Bank
Over the years, Arizona has been home to roughly 200 banks, but consolidation has not been kind to the Grand Canyon State. While scores of banks still choose to operate branches there, only 14 banks currently call Arizona home.
The 14th is a de novo bank, and the only new bank chartered in the fourth quarter. 3½-Star Zenith Bank & Trust, Scottsdale, AZ opened in October 2023 with $22 million in initial paid-in capital. Its mission: to serve Maricopa County as a community bank through a solitary office in Scottsdale. Welcome.
