Welcome Back. While you were out enjoying feasts and football, our staff was pouring over third quarter bank data from the FDIC. Successfully, we might add. All new bank star-ratings can be found both in JRN and at bauerfinancial.com.
The percent of recommended banks (those rated 5-stars or 4-stars) was virtually unchanged from June data, but that doesn’t begin to tell the story behind the numbers. For today’s purposes, the story begins at 20th Street and Constitution Avenue NW in Washington DC. That’s the address of the Federal Reserve.
The Federal Reserve has increased borrowing costs by 3.75% since March... and it’s not done yet. That’s good news for bankers. They are earning more on loans than they have in the past two years, and that is reflected in a net interest margin (NIM) of 3.14%.
This marks:
- A 35 basis point increase from second quarter;
- A 58 basis point increase from a year ago; and
- The first time since Q1’2020 the NIM has exceeded 3%.
That’s all great news for the industry. (Although, the industry NIM does remain below its pre-pandemic level of 3.25%.)
Another piece of good news came in the form of profits. Third quarter profit of $71.7 billion was up 11.3% from second quarter and 3.2% from a year ago.
And, three new banks opened their doors for the first time during the third quarter. They are:
3½-Star Bank of Burlington, VT is the 12th bank that calls Vermont home, although 13 others operate in the state. It opened its doors in early August and by September 30th had total assets of $38.4 million and total capital of $30.7 million.
3½-Star GS&L Municipal Bank, Gouverneur, NY, a subsidiary of 5-Star Gouverneur S&LA just opened in mid-September. Its sole purpose will be to gather municipal deposits. It will not have any retail operations.
Another with less than a month in operation, 3½-Star Texas Traditions Bank, Katy, TX boasts $37.4 million in assets and $33 million in capital. We welcome them all into the fold.
We will dig deeper into the specifics of this new data over the coming weeks, but for today, we have one more piece of good news to share. We have officially passed the 2-year mark with no bank failures! The last time we had a failure-free stretch like this (31 months actually) was from July 2004 through January 2007. We are up to 25 months now.
Can we keep it going? The 49 banks listed on page 7 are all rated 2-Stars or below and therefore relegated to Bauer’s Troubled and Problematic Bank Report based on September 30th, 2022 financial data. These banks, one in particular, will be the test.
The one we are referring to is Zero-Star First Savanna SB, IL. You may recall we reported on First Savanna SB last quarter as well (JRN 39:33). And, for the same reason. At June 30th, First Savanna had a Leverage capital ratio (CR) of 3.67% and a Bauer’s Adjusted CR of 1.49%. At September 30th, those were both down to: 2.59% and 1.01%, respectively.
That’s a far cry from the 5.5% leverage CR required by an enforcement action issued by the FDIC in August 2021. A merger agreement with 5-Star Citizens State Bank, Lena, IL, scheduled for later this month, should keep our failure-free streak intact.
First Savanna is one of just five U.S. banks with assets totaling less than $10 million. It has not been an easy road for these micro banks. In fact, you can find three of the five on page 7. (The other two are 2-Star Wabash SB, Mount Carmel, IL and 2-Star Farmers and Merchants Bank, Axtell, NE. Both are considered well-capitalized by regulatory PCA standards; First Savanna SB is Significantly-undercapitalized by those same standards.)
Only one other page 7 bank falls below PCA’s “Adequately-Capitalized” designation: 1-Star Bank of Bearden, AR with a leverage CR of 3.88% is considered “undercapitalized”.
While the remaining banks on page 7 are consider “Well” or “Adequately” Capitalized by PCA standards, they do not pass Bauer’s tests. Zero-Star Transact Bank, N.A., Denver, CO, with a leverage CR of 13.6% and a pristine loan portfolio with no delinquencies, is one such bank. Not only has Transact Bank failed to post a profit in over 5 years, it has also been operating under supervisory enforcement actions since 2016. From the latest action (dated 3/30/21), “The Bank did not achieve full compliance with the 2016 Agreement...The Bank failed to adhere to the 2019 Supervisory Condition.”
Says us, “It still isn’t looking very good.”