The FDIC reports the percent of loans that are 30 days or more past due or in nonaccrual status (PDNA) has decreased to 1.50%.
However, certain portfolios are bucking that trend and are well above the pre-pandemic average of 1.94%.
This week we list 52 banks with high delinquencies and low loan loss coverage; it marks the second time in the last 12 months that we have had to tighten our criteria to cut down the count to fit on page 5 of our Jumbo Rate News newsletter.
Banks Have Their Own Loan Worries
Last week we reported on credit unions’ struggles with loan quality, but they’re not alone. Today we follow up with banks that are also struggling with their loan portfolios.
According to the FDIC’s Quarterly Banking Profile for the Q2’2025, the percent of loans that are 30 days or more past due or in nonaccrual status (PDNA), decreased to 1.50%. However, certain portfolios bucking that trend and are well above the pre-pandemic average of 1.94%.
Credit cards still have the highest PDNA at 2.98%, but improving. This ratio was over 3% both last quarter and a year ago. When combined with “other” loans to individuals, which currently have a PDNA of 2.27%, the PDNA for all consumer loans is 2.68% (lower than last quarter, higher than a year ago). Home equity loans have the second highest PDNA at 2.15%; these portfolios improved over the quarter and over the year.
In addition to being rated 3½-Stars or less by Bauer, the banks listed on page 5 each reported either a) a Bauer’s adjusted capital ratio below 2% or b) a combination of a nonperforming assets to average tangible assets (not to loans as above) greater than 3.5% + loan loss allowances sufficient to cover less than 35% of their delinquent loans.
This marks the second time in the last 12 months that we have had to tighten our criteria to cut down the count. In January (JRN 42:04, based on September 30, 2024 data) we changed one variable; the non-performing assets as a percent of average tangible assets ratio (NPA/TA) increased from > 2.5% to > 3.4%. This time, we increased this ratio again to > 3.5% and we also lowered the loan loss coverage ratio - from 60% all the way down to 35% - to get our list down to 52 banks.
Because we changed our criteria, several banks were omitted from page 5 without exhibiting any significant improvement over three quarters ago (the last time we published this list). Much has transpired in the interim.
For example, 3½-Star First Secure B&TC, Palos Hills, IL (22536) reported a NPA/TA ratio of 3.49% based on September 30, 2024 data. During the fourth quarter 2024, delinquent loans increased by nearly a third bringing its NPA/TA up to 4.68%. Delinquent loans have since subsided “somewhat” and its NPA/TA now sits at 3.44%. Its total PDNA (which includes short-term past due loans) is nearly double that at 6.49%.
Another, 3½-Star MRV Banks, Sainte Genevieve, MO, (58619) was removed from the list for an entirely different reason. Its loan loss reserves are enough to cover under 50% of its delinquent loans. MVR Banks’ NPA/TA of 5.03% is quite high as is its PDNA of 7.92%. However, with a leverage capital ratio (CR) of 12.71% and a Bauer’s Adjusted CR of 8.09%, it should be able to handle that readily.
Other banks did improve off the list, and would have even if we had not changed our criteria. They include:
3½-Star Summit State Bank, Santa Rosa, CA (32203), which has been working for the past year and half to beef-up its reserves. Allowances for loan losses dropped to under 50% of delinquent loans, but its persistence has paid off. The coverage ratio is now above 140%. Its NPA/TA was well over 3% for three quarters last year but has been dropping steadily in the latest three quarters. It is currently at 1.32%. That is a job well done.
4-Star Colonial Savings F.A., Fort Worth, TX (31361) reported improvement all around resulting in a 4-Star Rating. Its leverage CR is 14.56%, and its Bauer’s adjusted CR is just slightly lower at 14.36%. Like many of us, Colonial Savings ran into a rough patch in 2020, struggling with both profitability and loan quality. It took a couple of years, but those troubles seem to be firmly behind it now. Another job well done.
Many banks did come off of page 5, yet more have been added. Oklahoma is still over-represented with 4.6% of all Sooner State banks listed on page 5. Illinois & Oklahoma each have eight banks on page 5, but that represents just 2.4% of Illinois’ banks.
3½-Star First Southern Bank, Florence, AL(29332), a $652 million bank with ten branch offices (one each in Arkansas and Mississippi; two in Florida and six in Alabama) is one new addition. First Southern Bank has an Agriculture Specialization with roughly one-third of its loan portfolio tied up in either farmland or equipment or other farm needs.
Nonaccrual farmland loans represent 29% of all nonaccruals while nonaccrual “other” loans (which includes other loans to farmers) represents another 50%. Almost all of its nonperformers were performing well a year ago. First Southern Bank’s NPA/TA was 0% at year-end 2023; three quarters later it had risen to 0.28%; and today it is at 4.62%.
Reserves have moved the opposite direction. A year ago, loan loss reserves were sufficient to cover 400% of delinquent loans. With the swelling of delinquencies, that coverage ratio is now just 18.6%.
Another new addition to page 5 is 3½-Star First Bank Texas, Weatherford, TX (5575), a $1 billion asset commercial lending specialist with 14 branch offices throughout Texas. The loan portfolios differ, but the pattern is very similar to First Southern. Over the last 12 months loan quality deterioration brought its NPA/TA up and its reserve ratio down.
