This week we tackle several topics, from the year's first bank failure to the president's nominee to replace Jay Powell at the helm of the Federal Reserve.

We go on to elaborate on the difference between monetary Doves and monetary Hawks, where this new nominee stands, and how the differing points of view can help or hinder the overall economy as well as individual bank net interest margins (NIM).

Community banks, in particular, must maneuver carefully when we are in a changing rate environment. We have listed 50 community banks with the highest NIM, proving it can be done.

Jumbo Rate News JRN 43:06

Hawks, Doves and Other Predators

We have a lot to unpack this week, beginning with the first bank failure of ’26 (and the first in six months). On Friday, January 30th, regulators closed Metropolitan Capital Bank & Trust, Chicago, IL (57488), a $261 million asset community bank.

Established in 2005, MetCap Bank, as it was often called, specialized in commercial lending. Commercial and Industrial loans comprised over 80% of its loan portfolio. In 2024, those loans began to sour. Then, the contagion really caught on.

Between March 31, 2024 and June 30, 2025, MetCap Bank’s delinquent loans went from $320,000 to $18.3 million. As a result, its Bauer’s Adjusted Capital Ratio dropped to negative (-2.7%) and its Texas Ratio jumped to 172%. Both dire signs.

Soon after that, the bank began posting losses and quickly found itself undercapitalized. The writing was on the wall. About $12.5 million of its delinquent loans were charged off in the third quarter 2025 when the bank posted a huge quarterly loss ($9.415 million) bringing its year-to-date loss to $10.8 million.

MetCap Bank’s net worth fell from over $18 million at 9/30/2024 to just $4.2 million at 9/30/2025. That means the $9.4 million loss was well over half of its net worth a year ago and well over 200% higher than its third quarter 2025 net worth. Crazy.

Most of MetCap Bank’s assets and all of its deposits were assumed by 5-Star First Independence Bank, Detroit, MI (20179). The FDIC estimated the cost of this resolution at $19.7 million.

Next up is Kevin Warsh, President Trump’s nominee to replace Jay Powell as the Chairman of the Federal Reserve (JRN 42:48). If confirmed, Warsh would take the helm when Powell’s term ends (5/15/2026). Typically, that would be the end of Powell at the Fed.

These are not typical times, however. Although he would no longer be chairman, Powell’s term as a Fed Governor runs for two more years. He has the option to stay and, with the independence of the Federal Reserve seemingly in the crosshairs, some Fed watchers believe he may stick around to defend it (should the need arise).

Kevin Warsh is highly intelligent and very vocal. He has been fiercely critical of Powell while currying favor with the President. We suspect this may have as much to do with wanting the nomination as with his underlying views, but that’s just a guess. In actuality, we don’t really know what to expect from Warsh if and when he is confirmed.

In 2011, Warsh resigned from a position on the Board of Governors. While scheduled to serve until 2018, quantitative easing and the Fed’s burgeoning balance sheet drove him away. It will be a difficult task, but he looks forward to reducing that balance sheet as Chairman.

That is not one of the mandates of the Fed’s Open Market Committee (FOMC), however. Ben Bernanke, the Fed Chair at the time Warsh resigned, was a monetary Dove. He was in favor of easy money (lower interest rates) and was often referred to as “Helicopter Ben” for “throwing money from a helicopter” to keep the economy running.

Warsh, by contrast, has been considered a monetary Hawk—preferring tighter monetary policy (higher interest rates) to keep inflation in check. In our humble opinion, the Fed Chair should be neither a Hawk nor a Dove. He (or she) shouldn’t be a flying bird at all, but should be grounded in the data and make decisions accordingly.

Sometimes hawklike maneuvers are needed to keep inflation in check and maximize employment. At other times a dovelike stance on monetary policy is needed to accomplish those same goals, which are the two mandates of the FOMC.

We expect some Dove action in the near future as lower interest rates are in the forecast. (Although, Fed. Governor Lisa Cook spoke hawkishly at an event in Miami last week. She clearly wants to see inflation come down more before interest rates are cut.) That brings us to our next, and final, topic for today: the perpetual balancing act that banks must perform with net interest margins (NIM).

Page 5 contains the 50 “community banks” with the highest net interest margins in the country. By limiting our list to community banks, we eliminate credit card banks (which always have much higher NIMs), as well as the biggest banks (which don’t typically have the highest NIMs, but benefit from large scale operations).

Even eliminating these sectors, one bank clearly stands out with a 125% NIM! We last reported on 4-Star TBO Bank, Orrick, MO (10597) in March 2025 (JRN 42:13). TBO Bank has no credit cards or other revolving credit plans, yet 75% of its loans go to consumers. As we noted last March, TBO Bank had previously been accused of predatory lending. However, by offering personal loans instead of credit card loans, the bank can legally skirt disclosure requirements that are required for credit cards. Buyer beware, but...

On the opposite side of that coin, the bank is offering a 6-Month personal CD with an APY of 4.15% ($500 minimum). That’s higher than anything we have listed for corporate depositors in Jumbo Rate News. Right or wrong, it is made possible because of the high interest earned on consumer loans.