According to the FDIC’s Quarterly Banking Profile, U.S. banks held their past due and nonaccrual loans steady during the third quarter 2025. But, that is as a group.

Not all U.S. banks are faring as well with loan performance. Today we look at the banks at the bottom of the curve, because Bauer doesn't rate on a curve.

We also have a list of 192 banks worthy of watching as a result of their loan performance available for immediate download. Buy Now

Loan Quality not Holding Steady at all Banks

As an industry, U.S. banks held their past due and nonaccrual loans steady during the third quarter 2025, at 1.49% of total loans. That is according to the FDIC’s Quarterly Banking Profile, which also reported that allowances for loan losses are not keeping pace with noncurrent loan balances.

In December (JRN 42:46), we dug deeper into loan quality by region, focusing heavily on consumer loans. This week we are taking a deeper dive into individual banks’ struggles with loan quality. You will find 50  such banks listed on page 5 of this week’s issue of Jumbo Rate News.

In addition to being rated 3½-Stars  (or less) by Bauer based on 9/30/2025 financial data, each of these 50 banks reported either a) a Bauer’s adjusted capital ratio below 2% at September 30th or b) a combination of a nonperforming assets to average tangible assets greater than 3.75% and loan loss allowances sufficient to cover less than 35% of their delinquent loans.

These criteria are in constant flux. In fact, this is the third time in 12 months that we have had to change our cutoffs to keep the list at a size small enough to fit on page 5.

For example, one year ago (JRN 42:04), we provided a list of 52 banks (four of which no longer exist) using similar criteria to today BUT, instead nonperforming assets of at least 3.75% of tangible assets, we used 3.4% and instead of allowances to delinquent loans of less than 35%, we used less than 60%. Today, that same criteria would have yielded 69 banks.

NPA to Tot. Assets >3.75% to >3.40% & Allow. to Delinq. < 35%  to < 60%

That’s a big change, so, we’re trying something new this time. There are 192 banks with a combination of: a) nonperforming assets exceeding 2% of tangible assets and b) sufficient reserves to cover less than half of reported delinquent loans. We have compiled these 192 banks into an excel spreadsheet along with hyperlinks to the banks (when available) and an additional column of data to let you know if any portion of the delinquent loans carry government guarantees.

This list of 192 Banks with Nonperforming Loans to Watch is also available for purchase now, but only for a limited time (immediate download) for just $45. Buy Now.

The 50 banks on page 5 range in size from  $3.330 million asset Zero-Star Kentland Federal Saving & Loan Assoc., Kentland, IN (28722) (the smallest bank currently in operation in the nation) all the way to 3-Star Flagstar Bank, N.A., Hicksville, NY (32541),  with assets of $91.6 billion.

Kentland Federal first appeared on Bauer’s Troubled and Problematic Bank Report with December 2022 financial data, when it dropped to a 2-Star rating.

Shortly after that, the OCC issued a consent order against Kentland. To date, Kentland Federal has not been able to right the ship. On the contrary, its loans deteriorated further. We can’t blame this one on the local economy; the other two community banks that operate in this small town are doing great (5-Star Kentland Bank, IN (13843) and 5-Star Fowler State Bank, Fowler, IN (1821)).

The largest bank on page 5, 3-Star Flagstar Bank, Hicksville, NY (32541), you may remember is the result of the 2022 combination of the former Flagstar Bank, MI and New York Community Bank, NY. This new Flagstar then went on to assume substantially all deposits and certain loan portfolios from Signature Bank, NY, one of the big bank failures in March 2023.

This beefed-up Flagstar Bank has not posted a quarterly profit since the third quarter 2023. By mid-2024, its loans were beginning to underperform and that continued through the third quarter 2025, at which time Flagstar made some important, life-altering, decisions.

In October 2025, changes were made to the corporate structure whereby Flagstar Financial, Inc., the holding company for Flagstar Bank, was merged into the bank and the bank became the new corporate identity.

Flagstar has scheduled an earnings call for the end of this month that may give some insight, but we won’t truly know to what degree the restructuring helped Flagstar until we see its year-end numbers firsthand.

At September 30th, almost half of Flagstar’s loans were in multifamily residential real estate; nearly 8% of them were in nonaccrual status. That helps explain why the New York region has nearly twice the national rate of noncurrent multifamily loans (2.05% compared to 1.09%).