Introduction

New CU Star-Ratings + Is There a Soft Landing in Sight?

New CU Star-Ratings + Is There a Soft Landing in Sight?

All credit union and bank star-ratings and reports are now updated based on third quarter 2023 financial data.

After the failures this spring of Silicon Valley Bank, Signature Bank and First Republic Bank, a number of big bank deposits made their way to credit unions and there is also evidence that some of those deposits headed to community  banks.

In fact, the 51 community banks listed on page 5 of this week's Jumbo Rate News each reported more than 35% year-over-year growth in deposits and more than 35% year-over-year growth in loans.

New CU Star-Ratings + Is There a Soft Landing in Sight?

All credit union and bank star-ratings and reports are now updated based on third quarter 2023 financial data. Total assets at federally–insured credit unions increased 3.7% over the 12 months ending Sept. 30th. The majority of that growth was in the form of loans, which increased $132 billion, or 9%, over the year to $1.59 trillion.

Total shares and deposits rose by just 0.9% (or $16.1 billion) even after an influx of bank deposits earlier in the year. Regular shares decreased by over 13% as members took advantage of higher certificate (CD) rates. Share certificate deposits increased 72% over the year. Wow!

This is our last issue of 2023 and we want to leave it on a positive note, but there are some worrisome details lurking in the credit union data that we just can’t ignore. For one, annualized net income for the first nine months of 2023 was 10.3% lower than that of 2022. In and of itself, that doesn’t concern us.

This is where it gets tricky. Interest expense increased by 228% ($20.1 billion), whereas interest income was up 41.4% ($27.9 billion). That is not sustainable, even if loans are performing perfectly. They’re not.

Delinquent loans increased almost 50% during the 12 months ending September 30th; charge-offs increased over 100%. Delinquency and charge-off rates were both  pretty low a year ago, so there is that. Also, the aggregate credit union capital ratio, at 10.73% (13 basis points higher than a year ago) gives them (as a whole) a nice cushion to fall back on if and when the need arises.

Jay Powell and the Federal Reserve held the Fed Funds rate steady between 5.25% and 5.50% again at its meeting this week. That’s three  meetings in a row with no change. What’s more, new predictions indicate that the Fed Funds rate will soon begin to come down and will end 2024 in the 4.25%-5.00% range.

With the help of Taylor Swift and Elon Musk, Powell and his team may be able to pull off an elusive soft landing in the coming year. We shall see. In the meantime:

Now, as we mentioned in the second paragraph, after Silicon Valley Bank and Signature Bank failed last March, and then First Republic in May, a number of bank deposits made their way to credit unions. We don’t yet know if they will stay there.

(We are determined to end the year on a high note.) The 51 community banks listed on page 5 each reported more than 35% year-over-year growth in deposits and more than 35% year-over-year growth in loans.

They are all established banks (opened prior to 2017) and the vast majority have impressive net interest margins (NIM) even when compared to the 3.30% national average (NIM is included on the chart too). In addition, most of the banks listed are recommended by Bauer (rated either 5-Stars or 4-Stars). And, while some of the banks grew via acquisition, that was not the case for all of them. Since Texas and Illinois dominate the list, we will take a look at one bank from each.

5-Star Freedom Bank, Alamo, TX was established in 1958 as  First State Bank, Freer, Texas. In 1974 the bank merged and took on the name Brush Country Bank, which in 2019 became what we now know as Freedom Bank. The original office in Freer still exists but the bank is now headquartered in Alamo, on the southern border in the Rio Grande Valley. Freedom Bank also maintains offices in McAllen and San Diego, TX.

Expectations were high when the bank took on this new name, and the aim was to grow.

Grow it did. At the end of 2019, Freedom Bank had total assets of just $48.148 million, deposits of $40.743 million and loans totaling $25.358 million. In the years since, it has taken off, even in the midst of the pandemic.

In the 12 months ending September 30, 2023 alone, Freedom Bank saw its assets grow by 34.34%, while those of its peers grew by just 2.35%. It’s no wonder that its loan and deposit growth made this list.

Freedom Bank has not sacrificed quality for growth. It beats its peers by every measure.

Established in 2007, 4-Star Millennium Bank, Des Plaines, IL is one of the newer banks listed on page 5. It is also one of just five Minority Depository Banks headquartered in the Prairie State. Millennium Bank’s relationship style banking and service to minorities and other underserved customers has spurred asset growth to the tune of  31.54% over the past 12 months.

Total loans grew more than 43% during the period and while some of those loans are not the prettiest, they’re not the ugliest either, and the bank has a very nice capital cushion… just in case. Deposits at Millennium increased 38.6% during those same 12 months.

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