Financial Health Grades Updated from 2018 Q2 FDIC and NCUA Reports

The FDIC and NCUA recently released their reports of the second quarter health of the institutions they insure. They also released the 2018 Second Quarter Call Reports of all the insured institutions. We use these reports to derive our financial health grades for each institution. We have finished importing this data, and all of the health grades for banks and credit unions have been updated to reflect the June 30, 2018 reports.

You can view the latest health ratings of your bank or credit union in our Bank Health Ratings page. This page also has a table of banks and credit unions ranked by Texas ratio, a standard financial health metric.

2018 Rankings of the Largest Banks and Credit Unions

In addition to the health grades, you can view how the banks and credit unions have changed in size in our table of the Largest Banks and Credit Unions by Assets. By default, the institutions are ranked by assets. Click on the column title and you can sort by total branches, number of states with branches, number of employees and number of customer accounts. Chase Bank continues to be the largest bank based on assets. As of June 30th, total assets were $2.17 trillion, which is up by only 0.72% from last year. Navy Federal continues to be the largest credit union with total assets of $91.79 billion, up 10.62% from last year.

FDIC 2018 Q2 Report

The headline for the banking sector was that profits were up a record $60.2 billion for Q2. According to the FDIC, the “improvement in earnings was attributable to higher net interest income and a lower effective tax rate.” Here are a few of the noteworthy highlights from the FDIC press release on its Q2 report:

• Quarterly net income totaled $60.2 billion for the second quarter, up $12.1 billion (25.1 percent) from a year ago.
• Margins Increased as Average Yields Outpaced Growth in Funding Costs: Net interest income was $134.1 billion in the second quarter, up $10.7 billion (8.7 percent) from a year ago, the largest annual dollar increase ever reported by the industry.
• Loan and lease balances increased by $104.3 billion (1.1 percent) from the first quarter of 2018, as all major loan categories registered growth.
• The FDIC’s Problem Bank List shows a decline from 92 to 82 banks during the quarter, the lowest number since the fourth quarter of 2007. Total assets of problem banks declined from $56.4 billion in the first quarter to $54.4 billion.
• The Deposit Insurance Fund (DIF) balance rose by $2.5 billion during the second quarter, to $97.6 billion on June 30, driven by assessment income. The DIF reserve ratio of 1.33 percent rose from 1.30 percent at the end of the last quarter. Estimated insured deposits increased by 0.3 percent from the previous quarter and 4.5 percent from a year ago.
• The FDIC insures deposits at the nation’s banks and savings associations, 5,542 as of June 30, 2018. (down from 5,607 from the previous quarter)

The FDIC also published this statistics at a glance document which provides a useful summary of the bank industry’s financials for both Q2 2018 and Q2 2017. The loan-to-deposit ratio increased from 80.28% in Q2 2017 to 80.56% in Q2 2018. This is also an increase from the previous quarter when the ratio was 79.56%. In the last quarter, loans increased 1.08% while deposits declined 0.18%. This should put upward pressure on deposit rates.

FDIC’s “Problem Bank” List

The number of "problem banks" continues to fall. According to the FDIC, the number of banks on the FDIC's "Problem List" fell from 92 in the last quarter to 82. In recent times, that number peaked at 888 in Q1 of 2011.

Total assets of problem banks declined slightly from $56.4 billion to $54.4 billion. This is much different than the asset change from Q4 of 2017 to Q1 of 2018 when total assets of problem banks had a large increase, rising from $13.9 billion to $56.4 billion. The large increase made it easy to identify the bank that was placed on the problem list. The WSJ had determined that the likely bank was Deutsche Bank Trust Company Americas, which currently has assets of $43.4 billion.

The FDIC doesn't name any of these problem banks. Calculated Risk Blog has an unofficial list of 82 problem banks based on public enforcement actions. When I reported on the FDIC’s 2018 Q1 report in June, the unofficial problem bank number was 92. You can also see the potential problem banks in our Texas Ratio table which ranks banks and credit unions based on the Texas Ratio, a standard financial health metric.

So far in 2018, no banks have failed. The last bank failure occurred on December 15, 2017. If we end 2018 without a bank failure, that would be the first year free of bank failures since 2006. Please refer to this FDIC page for a listing of bank failures.

NCUA 2018 Q2 Report

Here are a few of the noteworthy excerpts from the 2018 Q2 Credit Union Data Summary:

• Total assets in federally insured credit unions rose by $79 billion, or 5.8 percent, over the year ending in the second quarter of 2018, to $1.43 trillion.
• Total loans outstanding increased $89 billion, or 9.8 percent, over the year to $1.0 trillion. The average outstanding loan balance in the second quarter of 2018 was $15,226, up $611, or 4.2 percent, from one year earlier.
• Insured shares and deposits rose $56 billion, or 5.2 percent, over the four quarters ending in the second quarter of 2018, to $1.13 trillion.
• The loan-to-share ratio stood at 83.0 percent in the second quarter of 2018, up from 79.7 percent in the second quarter of 2017.
• The number of federally insured credit unions declined to 5,480 in the second quarter of 2018, from 5,696 in the second quarter of 2017. In the second quarter of 2018, there were 3,444 federal credit unions and 2,036 federally insured, state-chartered credit unions. The year-over-year decline is consistent with long-running industry consolidation trends.
• Consistent with long-running trends, credit unions with assets of at least $1 billion reported the strongest growth in loans, membership, and net worth over the year ending in the second quarter of 2018. Credit unions with less than $100 million in assets reported declines in loans, membership, and net worth over the year.

One thing to note from the NCUA report is that the loan-to-share (deposit) ratio had a large increase for the year (from 79.7% to 83.0%). The loan-to-share ratio also had a substantial increase for the quarter (from 80.8% to 83.0%). Like the banks, the loan-to-share (deposit) ratio increased for both the year and the quarter. When loans rise more than deposits, banks and credit unions should be under more pressure to attract deposits to fund loans. That should put upward pressure on deposit rates.

Large Credit Unions Remain Healthy Except for Melrose

Just like the FDIC report, the NCUA report doesn’t mention any credit unions that are not well-capitalized. One interesting thing in the report was the financial performance review based on size of the credit unions. The large credit unions continue to be financially strong while the small credit unions continue to be weak. The largest number of credit unions have assets between $10 million and $50 million. Here’s an excerpt from the report on their Q2 performance:

The number of federally insured credit unions with assets of at least $10 million but less than $50 million declined to 1,731 in the second quarter of 2018 from 1,813 in the second quarter of 2017. These credit unions held $43.4 billion in assets, or 3 percent of total system assets. Credit unions in this category reported a 0.7 percent decline in loans. Membership declined 6.3 percent. Net worth declined 1.4 percent.

The second quarter was actually worse than the first quarter for these small credit unions. In the first quarter, credit unions in this category “reported a 0.1 percent decline in loans. Membership declined 5.0 percent. Net worth declined 1.1 percent.”

In contrast, the largest credit unions are very healthy and are growing:

The number of federally insured credit unions with assets of at least $1 billion increased to 302 in the second quarter of 2018 from 282 in the second quarter of 2017. These 302 credit unions held $926.2 billion in assets, or 65 percent of total system assets. Credit unions in this category reported loan growth of 13.7 percent. Membership rose 9.6 percent. Net worth increased 11.9 percent.

The second quarter was better than the first quarter for these large credit unions. In the first quarter, credit unions in this category “reported loan growth of 13.5 percent. Membership rose 9.1 percent. Net worth increased 11.5 percent.”

The improvement of financial health of the large credit unions took place even with the troubles of Melrose Credit Union which was finally liquidated in the third quarter (on August 31). In the first quarter of 2017, Melrose was placed into a conservatorship under the NCUA. The credit union was wrecked by its large exposure to New York City taxi medallion loans. The NYC taxi industry has been weakened considerably by mobile app ridesharing services like Uber. Melrose was the largest retail credit union to enter liquidation. At the time of liquidation, it had approximately $1.1 billion in assets. Its size had fallen considerably in the last four years. In 2014, it had more than $2 billion in assets.

Unlike banks which haven’t had one bank failure in 2018, several credit unions in addition to Melrose have failed this year. So far this year, five credit unions have been liquidated and two credit unions have been placed into NCUA conservatorship. Please refer to this NCUA page for a listing of the 2018 liquidations and conservatorships.