Bank Health in the COVID-19 Pandemic - Updates from 2021 Q1 Data

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In the last month, the FDIC and NCUA released their reports of the first quarter health of the institutions they insure. They also released the 2021 First Quarter Call Reports of all 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 Mach 31, 2021 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.

Details of the Q1 industry performance are available from the FDIC Quarterly Banking Profile page and from the NCUA Quarterly Data Summary Reports page.

Bank Financial Health in the COVID-19 Pandemic

Banks were able to make it through 2020 in a much better condition than had been feared when the pandemic first hit. It looks likely that 2021 won’t be nearly as bad for banks as the period after the Great Recession in 2009 and 2010. Government money from stimulus checks and unemployment checks kept most consumers from defaulting on their loans, and the government’s small-business support (via the Paycheck Protection Program) helped both businesses and banks, especially small banks.

At the start of the pandemic, banks built up their loan loss reserves in anticipation of higher loan defaults. That negatively impacted profits. Now the opposite is occuring. The wave of defaults did not occur, and banks are forecasting an improving economy which eliminates the need for those high levels of loan loss reserves. The reduction of loan loss reserves helped the banking industry record positive earnings for the quarter.

The main problem banks have now is low net interest margin which is caused by having too many deposits and too few loans. The FDIC press release described the record low:

The average net interest margin contracted 57 basis points from a year ago to 2.56 percent—the lowest level on record for the Quarterly Banking Profile.

Since the start of the pandemic, record deposit growth was driven by record personal savings rate. Every month since March 2020, the personal savings rate has ranged from 12.9% to 33.7%. Before the pandemic, there have only been three months in the last 30 years in which the personal savings rate had exceeded 10%.

While deposit growth has been surging, loan balances have actually declined. The FDIC press release attributed the decline to credit cards and commercial and industrial loans:

Total loan and lease balances contracted $38.7 billion (0.4 percent) from the previous quarter. A reduction in credit card balances (down 7.4 percent) drove the quarterly decline in loan volume.

Compared with the year ago quarter, total loan and lease balances declined $136.3 billion (1.2 percent). This was the first annual contraction in loan and lease volume reported by the banking industry since third quarter 2011. Reduced commercial and industrial (C&I) loan (down 12.8 percent) and credit card balances (down 3.7 percent) drove the annual decline in loan volume.

In addition to driving down net interest margins, the surging deposits and declining loan balances have contributed to the record low deposit rates. I often look at the loan-to-deposit ratio as a barometer on deposit rates. The higher it is, the more banks need deposits which puts upward pressure on deposit rates. The lower it is, the demand for deposits declines, and banks have little reason to offer competitive rates to attract or maintain deposits. From the FDIC’s quarterly deposit and loan balance data for the banking industry, I generated the following table which shows how much the industry’s loan-to-deposit ratio has declined.

Bank Industry Loan-to-Deposit Ratio History

Credit Union Financial Health in the COVID-19 Pandemic

Overall, credit unions have fared a little better than banks. Loan balances haven’t declined and the loan-to-share ratio (equivalent to banks’ loan-to-deposit ratio) is higher. The following are excerpts from the NCUA Q1 Credit Union Data Summary:

Total loans outstanding increased $49 billion, or 4.4 percent, over the year to $1.17 trillion. The average outstanding loan balance in the first quarter of 2021 was $16,157, up $282, or 1.8 percent, from one year earlier.

The loan-to-share ratio stood at 68.8 percent in the first quarter of 2021, down from 81.1 percent in the first quarter of 2020.

Bank and Credit Union Failures

According to the FDIC Failed Bank List, no banks have failed this year as of June 23, 2021. Only four banks failed in 2020. As a comparison, after the 2008 Financial Crisis, 140 banks failed in 2009 and 157 failed in 2010.

According to the NCUA Conservatorships and Liquidations List, one credit union was liquidated this year as of June 23, 2021. Four have been placed into conservatorship this year. One of those four was the liquidated credit union. The other three remain active. In a conservatorship, the NCUA takes over the management of the credit union with the goal of resolving the issues. If the issues cannot be resolved, the NCUA will either arrange for a merger of the conserved credit union into a healthy credit union or liquidate the credit union. In 2020, only one credit union was liquidated and only one was placed into conservatorship. The credit union that was placed into conservatorship remains active.

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 March 31, 2021, total assets were $3.208 trillion, which is up 16.10% from last year. Navy Federal continues to be the largest credit union. Total assets as of March 31st were $144.5 billion, up 13.07% from a year ago. Navy Federal is way ahead of other credit unions in size. The second largest is State Employees' Credit Union in North Carolina with total assets of $49.6 billion. In 2020, BECU grew past PenFed to take the #3 spot. BECU now has assets of $28.2 billion. PenFed remains in the #4 spot with assets of $27.3 billion.

Related Pages: bank health ratings

Comments
kcfield
  |     |   Comment #1
Ken, Weiss ratings paints a much less favorable picture of several of the financial institutions rated as "best" by Deposit Accounts: Weiss has downgraded Collingsville Building and Loan Association to a "C" rating. First Federal of Van Wert is rated "B-," National Bank of NYC is rated "C," and Volunteer State Bank is rated "B." I recommend going forward that you cross-reference your draft "best institution" list against Weiss Ratings and list only those institutions to which Weiss and DA have both given an "A" rating.  For example, both DA and Weiss give California Lithuanian Credit Union an "A" rating. Alternatively, since some variance is expected, you could eliminate institutions where there is a full letter grade or more difference between Weiss and DA.
Choice
  |     |   Comment #2
And any purported conflicts with/by rating services are, if any,…?
milty
  |     |   Comment #3
Just wondering, regarding declining loans vs surging deposits and considering the rising cost and overbidding for housing is it possible that Fed's purchasing of mortgage and commercial loans is affecting this?
P_D
  |     |   Comment #4
The Fed has been buying agency mortgage backed securities every month. That's part of their strategy to keep rates low. To the extent mortgage rates stay low, it increases demand for real estate because more buyers qualify to buy property at lower mortgage rates so demand for real estate rises. So yes, the Fed's agency MBS purchases are one reason real estate valuations are up. I'm not sure I would call it "overbidding." Real estate prices are up because demand for real estate is up relative to the supply.
P_D
  |     |   Comment #5
More... loans outstanding are declining because there are more cash buyers in the real estate market using the newly borrowed funny money the government is pulling out of thin air and handing out like candy. It's new money that wasn't in the money supply before. So it not only reduces the demand for loans, but it inflates the price of everything including real estate.

Personal story.  My cousin was bidding on a house in the Poconos for his daughter to move into last week.  They thought they had it and were offering a high down payment.  Then a cash buyer swooped in at the last second and scooped it up. It's a story that you hear a lot these days because the country is flooded with cash.
milty
  |     |   Comment #6
I don't know. I find it hard to believe that the stimulus money on an individual basis would result in that individual suddenly having enough to pay cash for a house. I have read about companies buying up residential but don't know if it's widespread. (Having bought a few houses in my lifetime, as a buyer I don't relish being in a seller's market.) Anyway, what i was wondering, if a bank gives someone a mortgage and then later that mortgage is bought by the Fed does that skew the load/deposit ratio?
P_D
  |     |   Comment #7
There was a lot more to the stimulus payments than just money paid to individuals. Businesses, including real estate businesses received a ton of the borrowed cash too. I know a few of them. Developers and flippers both large and small received subsidies so they are flush with the funny cash to buy properties and are crowding out individual buyers. It’s inflation. The handouts paid for with money that didn’t exist is one of the main reasons housing prices are skyrocketing.

The Fed buying agency MBS would increase the loans outstanding because it lowers rates. But that is offset by the cash buyers in the market who are doing deals such as the one I described with my cousin. If my cousin had purchased the house, a bank would have had another loan. When the cash buyer buys it, there is no loan. So that is an example of one less loan in your loan/deposit ratio. I suspect the net effect of these factors would be to decrease the loan/deposit ratio which is what is being observed. But without a study I don’t know if you can pinpoint which factors are most responsible for those results.

Another major factor driving real estate demand is pent up demand after the pandemic and people coming into the market after fleeing certain cities and states to escape skyrocketing crime, high taxes and gross government mismanagement. No doubt this is a major factor as well.  That would also suggest that relative increases in real estate valuations are regional which I think is also supported by the current data.
#8 - This comment has been removed for violating our comment policy.
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