Financial Health Grades Updated from 2018 Q3 FDIC and NCUA Reports

The FDIC and NCUA recently released their reports of the third quarter health of the institutions they insure. They also released the 2018 Third 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 September 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 September 30th, total assets were $2.19 trillion, which is up by 1.90% from last year. Navy Federal continues to be the largest credit union with total assets of $95.3 billion, up 12.18% from last year. At this rate of growth, Navy Federal’s assets will likely exceed $100 billion within the next year.

FDIC 2018 Q3 Report

Here are a few of the noteworthy highlights from the FDIC press release on its Q3 report:

• Third quarter net income totaled $62 billion, an increase of $14 billion (29.3 percent) from 12 months ago. Improvement in net interest income and noninterest income, coupled with a lower effective tax rate, boosted the industry's net income.
• Net Interest Margin Widens to 3.45 Percent as Asset Yield Increases Outpace Funding Cost Growth: Net interest income totaled $137.1 billion in the third quarter, an increase of $9.6 billion (7.5 percent) from a year ago.
• Loan and lease balances rose by $82.7 billion (0.8 percent) from the previous quarter, as all major loan categories registered growth.
• he FDIC's "Problem Bank List" declined from 82 in the second quarter to 71, the lowest number of problem banks since third quarter of 2007. Total assets of problem banks fell from $54.4 billion in the second quarter to $53.3 billion. During the quarter, merger transactions absorbed 60 institutions, one new charter was added, and there were no failures.
• The Deposit Insurance Fund (DIF) balance rose by $2.6 billion during the third quarter to $100.2 billion, driven by assessment income. The DIF reserve ratio rose from 1.33 percent at the end of the last quarter to 1.36 percent. The third quarter of 2018 marks the last period that large banks will be assessed quarterly surcharges by the FDIC.
• The FDIC insures deposits at the nation’s banks and savings associations, 5,479 as of September 30, 2018 (down from 5,542 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 Q3 2018 and Q3 2017. The loan-to-deposit ratio increased from 80.18% in Q3 2017 to 80.66% in Q3 2018. This is also an increase from the previous quarter when the ratio was 80.56%. In the last quarter, loans increased 0.83% while deposits increased 0.71%. A rising loan-to-deposit ratio should put upward pressure on deposit rates as banks have to attract more deposits to fund more loans.

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 82 in the last quarter to 71. In recent times, that number peaked at 888 in Q1 of 2011.

Total assets of problem banks declined slightly from $54.4 billion to $53.3 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 $40.93 billion.

The FDIC doesn't name any of these problem banks. Calculated Risk Blog has an unofficial list of 78 banks based on public enforcement actions. When I reported on the FDIC’s 2018 Q2 report in September, the unofficial problem bank number was 82. 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 more than a year ago 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 Q3 Report

Here are a few of the noteworthy excerpts from the 2018 Q3 Credit Union Data Summary:

• Total assets in federally insured credit unions rose by $77 billion, or 5.6 percent, over the year to $1.44 trillion in the third quarter of 2018.
• Total loans outstanding increased $89.2 billion, or 9.5 percent, over the year to $1.0 trillion. Credit union loan balances rose over the year in every major category, compared with the third quarter of 2017.
• Credit union shares and deposits rose by $57.9 billion, or 5.0 percent, over the year to $1.21 trillion in the third quarter of 2018. Regular shares rose $24.3 billion, or 5.8 percent, to $444.1 billion. Other deposits increased $22.8 billion, or 4.0 percent, to $588.7 billion, led by share certificate accounts, which were up $18.4 billion, or 8.8 percent, and money market accounts, which rose $2.8 billion, or 1.1 percent.
• The loan-to-share ratio stood at 84.9 percent in the third quarter of 2018, up from 81.4 percent in the third quarter of 2017.
• The number of federally insured credit unions declined to 5,436 in the third quarter of 2018 from 5,642 in the third quarter of 2017. In the third quarter of 2018, there were 3,421 federal credit unions and 2,015 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 third quarter of 2018. Credit unions with less than $100 million in assets generally 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 81.4% to 84.9%). The loan-to-share ratio also had a substantial increase for the quarter (from 83.0% to 84.9%). 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

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 Q3 performance:

The number of federally insured credit unions with assets of at least $10 million but less than $50 million declined to 1,725 in the third quarter of 2018 from 1,800 in the third quarter of 2017. These credit unions held $43.5 billion in assets, or 3 percent of total system assets. Credit unions in this category reported a 0.8 percent increase in loans. Membership declined 5.1 percent. Net worth rose 0.4 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 303 in the third quarter of 2018 from 284 in the third quarter of 2017. These 303 credit unions held $939.8 billion in assets, or 65 percent of total system assets. Credit unions in this category reported loan growth of 13.2 percent. Membership rose 9.6 percent. Net worth increased 12.8 percent.

One thing that helped improve the health of the largest credit unions was the liquidation of Melrose Credit Union on August 31st. 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.

Another New York credit union that had a high concentration of taxi medallion loans was LOMTO Federal Credit Union. LOMTO was liquidated at the end of the third quarter, on September 30th. At the time of liquidation, LOMTO had assets of about $156 million.

Unlike banks which haven’t had one bank failure in 2018, several credit unions in addition to Melrose and LOMTO have failed this year. So far this year, seven 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.