The FDIC and NCUA recently released their reports of the third quarter health of the institutions they insure. They also released the 2020 Third 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 September 30, 2020 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.
Bank and Credit Union Financial Health in the COVID-19 Pandemic
The pandemic’s effect on the health of banks is starting to show. For the third quarter, the FDIC reported a modest increase in noncurrent loan balances and a decline in lending. Also, the FDIC reported a record drop in net interest margin. Profits didn’t plunge primarily due to many banks cutting their loan-loss provisions.
No banks failed in the third quarter. So far in the fourth quarter, there have only been two bank failures. As we saw after the 2008 financial crisis, the effects of a financial crisis can take years before banks fail and are closed by regulators. Bank failures didn’t peak until 2010.
For both banks and credit unions, deposits have surged this year, and that has been another factor pushing down deposit rates. According to the FDIC press release, “Deposit growth stabilized during the third quarter after record increases in the first [half] of 2020 and is now near the average rate of growth between year-end 2014 and year-end 2019.” Using the FDIC’s Q3 Statistics at a Glance document, I calculated the overall bank loan-to-deposit ratio to be 69.6%. That’s a large fall from 80.1% from Q3 of 2019. The NCUA data summary reported a similar decline: “The loan-to-share ratio stood at 75.6 percent in the third quarter of 2020, down from 84.1 percent in the third quarter of 2019.” When deposits grow more than loans, banks have less need for deposits. That puts downward pressure on deposit rates.
Paycheck Protection Program and Capitalization Grades
Another thing that should help many banks is support from the Federal Reserve. One program in particular is the Paycheck Protection Program Lending Facility (the “PPPL Facility”) which allows banks to originate Paycheck Protection Program (“PPP”) loans. The PPP program was established by the CARES Act to help businesses to continue to pay their workers during the COVID-19 pandemic.
The PPP loans have impacted DA’s financial health grades for several banks that have originated a large number of PPP loans. For many of these banks, their assets increased due to these PPP loans without an increase in equity capital or loan loss provisions. This resulted in a decline in their capitalization grade. The FDIC and other bank regulators have made exceptions to capital ratio rules for PPP loans that have been funded with the Fed’s PPPL Facility.
In summary, banks and credit unions that have originated PPP loans and have funded them with the Fed’s PPPL Facility may have lower DA capitalization grades. These lower capitalization grades will also have some negative effect on the institution’s overall DA health grade. In short, DA is grading some banks and credit unions a little too hard.
For many of the banks that have been given lower capitalization grades due to their PPP loans, we’ve added the following note above their health grades in their bank profile pages: “Capitalization grade does not factor in PPP loans and the use of the PPP Liquidity Facility.” A list of all banks that have made PPP loans is available from iBanknet. A few noteworthy banks that have had their capitalization grades dinged due to the PPP loans include Live Oak Bank, Customers Bank, Quontic Bank, Radius Bank and Cross River Bank.
2020 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 $2.87 trillion, which is up 17.51% from last year. Navy Federal continues to be the largest credit union. Total assets as of September 30th are $131.6 billion, up 16.34% 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 $45.85 billion, and the third largest is PenFed with total assets of $26.26 billion.