In observance of Independence Day, Jumbo Rate News will not be published next week. Have a Festive and Safe 4th and wave that banner proudly. Our next issue (JRN 40:26) will be dated July 10th.
Speaking of ‘Old Glory’ as we affectionately refer to our flag, an Oklahoma bank now bears that name. Established in 1903 as First State Bank, Elmore, Ok, the $22 million asset community bank has rebranded to 3-Star Old Glory Bank. Old Glory Bank has just one location in Elmore right now, but is very busy opening savings accounts online via its website and mobile app.
With over 40% of its loans already invested in residential real estate, Old Glory Bank is expanding its reach so more Americans can realize their dream of home ownership. It will soon begin offering home loans on its website as well as in person. Due to a sizeable capital injection that coincided with the name change, Old Glory has money to lend. Let’s just hope its lenders keep a tight grip on lending standards.
The 50 banks listed on page 5 of this week’s Jumbo Rate News may have to tighten their own lending standards. We are watching for potential weaknesses in each of their respective residential real estate portfolios. Based on March 31, 2023 data, each bank is: rated less than 5-Stars; residential real accounts for more than 30% of the loan portfolio; and at least 2.5% of those residential real estate loans are 90 days or more delinquent.
One bank was intentionally omitted from the list: Zero-Star Silvergate Bank, La Jolla, CA. While Silvergate did report that 32% of its loan portfolio was in residential real estate and that 5.1% of those residential real estate loans were 90 days or more delinquent at March 31, 2023, it also reported a 97% decline in residential real estate loans since March 31, 2022. That’s because it has been ordered by the Federal Reserve to wind-down its operations and self-liquidate.
That leaves the list void of any California banks, which is odd since the unemployment rate in the Golden State is up to 4.5% (preliminary May 2023) from 4.0% last May. Illinois banks more than make up for that void as 14 of the 50 (28%) banks listed hale from the Land of Lincoln. The unemployment rate in Illinois reportedly went down from 4.4% last May to 4.1% this May.
According to the U.S. Bureau of Labor Statistics, the national unemployment rate for May 2023 was 3.7%, although the numbers by state vary widely. Another consideration is the propensity to shop online for a home loan, rather than from a local community bank.
Online shoppers might get their loan from 3½-Star Cornerstone Capitol Bank, SSB, Houston, TX, which boasts that it has helped nearly 500,000 families in 43 states plus DC to obtain home financing. Cornerstone is on the list.
Cornerstone Capital Bank, along with its Roscoe Bank division, have over $2.1 billion in assets, just under half of those assets are loans, 90% of which are residential real estate loans and 5.6% of which are 90 days or more delinquent. That’s a big contrast to how things looked last September, before Roscoe State Bank joined forces with Cornerstone.
Established in 1906, Roscoe State Bank was a mainstay in the small town of Roscoe, TX, even before the town was incorporated in 1907. After over 115 years, Roscoe State Bank had $280 million in total assets. Loans totaled $76.3 million, of which nearly 30% were for residential real estate. Not one loan was delinquent, but that all changed October 1st.
Cornerstone Capital Bank is one of five Texas banks listed on page 5. Not surprising, since Texas has an unemployment rate of 4.1%, and rising. But, as Cornerstone Capital Bank uses expensive brokered deposits to fund a loan portfolio with high delinquencies, its woes may run deeper than the typical Texas bank.
Manhattan has, by far, the highest cost of living in the U.S. and, while New York state’s unemployment rate dropped 0.2% (to 3.9%) from May ’22 to May ’23, the city is a tough place to make ends meet and the neighboring borough of Queens isn’t much easier.
That’s where you will find 2-Star Quontic Bank, Astoria, NY. Not only is Quontic Bank’s loan portfolio 95% residential real estate, the bank caters to real estate investors. Quontic Bank allows real estate investors to use the projected income from a property to qualify for the loan to purchase the property. If times are good, that policy may work out fine. In times of economic stress, however, it could become a recipe for disaster.
It is no surprise to us that Quontic Bank is operating under a regulatory Cease and Desist (C&D) order from the Office of the Comptroller of the Currency (OCC). In addition to prescribed capital ratios and liquidity concerns, the C&D does address Quontic Bank’s mortgage lending policies and risk management. The C&D Order also labels the bank as in ‘troubled condition’.
We’ve already seen clearly how a lack of diversification can be a bank’s Achilles heel. Now compare Quontic Bank, with 95% of its loan portfolio in residential real estate, to its peers, which have less than 30%. Established in 2005, not long before the Great Recession and Housing bubble, Quontic Bank has been rated 2-Stars or below (and thus relegated to Bauer’s Troubled & Problematic Report) for much of its existence. The New York economy will likely decide its fate.