The number of undercapitalized U.S. banks continued to decline in the second quarter of 2019.
Eleven U.S. banks and thrifts were undercapitalized at June 30, down from 14 at March 31 and 18 two years ago. To be considered undercapitalized, a company must be below at least one of four regulatory capital ratios: 8% for its total risk-based capital ratio, 6% for its Tier 1 capital ratio, 4.5% for the common equity Tier 1 ratio, or 4% for the leverage ratio.
Two of the undercapitalized banks — Fort Walton Beach, Fla.-based First City Bank of Florida and Fort Gibson, Okla.-based Fort Gibson State Bank — have announced sales. First City Bank is selling to an investor group and Fort Gibson reached a definitive agreement in June to sell to Muskogee, Okla.-based Firstar Financial Corp.
Gwinnett Community Bank is the largest undercapitalized bank by total assets. Despite balance sheet shrinkage and 10 consecutive profitable quarters, the Duluth, Ga.-based bank's total risk-based capital ratio remains below the 8% threshold: 7.52% at June 30.
The Office of the Comptroller of the Currency issued another prompt corrective action directive to Newark, N.J.-based City National Bank of New Jersey in June. The bank lost $1.4 million in the second quarter after reporting a profit in the previous two quarters.
Louisa, Ky.-based Louisa Community Bank had the lowest regulatory capital ratio in each of the four categories. It has reported a net loss for 15 consecutive quarters. Even with an annualized net loan charge-off rate of 5.7% in the second quarter, 13% of the bank's loans were nonperforming at June 30.
Going forward, the Federal Deposit Insurance Corp.'s proposed deposit rate caps could increase the competitiveness of less-than-well capitalized banks.
The FDIC keeps a confidential list of troubled companies in possible danger of failing. The number of these "problem" banks as defined by the FDIC fell to 56 at June 30 from 59 at March 31 and 82 a year ago. "Problem" institution total assets were $48.51 billion at the end of June, representing a quarter-over-quarter increase but a year-over-year decrease.

