Moody's announced earlier in August that it is downgrading the credit ratings of 10 small- to mid-sized banks across the country. The organization cited growing financial risks and strains that could erode their profitability.
Locally owned Amarillo National Bank was one of the banks downgraded by Moody's. ANB was founded in 1892 and has been owned by the Ware family since 1909.
ANB is known as the largest, 100-percent family-owned bank in the United States.
In its report, Moody's highlighted that some of the issues that caused the banking crisis earlier this year haven't disappeared; banks are still at risk for depositors to withdraw their funds, while the current higher-interest rate environment is knocking down the value of investments lenders made when rates were super low.
The rating agency added that asset risks are also rising for small- and mid-sized banks, especially those with large corporate real estate (CRE) holdings.
"Elevated CRE exposures are a key risk given sustained high interest rates, structural declines in office demand due to remote work, and a reduction in the availability of CRE credit," it noted.
Smaller banks are especially at risk, given that they have "sizable unrealized economic losses" that could cause investors to lose confidence, it stated in the report.
In 2019, ANB acquired Lubbock National Bank, expanding its locations beyond the Texas Panhandle and into the South Plains and other parts of the state.
As ANB, the bank operates 19 branch locations in and around the cities of Amarillo, Borger and Canyon.
Under the Lubbock National Bank brand, it operates six branch locations in Lubbock.
ANB also operates as Commerce National Bank, with seven locations in the cities of Bryan, College Station, Fort Worth, and two suburbs of Austin.
In total, ANB operates 116 local, branded automatic teller machines (ATMs) in those communities. As of 2019, ANB had more than $5.7 billion in assets.
ANB ranks as the 25th largest farm lender in the nation, with 15 percent of its loans concentrated on agriculture. It is the largest mortgage lender in the Texas Panhandle and the largest independent cattle lender in Texas.
Moody's also warned it is watching some of the nation's biggest lenders for potential downgrades.
Regional U.S. banks were thrust into the spotlight earlier this year after the collapse of Silicon Valley Bank and Signature Bank triggered a run on deposits across the sector. The panic eventually spread to Europe and resulted in the emergency rescue of Swiss giant Credit Suisse by domestic rival UBS.
Though authorities went to great lengths to restore confidence, Moody’s warned that banks with substantial unrealized losses that are not captured by their regulatory capital ratios may still be susceptible to sudden losses of market or consumer confidence in a high interest rate environment.
The Federal Reserve in July lifted its benchmark borrowing rate to a 5.25%-5.5% range, having tightened monetary policy aggressively over the past year and a half in a bid to rein in sky-high inflation.
“We expect banks’ ALM risks to be exacerbated by the significant increase in the Federal Reserve’s policy rate as well as the ongoing reduction in banking system reserves at the Fed and, relatedly, deposits because of ongoing QT,” Moody’s said in the report.
“Interest rates are likely to remain higher for longer until inflation returns to within the Fed’s target range and, as noted earlier, longer-term U.S. interest rates also are moving higher because of multiple factors, which will put further pressure on banks’ fixed-rate assets.”
Regional banks are at a greater risk since they have comparatively low regulatory capital, Moody’s noted, adding that institutions with a higher share of fixed-rate assets on the balance sheet are more constrained in terms of profitability and ability to grow capital and continue lending.
“Risks may be more pronounced if the U.S. enters a recession – which we expect will happen in early 2024 – because asset quality will worsen and increase the potential for capital erosion,” the analysts added.
Though the stress on U.S. banks has mostly been concentrated in funding and interest rate risk resulting from monetary policy tightening, Moody’s warned that a worsening in asset quality is on the horizon.
“We continue to expect a mild recession in early 2024, and given the funding strains on the U.S. banking sector, there will likely be a tightening of credit conditions and rising loan losses for U.S. banks,” the agency said.
Here's the list of banks downgraded:
Commerce Bancshares
BOK Financial Corporation
M&T Bank Corporation
Old National Bancorp
Prosperity Bancshares
Amarillo National Bancorp
Webster Financial Corporation
Fulton Financial Corporation
Pinnacle Financial Partners
Associated Banc-Corp
Moody's also said it placed six banks under review for possible downgrades, with some of those banks among the nation's largest. They are:
Bank of New York Mellon Corporation
Northern Trust Corporation
State Street Corporation
Cullen/Frost Bankers
Truist Financial Corporation
U.S. Bancorp
The credit rating agency also said it shifted the outlook of 11 banks from stable to negative. They are:
PNC Financial Services Group
Capital One Financial Corporation
Citizens Financial Group
Fifth Third Bancorp
Huntington Bancshares
Regions Financial Corporation
Cadence Bank
F.N.B. Corporation
Simmons First National Corporation
Ally Financial
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