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2017 Annual Report

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I. Management’s Discussion and Analysis

The Year in Review


Community banks provide traditional, relationship-based banking services in their local communities. As defined in FDIC research, community banks comprised 92 percent of all FDIC-insured institutions as of September 2017. While they hold just 13 percent of banking industry assets, community banks are of critical importance to the U.S. economy and local communities across the nation. Community banks hold 43 percent of the industry’s small loans to farms and businesses, making them the lifeline to entrepreneurs and small enterprises of all types. They also hold the majority of bank deposits in U.S. rural counties and micropolitan counties with populations up to 50,000. In fact, as of June 2017, community banks held more than 75 percent of deposits in almost 1,200 U.S. counties. In 625 of these counties, the only banking offices available to consumers were those operated by community banks.

The FDIC is the primary federal supervisor for the majority of community banks, in addition to being the insurer of deposits held by all U.S. banks and thrifts. Accordingly, the FDIC has a particular responsibility for the safety and soundness of community banks and for communicating the role they play in the banking system. In 2012, the FDIC launched a Community Banking Initiative focused on publishing new research on issues of importance to community banks and providing resources that will be useful to their efforts to manage risks, enhance the expertise of their staff, and better understand changes in the regulatory environment.

Community Banking Research

The FDIC continues to pursue an agenda of research and outreach focused on community banking issues. Since the 2012 publication of the FDIC Community Banking Study, FDIC researchers have published more than a dozen additional studies on topics ranging from small business financing to the factors that have driven industry consolidation over the past 30 years. The Community Bank Performance Section of the FDIC Quarterly Banking Profile (QBP), first introduced in 2014, continues to provide a detailed statistical picture of the community banking sector that can be accessed by analysts, other regulators, and bankers themselves. The most recent report shows that net income at community banks continued to grow at a healthy annual rate through September 2017, despite the headwinds associated with narrow net interest margins.

The long-term trend of consolidation continues at both community and noncommunity banks. However, this trend has done little to diminish the role of community banks in the banking industry. More than two-thirds of the community banks that merged in 2017 were acquired by other community banks. On a merger-adjusted basis, loan growth at community banks exceeded growth at noncommunity banks in every year between 2012 and 2016. (See Chart 1)

On this same basis, the number of banking offices operated by community banks increased slightly in the year ending in June 2017, while offices operated by noncommunity banks declined. (See Chart 2)


Bar Chart of Merger Adjusted Growth in Total Loans and Leases

Source: FDIC


June 2015-June 2016

Bar Chart for Percentage growth in Community and Noncommunity Banks Source: FDIC. All calculations are merger adjusted.
Community Bank Advisory Committee

The FDIC’s Advisory Committee on Community Banking is an ongoing forum for discussing current issues and receiving valuable feedback from the industry. The committee, which met three times during 2017, is composed of chief executive officers of 13 community banks from around the country. It is a valuable resource for input on a wide variety of topics, including examination policies and procedures, capital and other supervisory issues, credit and lending practices, deposit insurance assessments and coverage, and regulatory compliance issues. At the June 2017 meeting, the Division of Insurance and Research (DIR) presented a range of performance and growth comparisons between community and noncommunity banks dating back to 2006. These results showed that merger-adjusted total loan growth at community banks exceeded 8 percent in 2014, 2015, and 2016, outpacing nominal U.S. Gross Domestic Product growth in all three years.

Photograph of the Community Bank Advisory Committee
Community Bank Advisory Committee.
De Novo Banks

The FDIC continued multiple initiatives in fulfilling its commitment to working with, and providing support to, any group with interest in starting a bank. In general, these initiatives focused on reviewing and, as appropriate, updating the processes, procedures, and management systems by which the FDIC receives, reviews, and acts on applications. Key elements of these initiatives with respect to deposit insurance applications included completing outreach meetings, issuing a handbook for organizers, and issuing updated procedures. Specifically, the FDIC has:

Technical Assistance Program

As part of the Community Banking Initiative, the FDIC continued to provide a robust technical assistance program for bank directors, officers, and employees. The technical assistance program includes Directors’ College events held across the country, industry teleconferences and webinars, and a video program.

In 2017, the FDIC hosted Directors’ College events in each of its six regions. These events were typically conducted jointly with state trade associations and addressed issues such as corporate governance, regulatory capital, community banking, concentrations management, consumer protection, BSA, and interest-rate risk, among other topics.

The FDIC offers a series of banker events, intended to maintain open lines of communication and to keep bank management and staff up-to-date on important banking regulatory and emerging issues of interest to community bankers. In 2017, the FDIC offered 15 teleconferences or webinars focused on the following topics:

In November 2017, the FDIC participated in an interagency webinar focused on fair lending hot topics. Additionally, the FDIC offered three deposit insurance coverage seminars for bank officers and employees in 2017. These free seminars, which were offered nationwide, particularly benefitted smaller institutions that have limited training resources. The FDIC also released three deposit insurance seminar training videos on the FDIC’s website and YouTube channel.

Economic Growth and Regulatory Paperwork Reduction Act

In March 2017, the FFIEC submitted a report to Congress pursuant to the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). The report was prepared by the federal banking agencies and NCUA. Under EGRPRA, the federal banking agencies and the FFIEC are directed to conduct a joint review of regulations every ten years to determine whether any of those regulations are outdated or unnecessary.

Over the course of two years, the agencies published a series of Federal Register notices, providing industry participants, consumer and community groups, and other interested parties an opportunity to identify regulatory requirements they believe are no longer needed or should be modified. The agencies also held six public outreach meetings across the country to provide an opportunity for bankers, consumer and community groups, and other interested persons to present their views on any of the regulations subject to EGRPRA review. A total of 234 comment letters were received directly in response to the Federal Register notices, as well as additional oral and written comments from panelists and the public at the outreach meetings. These comments formed the basis of the report that was submitted to Congress in March 2017.

The EGRPRA report described actions the agencies had already taken to address comments received during the EGRPRA process as well as actions the agencies planned to take in the future. During 2017, the FDIC along with the other FFIEC member agencies, worked together to reduce burden in the following significant areas raised during the EGRPRA reviews:


Additionally, recognizing that regulatory burden does not emanate only from statutes and regulations, the FDIC, along with the FFIEC and its members, have initiated the FFIEC Examination Modernization project as a follow up to the review of regulations under EGRPRA. The Modernization project is focused on ways to improve the efficiency of processes, procedures, and tools related to examinations and supervisory oversight of the safety and soundness examination processes, while maintaining the quality of the process. There are three parts to the project:

  1. Reviewing examination practices and processes with a particular goal of determining whether technology can be used to make existing examination activities more efficient or allow for additional safety and soundness examination work to be conducted off-site.
  2. Reviewing the format of the examination report itself and determining whether there are opportunities to improve the quality and usefulness of reports.
  3. Reviewing the Uniform Bank Performance Report (UBPR) and related reports and data to determine if there are ways to make them more informative, useful, and user friendly. In particular, the agencies are working to provide the ability to generate graphs and charts of key ratios.

In 2017, the Examination Modernization Project’s staff met regularly to compare FFIEC agency practices and develop recommendations for the FFIEC’s consideration.


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