FDIC Quarterly Banking Profile
COMMUNITY BANK PERFORMANCE
THIRD QUARTER 2015
Community banks are identified based on criteria defined in the FDIC’s Community Banking Study. When comparing community bank performance across quarters, prior-quarter dollar amounts are based on community banks designated in the current quarter, adjusted for mergers. In contrast, prior-quarter performance ratios are based on community banks designated during the prior quarter.
Earnings Improved Almost 8 Percent From Third Quarter 2014 Net Interest Income and Noninterest Income Increased From the Year Before Loan and Lease Balances Increased, Outpacing Growth at Noncommunity Banks Asset Quality Indicators Continued to Improve
Earnings of $5.2 Billion Increased From the Previous Year
Improved net interest income and noninterest income, coupled with lower loan-loss provisions, lifted earnings at 5,812 community banks (up $363.4 million, or 7.5 percent) from third quarter 2014. Almost 60 percent of community banks reported higher year-over-year earnings. The pretax return on assets was 1.31 percent, up 7 basis points from the 2014 quarter, but 21 basis points below that of noncommunity banks. The percent of unprofitable community banks in the third quarter totaled 5.2 percent, the lowest since second quarter 1998.
Net Interest Margin Declined Despite an Increase in Net Interest Income
Net operating revenue totaled $22.4 billion during third quarter 2015, up $1.6 billion (7.5 percent) from the year before. Higher net interest income (up $1.1 billion, or 6.5 percent) and noninterest income (up $495.8 million, or 11.1 percent) contributed to the improvement in net operating revenue. Almost 70 percent of community banks reported higher net interest income than third quarter 2014. Average net interest margin (NIM) was 3.62 percent, down 3 basis points from a year earlier, as average asset yields declined more rapidly than average funding costs. NIM at community banks was 63 basis points above the average for noncommunity banks. More than half (54.1 percent) of the year-over-year increase in noninterest income among community banks was from higher loan sales revenue (up $268 million, or 31 percent).
Long-Term Assets Remained Elevated at Community Banks
Long-term assets at community banks represented 33.9 percent of total assets in the current quarter, down from 34.3 percent in third quarter 2014.1 Despite being below the peak of 34.5 percent in second quarter 2014, long-term assets at community banks continue to exceed the 26.1 percent held by the banking industry and the 25 percent for noncommunity banks. For the past 12 of 16 consecutive quarters, community banks have increased their holdings of long-term assets. Meanwhile, long-term funding has not grown at the same pace. This imbalance may lead to an increase in interest rate risk.
Noninterest Expense Rose From Third Quarter 2014
With 68 percent of community banks increasing their noninterest expense from third quarter 2014, noninterest expense of $15.1 billion grew $978.9 million (6.9 percent). While noninterest expense increased at community banks, it was down $3.2 billion (3.4 percent) for noncommunity banks. The annual increase in noninterest expense for community banks was led by higher salary and employee benefits (up $629 million, or 8.1 percent). Full-time employees increased by 10,846 (2.5 percent) from third quarter 2014 to 439,171. Average assets per employee at community banks totaled $4.8 million in the latest quarter, up from $4.6 million in third quarter 2014.
All Major Loan Categories Increased From the Previous Quarter and the Year Before
Total assets at community banks increased by $27.8 billion (1.3 percent) from second quarter 2015, as loan and lease balances grew by $26.7 billion (1.9 percent). Almost three out of every four community banks (71 percent) increased their loan and lease balances from the previous quarter, as did all major loan categories. Close to 74 percent of the quarterly increase was driven by nonfarm nonresidential loans (up $9.4 billion, or 2.3 percent), 1-to-4 family residential mortgages (up $3.5 billion, or 1 percent), multifamily residential mortgages (up $3.5 billion, or 4.2 percent), and construction and development loans (up $3.4 billion, or 3.9 percent). The year-over-year increase in loan and lease balances was $111.1 billion (8.5 percent). Almost half (47 percent) of the yearly increase in loan and lease balance was led by nonfarm nonresidential loans (up $31.3 billion, or 8.2 percent) and 1-to-4 family residential mortgages (up $21.2 billion, or 6 percent). Community banks continued to expand their 12-month growth rate in loan and lease balances at almost twice the rate of noncommunity banks (5.4 percent).
Community Banks Expanded Small Loans to Businesses
Community banks reported $299.2 billion in small loans to businesses during the third quarter, up $2.5 billion (0.8 percent) from the second quarter.2 The quarterly growth in these loans at community banks outperformed noncommunity banks (down $876.2 million, or 0.2 percent). While close to 60 percent of the quarterly increase was led by agricultural production loans (up $1.5 billion, or 5.3 percent), commercial and industrial loans declined (down $202.5 million, or 0.2 percent). The yearly increase in small loans to businesses at community banks (up $9.5 billion, or 3.3 percent) surpassed that of noncommunity banks (up $2.4 billion, or 0.7 percent). The 12-month increase at community banks was led by commercial and industrial loans (up $4 billion, or 4.6 percent), and nonfarm nonresidential loans (up $2.8 billion, or 1.9 percent). Community banks continued to hold 44 percent of all small loans to businesses.
Noncurrent Rate Declined for 22 Consecutive Quarters
With nearly 60 percent of community banks reducing their noncurrent loan and lease balances from the year-ago quarter, the noncurrent loan and lease balance declined $3.1 billion (15.7 percent) from third quarter 2014 to $16.5 billion. During third quarter 2015, the noncurrent rate was 1.17 percent, down 7 basis points from the previous quarter and 33 basis points from third quarter 2014. The noncurrent rate was 53 basis points below the 1.7 percent at noncommunity banks. All major loan categories at community banks, except for commercial and industrial loans, had lower noncurrent rates from the previous quarter. After declining for 21 consecutive quarters, the noncurrent rate for commercial and industrial loans (1.09 percent) increased 6 basis points from second quarter 2015. The quarterly net charge-off rate was 0.14 percent, down 3 basis points from third quarter 2014. All major loan categories, except for commercial and industrial loans (up 4 basis points), had a decline in the net charge-off rate from the year before.
One Community Bank Failed in the Third Quarter
The number of FDIC-insured community banks totaled 5,812 at the end of third quarter 2015, down 69 banks from the previous quarter. One community bank failed during the quarter. One new community bank charter was added during the same period.
Chart 2. Net Interest Margin
TABLE I-B. Selected Indicators, FDIC-Insured Community Banks
TABLE II-B. Aggregate Condition and Income Data, FDIC-Insured Community Banks
TABLE III-B. Aggregate Condition and Income Data by Geographic Region, FDIC-Insured Community Banks
TABLE IV-B. Third Quarter 2015, FDIC-Insured Community Banks
TABLE V-B. First Three Quarters 2015, FDIC-Insured Community Banks
TABLE VI-B. Loan Performance, FDIC-Insured Community Banks