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Federal Deposit
Insurance Corporation

Each depositor insured to at least $250,000 per insured bank

FDIC Quarterly Banking Profile

COMMUNITY BANK PERFORMANCE
FOURTH QUARTER 2016

Notes to Users

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 previous quarter.

  • Community Bank Revenue and Loan Growth Outpace Industry
  • Quarterly Earnings Improve by 10.5 Percent From a Year Ago to $5.3 Billion
  • Full-Year 2016 Earnings Increase to $21.4 Billion, Led by Net Interest Income
  • Net Operating Revenue Rises on Higher Net Interest Income and Noninterest Income
  • Total Loan Balances Increase 8.3 Percent in 2016
  • Community Banks Report Earnings of $5.3 Billion in the Fourth Quarter
    Earnings totaled $5.3 billion for the 5,461 FDIC-insured community banks in fourth quarter 2016, an increase of $507.9 million (10.5 percent) from a year earlier. Improvement in earnings was led by higher net operating revenue (the sum of net interest income and total noninterest income), but was offset in part by higher loan-loss provisions and noninterest expense. The pretax return on assets (ROA) was 1.24 percent, down 14 basis points from the previous quarter, but up 5 basis points from fourth quarter 2015.

    Full-Year 2016 Earnings of $21.4 Billion Up 10.1 Percent From Prior Year
    Full-year 2016 earnings at community banks totaled $21.4 billion, an increase of $2 billion (10.1 percent) over full-year 2015 earnings. Higher net interest income (up $5.1 billion, or 7.9 percent) and noninterest income (up $1.4 billion, or 7.6 percent) lifted full-year earnings, which was partly offset by higher loan-loss provisions (up $516.7 million, or 20.6 percent) and noninterest expense (up $3.4 billion, or 6 percent). Almost two out of every three community banks (65 percent) reported an improvement in earnings from 2015. Pretax ROA in 2016 was 1.31 percent, up 5 basis points from 1.26 percent in 2015. Annual pretax ROA was above 1 percent for the past five consecutive years.

    Net Operating Revenue Increases More Than 7 Percent From the Previous Year
    Community banks reported net operating revenue of $23.2 billion for the fourth quarter, up $1.6 billion (7.6 percent) from the year-earlier quarter. Higher net interest income (up $1.3 billion, or 7.5 percent) and noninterest income (up $372 million, or 7.8 percent) drove the increase in net operating revenue. Growth in net interest income was led by interest income from non 1-to-4 family real estate loans (up $853.5 million, or 11.3 percent), while net gains on loan sales (up $343.6 million, or 38.2 percent) lifted year-over-year increase in noninterest income.1

    Net Interest Margin at Community Banks Remains Stable
    The average net interest margin (NIM) at community banks was 3.59 percent in fourth quarter 2016, down 1 basis point from the same quarter in 2015, as asset yields remained flat and funding costs increased 1 basis point. NIM at noncommunity banks increased from 3.04 percent in fourth quarter 2015 to 3.09 percent, with asset yields rising 8 basis points and funding costs increasing by 3 basis points.

    Noninterest Expense Grows 6 Percent From Fourth Quarter 2015
    Noninterest expense of $15.6 billion rose by $877.1 million (6 percent) from the same quarter a year ago, with 60 percent of community banks reporting an increase. The 12-month increase was led by higher salary and employee benefits (up $662 million, or 8.1 percent). Full-time employees at community banks totaled 431,061 in fourth quarter 2016, up 12,632 (3 percent) from a year earlier. The average asset per employee totaled $5.1 million during the quarter, up from $4.8 million in fourth quarter 2015. Noninterest expense as a percentage of net operating revenue declined from 68.7 percent in fourth quarter 2015 to 67.3 percent, the lowest fourth-quarter level since 2006.

    Loan Balances Increase From the Previous Quarter
    Total assets at community banks rose by $27.9 billion (1.3 percent) from the third quarter, with 80 percent of the growth coming from higher loan lease balances (up $22.4 billion, or 1.5 percent). Almost two-thirds (63 percent) of community banks reported higher loan and lease balances from the previous quarter. The largest quarterly increase was among nonfarm nonresidential loans (up $12.3 billion, or 2.8 percent), commercial and industrial loans (up $3.6 billion, or 1.8 percent), multifamily residential loans (up $3.2 billion, or 3.2 percent), and construction and development loans (up $3.1 billion, or 3.1 percent).

    Total Loan Balances at Community Banks Increase 8.3 Percent in 2016
    The 12-month growth rate in loan and lease balances at community banks was 8.3 percent, surpassing the 4.8 percent at noncommunity banks. The annual increase at community banks was attributed to nonfarm nonresidential loans (up $42 billion, or 10.4 percent), 1-to-4 family residential mortgages (up $18.6 billion, or 5 percent), multifamily residential loans (up $14.7 billion, or 16.3 percent), and commercial and industrial loans (up $14.3 billion, or 7.5 percent). Unused loan commitments totaled $284.6 billion for the fourth quarter, an increase of $24.4 billion (9.4 percent) from fourth quarter 2015, with unused commercial real estate loan commitments—including construction and development—growing $10.9 billion (15 percent).

    Community Banks Increase Small Loans to Businesses at More Than Twice the Rate of Noncommunity Banks in 2016
    Small loans to businesses totaled $298.3 billion in fourth quarter 2016, an increase of $579.3 million (0.2 percent) from the previous quarter.2 The quarterly increase was led by nonfarm nonresidential loans (up $912.5 million, or 0.6 percent) and commercial and industrial loans (up $743.3 million, or 0.8 percent), which was partly offset by a reduction in agricultural production loans (down $1.1 billion, or 3.6 percent). Over the past 12 months, community banks expanded small loans to businesses by $6.4 billion (2.2 percent), more than twice the rate of noncommunity banks ($3.1 billion, or 0.8 percent). The yearly increase at community banks was driven by nonfarm nonresidential loans (up $3.4 billion, or 2.4 percent) and commercial and industrial loans (up $2.7 billion, or 3 percent). Community banks continued to hold 43 percent of all small loans to businesses.

    Noncurrent Rate Declines Below 1 Percent
    With more than half (56 percent) of community banks reducing their noncurrent loan and lease balances from the previous quarter, total balances fell by $393.6 million (2.6 percent). The noncurrent rate of 0.99 percent declined 4 basis points from the previous quarter. This is the first time since second quarter 2007 that the noncurrent rate was below 1 percent. The noncurrent rate declined for all major loan categories except for commercial and industrial loans (up 2 basis points) from the previous quarter. The largest decline was among construction and development loans (down 9 basis points) and nonfarm nonresidential loans (down 7 basis points).

    Net Charge-Off Rate Declines Modestly From Fourth Quarter 2015
    The net charge-off rate for community banks declined 1 basis point from the year before to 0.21 percent, while noncommunity banks had an increase of 4 basis points to 0.59 percent. The net charge-off rate for all major loan categories among community banks was lower from a year earlier except for commercial and industrial which increased 9 basis points to 0.55 percent. The largest annual improvement in the net charge-off rate was with 1-to-4 family residential mortgages (down 4 basis points).

    Chart 1. Contributors to the Year-Over-Year Change in Income

    Chart 2. Net Interest Margin

    Chart 3. Change in Loan Balances and Unused Commitments

    Chart 4. Noncurrent Loan Rates for FDIC-Insured Community Banks

    TABLE I-B. Selected Indicators, FDIC-Insured Community Banks

     

    TABLE II-B. Aggregate Condition and Income Data, FDIC-Insured Community Banks

  • Nominal
  • Merger-Adjusted
  • TABLE III-B. Aggregate Condition and Income Data by Geographic Region, FDIC-Insured Community Banks

    TABLE IV-B. Fourth Quarter 2016, FDIC-Insured Community Banks

    TABLE V-B. Full Year 2016, FDIC-Insured Community Banks

    TABLE VI-B. Loan Performance, FDIC-Insured Community Banks


    Footnotes:

    1 Non 1-to-4 family real estate loan income includes construction and development, farmland, multifamily, and nonfarm nonresidential.

    2 Small loans to businesses consist of loans to commercial borrowers up to $1 million and farm loans up to $500,000.

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