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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
SECOND 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 prior quarter.

  • Earnings of $5.5 Billion Increase 9 Percent From Second Quarter 2015
  • Higher Net Interest Income and Noninterest Income Improve Earnings
  • Net Interest Margin Remains Stable From the Year-Ago Period
  • Loan and Lease Balances Increase 9.1 Percent From the Year Before
  • Asset Quality Declines for Commercial and Industrial Loans
  • Earnings Increase at 60 Percent of Community Banks
    With 5,602 community banks in the second quarter, aggregate earnings of $5.5 billion increased by $451.3 million (9 percent) from the year-earlier quarter. Higher revenue from net interest income and noninterest income lifted earnings, but were offset in part by higher loan-loss provisions and noninterest expense. Loan-loss provisions increased by $162.9 million (28.1 percent) from second quarter 2015, but only 38 percent of community banks reported the increase. Pretax return on assets was 1.34 percent, up 5 basis points from the year before, but 25 basis points below that of noncommunity banks. There were 62 fewer community banks than in first quarter 2016, with two bank failures.

    Net Operating Revenue Improves From Second Quarter 2015
    Net operating revenue totaled $22.8 billion in the second quarter, up $1.5 billion (7.1 percent) from the previous year. Higher interest income from non 1-to-4 family real estate loans (up $748.8 million, or 10.2 percent) drove the improvement in net interest income (up $1.2 billion, or 7.6 percent) from second quarter 2015.1 Community banks reported net interest margin (NIM) of 3.58 percent, up 1 basis point from the year earlier, as asset yields increased (up 1 basis point) and funding costs remained unchanged. Community banks’ NIM was 57 basis points above that of noncommunity banks (3.01 percent). The yearly increase in noninterest income (up $278.1 million, or 5.7 percent) was led by net gains on loan sales (up $163.3 million, or 14.6 percent).

    Noninterest Expense Grows 5.6 Percent From the Previous Year
    Noninterest expense rose by $801.4 million (5.6 percent) from the year before, as salary and employee benefits increased by $560.3 million (7 percent). Close to 70 percent of community banks reported higher noninterest expense. Full-time employees increased by 13,235 (3.1 percent) from second quarter 2015, while the average asset per employee rose from $4.7 million to $4.9 million. Noninterest expense as a percent of net operating revenue totaled 66.6 percent, down from 68 percent a year earlier.

    Community Banks Increase Their Loan and Lease Balances
    Loan and lease balances increased by $41.2 billion (2.9 percent) from first quarter 2016 to $1.5 trillion. With almost three out of every four community banks (74 percent) increasing their loans from the previous quarter, the quarterly growth rate at community banks outperformed that of noncommunity banks (1.9 percent). The quarterly increase among community banks was led by nonfarm nonresidential loans (up $11.8 billion, or 2.8 percent), 1-to-4 family residential mortgages (up $8.3 billion, or 2.2 percent), commercial and industrial loans (up $5.4 billion, or 2.8 percent), multifamily residential mortgages (up $4.2 billion, or 4.5 percent), and construction and development loans (up $3 billion, or 3.2 percent). Loan and lease balances were $122.8 billion (9.1 percent) higher than in second quarter 2015, with almost 80 percent of community banks growing their loans. The 12-month loan growth rate at community banks was 2.6 percentage points higher than that of noncommunity banks (6.5 percent). Almost half (48 percent) of the yearly increase in loan and lease balances at community banks was led by nonfarm nonresidential loans (up $39.5 billion, or 10.1 percent) and 1-to-4 family residential mortgages (up $19.6 billion, or 5.4 percent). Unused loan commitments increased $9.6 billion (3.5 percent) to $281.3 billion from a year earlier, with commercial real estate, including construction and development, growing $13 billion (18.6 percent).

    Growth in Small Loans to Businesses Outpaces Noncommunity Banks
    Community banks reported $300.7 billion in small loans to businesses for the current quarter, up $3.9 billion (1.3 percent) from the first quarter.2 The quarter-over-quarter increase in small loans to businesses at community banks surpassed that of noncommunity banks (up $2.6 billion, or 0.7 percent). Close to 64 percent of the quarterly increase was led by commercial and industrial loans (up $1.4 billion, or 1.5 percent) and nonfarm nonresidential loans (up $1.1 billion, or 0.8 percent). Meanwhile, nonfarm nonresidential loans for noncommunity banks declined (down $1.5 billion, or 1 percent). For the past 11 consecutive quarters, nonfarm nonresidential loans as a percent of small loans to businesses declined for noncommunity banks, down from 41 percent in third quarter 2013 to 36 percent in the current quarter. Community banks increased small loans to businesses by $9.5 billion (3.2 percent) from 12 months ago, exceeding 2.8 percent growth at noncommunity banks. The annual increase at community banks was attributed to nonfarm nonresidential loans (up $3.8 billion, or 2.7 percent) and commercial and industrial loans (up $3.6 billion, or 4 percent). Community banks continued to hold 44 percent of small loans to businesses.

    Noncurrent Loan and Lease Balances Decline
    Noncurrent loan and lease balances declined $354.4 million (2.2 percent) from the previous quarter, with more than half (53 percent) of community banks reducing these balances. The coverage ratio—reserves for loan losses to noncurrent loans—increased from 116.1 percent in first quarter 2016 to 119.5 percent, as noncurrent loan and lease balances declined and reserves for loan losses increased (up $123.3 million, or 0.7 percent). Almost two out of every three community banks (61 percent) increased their reserves for loan losses. However, reserves for loan losses as a percent of total loans was 1.26 percent in the second quarter, down 2 basis points from the previous quarter, the lowest level since second quarter 2008.

    Asset Quality Improves for All Major Loan Categories Except Commercial and Industrial Loans
    The noncurrent rate at community banks was 1.05 percent in second quarter 2016, down 6 basis points from first quarter 2016 and 53 basis points below that of noncommunity banks (1.58 percent). All major loan categories reported lower noncurrent rates except for commercial and industrial loans (up 1 basis point). The noncurrent rate for commercial and industrial loans (1.21 percent) increased for a fourth consecutive quarter and was 19 basis points higher than the year before. Construction and development loans had the largest decline (down 15 basis points) in the noncurrent rate from first quarter 2016. Quarterly net charge-offs of $466.8 million remained flat from the year-ago quarter and the net charge-off rate declined 1 basis point to 0.13 percent, the lowest rate for a second quarter in the last ten years. All major loan categories had lower net charge-off rates from the year-ago quarter except for commercial and industrial loans (up 10 basis points). Nonfarm nonresidential loans had the largest year-over-year decline (down 8 basis points) in the net charge-off rate.

    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. Second Quarter 2016, FDIC-Insured Community Banks

    TABLE V-B. First Half 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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