FDIC Quarterly Banking Profile
COMMUNITY BANK PERFORMANCE
THIRD QUARTER 2016
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.
Quarterly Net Income Increases 11.8 Percent to $5.6 Billion From the Previous Year Net Interest Income Rises $1.2 Billion From 2015, Led by Strong Loan Growth Net Interest Margin of 3.58 Percent Declines From Third Quarter 2015 Loan-Loss Provisions Rise $188 Million From 2015 to $718.2 Million Noncurrent and Net Charge-Off Rates Increase for Commercial and Industrial Loans
Close to 60 Percent of Community Banks Increase Their Quarterly Net Income
Quarterly net income for the 5,521 community banks totaled $5.6 billion in third quarter 2016, an increase of $592.6 million (11.8 percent) compared with the 2015 quarter. Higher net operating revenue (the sum of net interest income and total noninterest income) helped lift quarterly net income, which was partly offset by higher loan-loss provisions and noninterest expense. Noncommunity banks increased their quarterly net income by $4.9 billion (13.8 percent) from third quarter 2015, led by a few large noncommunity banks. Pretax return on assets for community banks was 1.38 percent, up 4 basis points from second quarter 2016 and 8 basis points from a year earlier. The number of FDIC-insured community banks declined from 5,602 in the second quarter to 5,521 (down 81), with two community bank failures.
Net Operating Revenue Increases 8.5 Percent From Last Year
Improvement in net interest income (up $1.2 billion, or 7.2 percent) and noninterest income (up $613.5 million, or 13.1 percent) helped lift third-quarter net operating revenue to $23 billion, a $1.8 billion (8.5 percent) increase from the previous year. The benefit of higher interest income from non 1-to-4 family real estate loans (up $751.8 million, or 10.1 percent) drove the increase in net interest income from the 2015 quarter.1 Close to 67 percent of the year-over-year increase in noninterest income was led by net gains on loan sales (up $410.1 million, or 38.6 percent).
Net Interest Margin Declines Modestly From a Year Ago
The average net interest margin (NIM) declined from 3.62 percent in third quarter 2015 to 3.58 percent, as asset yields decreased (down 3 basis points) and funding costs increased (up 1 basis point). NIM at community banks was 46 basis points higher than that of noncommunity banks. The difference narrowed from third quarter 2015, as NIM for community banks declined and NIM for noncommunity banks improved (up 13 basis points).
Noninterest Expense Increases for Community Banks
Over the past 12 months, noninterest expense grew by $909.5 million (6.4 percent) to $15.1 billion. Close to 70 percent of community banks increased their noninterest expense from the year before. The annual increase in noninterest expense was led by higher salary and employee benefits, which rose by $676 million (8.5 percent). Full-time employees at community banks were 12,585 (3 percent) higher than third quarter 2015. The average asset per employee totaled $5 million for the third quarter, up from $4.8 million a year earlier. Noninterest expense as a percent of net operating revenue declined to 65.8 percent—the lowest level since third quarter 2007.
Loan and Lease Balances Increase 9.4 Percent From Third Quarter 2015
Total assets of $2.2 trillion rose by $37.5 billion (1.8 percent) from second quarter 2016, as loan and lease balances grew by $31.1 billion (2.1 percent). Close to 71 percent of community banks grew their loan and lease balances from the previous quarter. The largest quarterly increase was among nonfarm nonresidential loans (up $9.7 billion, or 2.3 percent), 1-to-4 family residential mortgages (up $6.3 billion, or 1.6 percent), construction and development loans (up $3.4 billion, or 3.6 percent), multifamily residential loans (up $3.4 billion, or 3.4 percent), and commercial and industrial loans (up $2.4 billion, or 1.2 percent). Loan and lease balances rose by $127.6 billion (9.4 percent) over the previous 12 months, exceeding 6.5 percent growth at noncommunity banks. Close to 62 percent of the annual increase in loan and lease balances was led by nonfarm nonresidential loans (up $40 billion, or 10.2 percent), 1-to-4 family residential mortgages (up $22.4 billion, or 6.2 percent), and multifamily residential loans (up $16.5 billion, or 19.1 percent). Unused loan commitments were $6.2 billion (2.3 percent) higher than in third quarter 2015, with commercial real estate, including construction and development, rising by $11.9 billion (16.6 percent).
Small Loans to Businesses Increase Almost 3 Percent From the Year Before
In third quarter 2016, small loans to businesses of $298.3 billion rose by $1.6 billion (0.5 percent) from the previous quarter while declining by $1.7 billion (0.4 percent) for noncommunity banks.2 The increase at community banks was led by agricultural production loans (up $1.2 billion, or 4.3 percent), while commercial and industrial loans declined (down $472.1 million, or 0.5 percent). The 12-month increase in small loans to businesses at community banks (up $8.3 billion, or 2.9 percent) was led by nonfarm nonresidential loans (up $3.4 billion, or 2.4 percent) and commercial and industrial loans (up $3.2 billion, or 3.5 percent). Community banks held 43 percent of small loans to businesses.
Noncurrent Rate Continues to Improve
Slightly more than half (50.4 percent) of community banks reduced their noncurrent loan and lease balances from second quarter 2016, resulting in a decline of $87.6 million (0.6 percent). The noncurrent rate was 0.99 percent, down 7 basis points from the previous quarter and 55 basis points below the 1.54 percent for noncommunity banks. All major loan categories at community banks had lower noncurrent rates compared with the previous quarter except for commercial and industrial loans (up 1 basis point). For the past five consecutive quarters, the noncurrent rate for commercial and industrial loans was 18 basis points above the third quarter 2015 rate. The largest quarterly improvement in the noncurrent rate was among construction and development loans and 1-to-4 family residential mortgages, with both declining by 10 basis points.
Net Charge-Off Rate Remains Relatively Stable From the Year Before
For community banks, the net charge-off rate rose by 1 basis point from the previous year to 0.15 percent; for noncommunity banks, the rate increased by 4 basis points to 0.5 percent. The net charge-off rate for all major loan categories at community banks improved from third quarter 2015, except for commercial and industrial loans, which rose by 17 basis points to 0.45 percent.
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 2016, FDIC-Insured Community Banks
TABLE V-B. First Three Quarters 2016, FDIC-Insured Community Banks
TABLE VI-B. Loan Performance, FDIC-Insured Community Banks