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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 2017

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.

  • Net Income Rises 8.5 Percent to $5.7 Billion From the Year-Earlier Quarter
  • Net Interest Income Drives Increase in Net Operating Revenue
  • Net Interest Margin of 3.61 Percent Is Higher Than the Previous Year
  • Total Loan and Lease Balances Expand 7.8 Percent During the Year
  • Noncurrent Rate Improves Despite Uptick in Net Charge-Off Rate
  • Net Income Increases at Almost Two-Thirds (62 Percent) of Community Banks
    Aggregate net income for the 5,338 community banks totaled $5.7 billion during the second quarter, an increase of $444.5 million (8.5 percent) over the past 12 months. Higher net interest income lifted second-quarter net income, but was partly offset by lower noninterest income and higher loan-loss provisions and noninterest expense. Almost two-thirds (62 percent) of community banks registered a year-over-year increase in net income. Only 4.3 percent of community banks reported negative net income, the lowest level since second quarter 2007. The pretax return on assets was 1.36 percent in the second quarter, up 3 basis points from the previous quarter and 2 basis points from second quarter 2016. Three community banks failed during this period.

    Net Interest Income Rises Close to 9 Percent From Second Quarter 2016
    Net interest income increased $1.5 billion (8.9 percent) from the year before to $18.4 billion. Almost 80 percent of community banks reported year-over-year increases in net interest income. The annual increase was led by interest earned on non 1-to-4 family real estate loans (up $920.6 million, or 12 percent).1 The average net interest margin (NIM) rose by 3 basis points from the previous year to 3.61 percent, as average asset yields increased more rapidly than average funding costs. NIM at community banks was 44 basis points above that of noncommunity banks in the quarter, but the spread narrowed 13 basis points from a year earlier.

    Noninterest Income Remains Flat During the Year
    Noninterest income for community banks fell by $2.3 million (0.05 percent) from the year before, while noncommunity banks reported an increase of $1 billion (1.6 percent). Less than a majority (45 percent) of community banks reported lower noninterest income from the previous year. The decline in noninterest income was led by losses on loan sales (down $111.9 million, or 9.6 percent) and losses on sale of other assets (down $50.3 million, or 82.4 percent). Noninterest income as a percent of net operating revenue declined from 22.5 percent in second quarter 2016 to 20.8 percent.

    Noninterest Expense Increases From the Year Before
    Noninterest expense of $15 billion was $616.2 million (4.3 percent) higher from a year earlier, as salary and employee benefits increased by $462.4 million (5.7 percent). Nearly two out of every three (66 percent) community banks reported higher noninterest expense. Full-time employees at community banks increased by 9,315 (2.2 percent) from the year-ago quarter to 425,211. The average asset per employee increased to $5.2 million, compared with $4.9 million in second quarter 2016.

    Loan Growth Rate at Community Banks Outpaces the Rate at Noncommunity Banks
    Community banks reported $1.5 trillion in loan balances in the second quarter, an increase of $41 billion (2.7 percent) from the previous quarter. With 78 percent of community banks increasing their quarterly loan balances, the quarterly growth rate at community banks exceeded that of noncommunity banks (1.5 percent). The quarter-over-quarter increase in loan balances at community banks was led by nonfarm nonresidential loans (up $12.1 billion, or 2.7 percent), 1-to-4 family residential mortgages (up $8 billion, or 2 percent), and commercial and industrial loans (up $6.2 billion, or 3.1 percent). Loan balances increased by $111 billion (7.8 percent) over the past 12 months, surpassing the 3 percent growth rate at noncommunity banks. More than two-thirds (68 percent) of the yearly increase in loan balances at community banks was attributable to nonfarm nonresidential loans (up $44.1 billion, or 10.8 percent), 1-to-4 family residential mortgages (up $16.7 billion, or 4.4 percent), and commercial and industrial loans (up $14.7 billion, or 7.7 percent). Unused loan commitments increased by $23.3 billion (8.7 percent) from the year before, while unused commercial real estate loan commitments—including construction and development—rose by $9.5 billion (12.2 percent).

    Community Banks Increase Small Loans to Businesses
    In second quarter 2017, small loans to businesses at community banks totaled $296.9 billion, up from $289 billion in the previous year.2 However, noncommunity banks reported an annual decline of $1.1 billion (0.3 percent). The 12-month increase at community banks was attributable to nonfarm nonresidential loans (up $3.8 billion, or 2.7 percent) and commercial and industrial loans (up $3 billion, or 3.4 percent). Community banks continue to hold 43 percent of all small loans to businesses.

    Noncurrent Rate Improves Modestly From First Quarter 2017
    With more than half (52 percent) of community banks reducing their noncurrent loan balances from the previous quarter, the noncurrent rate fell by 6 basis points to 0.94 percent, the lowest level since second quarter 2007. The noncurrent rate for community banks was 35 basis points below the 1.29 percent for noncommunity banks. All major loan categories among community banks improved their noncurrent rate from the previous quarter. After increasing for seven consecutive quarters, the noncurrent rate for commercial and industrial loans declined by 18 basis points from first quarter 2017.

    Net Charge-Off Rate Increases From the Year Before
    The net charge-off rate for community banks increased from 0.13 percent in second quarter 2016 to 0.19 percent, while for noncommunity banks the increase was smaller, up 3 basis points to 0.54 percent. Among community banks, all major loan categories had mixed year-over-year results. The net charge-off rate increased for nonfarm nonresidential loans (up 2 basis points) and commercial and industrial loans (up 41 basis points), and was the highest level since fourth quarter 2012. The rise in commercial and industrial loan net charge-offs was primarily the result of the write-down of taxi medallion loans at one large community bank. The net charge-off rate declined for 1-to-4 family residential mortgages (down 3 basis points). Construction and development loans had a negative net charge-off rate for the quarter (0.03 percent) as recoveries exceeded charge-offs.

    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 2017, FDIC-Insured Community Banks

    TABLE V-B. First Half 2017, FDIC-Insured Community Banks

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


    Footnotes:

    1 Non 1-to-4 family real estate loans include construction and development, farmland, multifamily, and nonfarm nonresidential loans.

    2 Small loans to businesses consist of commercial and industrial loans with original amounts of $1 million or less, loans secured by nonfarm nonresidential real estate with original amounts of $1 million or less, real estate loans secured by farmland with original amounts of $500,000 or less, and agricultural production loans with original amounts of $500,000 or less.

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