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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
THIRD 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 Increases to $6 Billion on 9.4 Percent Year-Over-Year Growth
  • Net Interest Income Growth Drives Gains in Net Operating Revenue
  • Net Interest Margin Widens to 3.65 Percent
  • Total Loans and Leases Grow 7.3 Percent During the Year
  • Noncurrent Rates Improve Across Major Loan Categories
  • Net Income Growth Continued From the Previous Quarter for Most Community Banks
    Of the 5,294 community banks reporting third quarter financial results, 67 percent saw an annual increase in net income.1 Quarterly net income rose 6.7 percent to $6 billion, reflecting an annual increase of 9.4 percent. Year-over-year profitability grew on gains in net interest income, driven by growth in higher-yielding loans. Pretax return on assets (ROA) increased to 1.42 percent during the quarter, reflecting a quarterly increase of 6 basis points and an annual increase of 4 basis points. The ROA at community banks remained 21 basis points below that of the industry, consistent with the spread during the same period last year. Compared with the previous quarter, the number of banks reporting a net loss declined by 11 to 216. Two new community banks received charters during the quarter, and no community banks failed.

    Growth in Net Interest Income Raises Net Operating Revenue
    Higher interest income on non 1-to-4 family real estate loans pushed net interest income up 9.7 percent during the year to $18.8 billion.2 Interest income on non 1-to-4 family real estate loans increased 4.1 percent during the quarter and 12.9 percent during the year to $8.8 billion. The average yield on assets continued to outpace funding costs, leading to a 4-basis-point expansion in the average net interest margin (NIM) since the prior quarter and a 7-basis-point expansion since the previous year. At 3.65 percent, the community bank NIM is 35 basis points wider than the industry NIM. However, this spread has narrowed 19 basis points since third quarter 2015.

    Noninterest Income Declines
    More than half of community banks (50.9 percent) reported a decrease in noninterest income compared with the same quarter last year. A reduction in net gains on loan sales during the year caused this decline, lowering noninterest income by $174.2 million, or 3.4 percent. Net gains on loan sales increased $45.4 million (4.3 percent) during the quarter but fell $323.7 million (22.9 percent) from a year earlier.

    Noninterest Expense Grows During the Year
    Most community banks (63.2 percent) reported higher noninterest expense compared to the same period last year. Higher expenses for salary and employee benefits contributed to this increase and lifted noninterest expense 4.3 percent to $15.2 billion during the year. Salary and employee benefits increased $190.1 million (2.24 percent) during the quarter and $392 million (4.7 percent) during the year to $8.7 billion. Annual growth in the volume of assets per employee, from $5 million to $5.3 million, accompanied this increase. The number of full-time employees contracted 0.07 percent to 421,808 during the quarter but increased 1.97 percent during the year.

    Loan and Leases Grow 7.3 Percent
    Community bank loan balances increased $26.3 billion (1.7 percent) to $1.6 trillion during the quarter, reflecting an annual increase of $106.7 billion (7.3 percent). Quarterly and yearly increases slowed moderately compared with the quarterly growth rate of 2.7 percent and yearly growth rate of 7.8 percent achieved as of the second quarter. Both quarterly and annual loan growth rates continued to exceed those of the industry. Growth in nonfarm nonresidential loans of $9 billion, led the increase in loan volume among major loan categories during the quarter, followed by 1-to-4 family residential mortgage loan growth of $5.2 billion, and construction and development (C&D) loan growth of $3.3 billion. Growth in nonfarm nonresidential loans of $43.4 billion (10.5 percent), 1-to-4 family residential mortgage loans of $17 billion (3.9 percent), and commercial and industrial loans of $13 billion (6.7 percent) led the increase in annual loan growth. Unfunded loan commitments grew $23.3 billion or 8.6 percent during the year, led by a $9.9 billion or 12.7 percent increase in commitments to fund C&D loans. Community banks continued to hold a higher volume of loans and leases as a percentage of total assets (69.3 percent) when compared with the industry (54.7 percent).

    Noncurrent Rates Improve Across Major Loan Categories
    Noncurrent loans declined $499.9 million (3.5 percent) to $13.8 billion during the year, helping to reduce the noncurrent rate by 15 basis points to 0.88 percent—the lowest noncurrent rate since second quarter 2007. The noncurrent rate for loans secured by C&D property declined 29 basis points to 0.89 percent, the largest annual decline in noncurrent rates among the major loan categories and the lowest noncurrent rate for C&D loans since 2006. Farm loans experienced a 17 basis point increase in the noncurrent rate to 0.99 percent over the year. Despite a 5-basis-point reduction during the year to 1.26 percent, the noncurrent rate for commercial and industrial loans remained the highest among major loan categories for the fourth consecutive quarter.

    Net Charge-Offs Decline During the Quarter and Year
    Net charge-offs fell $234.5 million (34 percent) from the previous quarter and $132 million (22.5 percent) from the previous year. These reductions helped lower the net charge-off rate for total loans and leases by 7 basis points during the quarter and 4 basis points during the year to 0.12 percent. The net charge-off rate for commercial and industrial (C&I) loans showed the most improvement among major loan categories during the year, dropping 13 basis points to 0.33 percent. The net charge-off rate for C&I loans has been the highest among major loan categories since first quarter 2014. The net charge-off rate for nonfarm nonresidential loans declined 2 basis points during the year to 0.04 percent, while the net charge-off rate for C&D loans rose 5 basis points to 0.03 percent. The coverage ratio (reserves to noncurrent loans) continued a steady quarterly increase, from 126.8 percent in the second quarter to 132.3 percent in the third quarter.

    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. Third Quarter 2017, FDIC-Insured Community Banks

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

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


    Footnotes:

    1 Data for third quarter 2017 do not include one insured institution with $4.1 billion in assets, which had not reported at the time data were compiled.

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

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