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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
FIRST QUARTER 2018

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 17.7 Percent Annually on Higher Net Interest Income and Lower Income Tax Expenses
  • Community Banks Grow Loan and Leases 7.4 Percent Over 12 Months
  • Net Interest Margin Widens to 3.64 Percent From a Year Earlier
  • Noncurrent Loan Rate Declines 15 Basis Points Year-Over-Year
  • More Than 70 Percent of Community Banks Report Higher Quarterly Earnings
    Net income of $6.1 billion was up $913.1 million (17.7 percent) compared with first quarter 2017, on higher net interest income and lower income tax expenses, offsetting increases in both noninterest expense and loan loss provisions. Excluding the effect of a lower corporate tax rate, estimated quarterly net income would have been $5.6 billion—up 9.2 percent from the $5.1 billion reported in first quarter 2017.1 More than seven out of ten community banks (73 percent) reported higher net income compared with a year earlier. The pretax return on assets held steady at 1.33 percent, up 2 basis points since year-end 2017 and up 1 basis point since first quarter 2017. The number of community banks totaled 5,168, reflecting three new community bank charters and no community bank failures.2

    Net Interest Income Rises 9.7 Percent Year-Over-Year
    Net interest income increased by $1.6 billion (9.7 percent) compared with first quarter 2017. More than four out of five community banks (85.6 percent) reported higher net interest income compared to the year before. Growth in non 1-to-4 family real estate loan income (up $1.1 billion or 14.6 percent) contributed most to this increase.3 The average net interest margin (NIM) at community banks widened 10 basis points to 3.64 percent during the year as the increase in earning asset yields outpaced the increase in funding costs. The average NIM at community banks was 36 basis points higher than that of noncommunity banks, although the two ratios have been converging year-over-year since first quarter 2015.

    Noninterest Income Grows 2.9 Percent During the Year
    Noninterest income rose by $127.6 million (2.9 percent) to $4.5 billion primarily because of growth in other noninterest income, which increased $122.3 million (6.9 percent) during the year.4 Higher noninterest income offset the decline in net gains on loan sales and sales of other assets. More than half of community banks (54.2 percent) reported higher noninterest income during the year.

    Noninterest Expense Climbs 6.9 Percent From a Year Earlier
    Noninterest expense increased $963.9 million (6.9 percent) to $15 billion compared with first quarter 2017, driven by an increase in salary and employee benefits of $556.6 million (6.9 percent). The number of full-time equivalent employees increased by 9,003 (2.2 percent) during the year, while average assets per employee rose by 4.4 percent to $5.3 million.

    Community Bank Loan and Lease Growth Rate Exceeds That of the Industry
    Loan and lease balances increased by $14.4 billion (0.9 percent) during the quarter to $1.5 trillion. More than half (56.7 percent) of community banks reported higher loan and lease balances compared with the previous quarter. Quarterly loan growth was led by the following categories: nonfarm nonresidential loans, up $8.7 billion or 1.9 percent; multifamily residential loans, up $2.9 billion or 2.5 percent; and commercial and industrial (C&I) loans, up $2.3 billion or 1.1 percent.

    Loan and lease balances rose by $107.3 billion (7.4 percent) during the year, reflecting a growth rate that was 3 percentage points higher than that of noncommunity banks. Nearly 80 percent of community banks reported higher loan balances compared with one year earlier. Annual loan growth was led by the following loan categories: nonfarm nonresidential loans, up $38.9 billion or 9.2 percent; 1-to-4 family residential loans, up $20.5 billion or 4.9 percent; C&I loans, up $14.1 billion or 7.4 percent; multifamily residential loans, up $11.3 billion or 10.7 percent; and construction and development (C&D) loans, up $10.9 billion or 11.4 percent. Unused loan commitments of $297.4 billion were up $24.1 billion (8.8 percent) from the year before. Commitments to lend against commercial real estate properties—including C&D properties—increased by $9.9 billion (12.8 percent) during the year. Loan and lease balances at community banks represented 70.3 percent of total assets, a ratio nearly 15 percentage points higher than that of noncommunity banks.

    Noncurrent Loan Balances Decline
    More than three out of five (61 percent) community banks reported lower or unchanged noncurrent loan balances compared with the previous quarter. Total noncurrent loan and lease balances declined by $25.6 million (0.2 percent), leading to a slight decline in the noncurrent rate of 1 basis point to 0.85 percent—36 basis points below that of noncommunity banks. The noncurrent rate for all major loan categories—except nonfarm nonresidential loans—declined compared with the previous quarter. The noncurrent rate for nonfarm nonresidential loans increased 1 basis point to 0.73 percent, while the past-due rate (loans 30 to 89 days past due) for nonfarm nonresidential loans increased 9 basis points to 0.40 percent. Noncurrent rates for C&I and C&D loans improved the most among major loan categories—decreasing by 7 basis points each. The noncurrent rate for farm loans increased 21 basis points during the quarter to 1.09 percent due to increases in the noncurrent rates for farmland loans (up 20 basis points to 1.28 percent) and agricultural production loans (up 18 basis points to 0.79 percent).

    Net Charge-Off Rate Increases Slightly From a Year Earlier
    Compared with first quarter 2017, the net charge-off rate for community banks increased 2 basis points to 0.13 percent, but was well below the net charge-off rate of noncommunity banks. The net charge-off rate on all major loan categories—except C&I—declined or remained unchanged from a year earlier. The net-charge off rate on C&I loans increased 21 basis points to 0.48 percent compared with first quarter 2017.

    Regulatory Capital Ratios Grow During the Quarter
    Equity capital totaled $243.8 billion, up $1.7 billion (0.7 percent) compared with fourth quarter 2017. However, net unrealized losses on available-for-sale securities increased by $4.5 billion to $5.6 billion and contributed to a decline in the total equity capital ratio of 4 basis points. The following regulatory capital ratios increased in the first quarter: the tier 1 risk-based capital ratio, up 13 basis points to 14.71 percent; the total risk-based capital ratio, up 12 basis points to 15.77 percent; and the leverage capital ratio, up 10 basis points to 10.90 percent. The first quarter 2018 leverage capital ratio represents a 30-year high for community banks.

    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. First Quarter 2018, FDIC-Insured Community Banks

    TABLE V-B. Full Year 2017, FDIC-Insured Community Banks

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


    Footnotes:

    1 This estimate of net income applies the average quarterly tax rate at community banks between fourth quarter 2011 and third quarter 2017 to income before taxes and discontinued operations.

    2 One insured institution had not filed a March 31 Call Report at the time this report was prepared.

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

    4 Other noninterest income includes items that are greater than $100,000 and exceed 3 percent of all other noninterest income reported. These items include income and fees from printing and sale of checks, earnings on increase in value of cash surrender value of life insurance, income and fees from automated teller machines, rent and other income from other real estate owned, safe deposit box rent, net change in the fair values of financial instruments accounted for under a fair value option, bank card and credit card interchange fees, gains on bargain purchases, and other miscellaneous items.

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