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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 2019

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.

  • Community Bank Net Income Increases 10.1 Percent Year Over Year
  • Higher Net Interest Income Lifts Net Operating Revenue
  • Annual Loan and Lease Growth Remains Strong
  • Quarterly Net Charge-Off Rate Lowest Since First Quarter 2006
  • Most Community Banks Report Higher Earnings Year Over Year
    First quarter 2019 net income of $6.5 billion increased $595.1 million (10.1 percent) from first quarter 2018. Higher net interest income, higher realized gains on securities, and lower provision expense drove the year-over-year increase in quarterly earnings. Lower noninterest income and higher noninterest expense partially offset the improvements. Most community banks (62 percent) reported net income growth year over year, and pretax return on assets rose 7 basis points to 1.40 percent. Only 3.9 percent of community banks reported net losses for the quarter, the lowest share of community banks reporting first quarter net losses since first quarter 1997. The number of community banks totaled 4,930, reflecting one new community bank and no community bank failures during the quarter.

    Net Interest Income Rises, While Net Interest Margin Growth Slows
    Higher net interest income overcame lower noninterest income to deliver a year-over-year increase in net operating revenue. Net interest income increased $1.1 billion (6.4 percent) to $19.2 billion as nearly four in five community banks (79 percent) reported an annual increase. Broad-based improvements in loan interest income drove the annual increase. Each major loan interest income category—1–4 family real estate, non 1–4 family real estate, agricultural production, commercial and industrial (C&I), and consumer—registered year-over-year growth of 10 percent or more.1

    Total earning assets grew $102.4 billion (5.1 percent) year over year, and the average net interest margin improved 3 basis points to 3.67 percent. The annual increase in net interest margin was smaller than reported in each of the prior six quarters, including a 10 basis point increase in first quarter 2018, as funding costs increased faster than asset yields. The increase in funding costs is partially attributable to a shift from noninterest-bearing deposits to interest-bearing deposits, as interest-bearing deposits now constitute 78.9 percent of community bank domestic deposits. Community bank deposits are also repricing at a faster pace than a year ago. The average annualized cost of deposits increased 39 basis points year over year in first quarter 2019, up from a year-over-year increase of 14 basis points in first quarter 2018.

    More Than Half of Community Banks Report Lower Noninterest Income
    More than half of community banks (53 percent) reported a decrease in noninterest income compared with the same quarter last year. Noninterest income totaled $4.3 billion, a decline of $83.8 million (1.9 percent). A reduction in servicing fees (down $53.1 million, or 24.8 percent) and net gains on loan sales (down $20.7 million, or 3 percent) contributed most to the decline. Noninterest income as a share of assets fell 7 basis points to 0.76 percent.

    Efficiency Ratio Improves Even as Noninterest Expense Increases
    Noninterest expense of $15.1 billion was $584.4 million (4 percent) higher than a year earlier. Nearly three out of four (73 percent) community banks reported noninterest expense growth. Salary and employee benefits expense were $409.5 million (4.9 percent) higher than a year earlier, as the total number of full-time employees rose by 4,369 (1.1 percent). The growth in noninterest expense was aligned with growth in revenue and assets. The community bank efficiency ratio improved 80 basis points to 64 percent, and average assets per employee increased 3.9 percent to $5.6 million.

    Community Bank Loan and Lease Growth Rate Outpaces Noncommunity Bank Rate
    Both quarter-over-quarter and year-over-year community bank loan and lease growth rates outpaced the rate of loan and lease growth at noncommunity banks. Loan and lease balances increased $14.8 billion (0.9 percent) during the quarter to $1.6 trillion. More than half (58 percent) of community banks reported quarterly loan growth, which was led by the following categories: nonfarm nonresidential loans (up $7.1 billion, or 1.5 percent), C&I loans (up $3.3 billion, or 1.5 percent), and construction and development (C&D) loans (up $2.5 billion, or 2.2 percent). Smaller farm loan balances (down $1.2 billion, or 0.9 percent) and home equity balances (down $0.5 billion, or 1.1 percent) partially offset the growth.

    Loan and lease balances increased $99.2 billion (6.6 percent) during the past 12 months. Annual loan growth was broad based as every major loan category increased, and nearly eight out of ten (79 percent) community banks reported higher loan balances year over year. The following categories led annual growth: nonfarm nonresidential loans (up $33.6 billion, or 7.6 percent), C&I loans (up $17.4 billion, or 8.7 percent), 1–4 family residential loans (up $17.4 billion, or 4.1 percent), and C&D loans (up $10.3 billion, or 10 percent). Unused loan commitments of $313.3 billion were $21.3 billion (7.3 percent) higher than a year ago.

    Noncurrent Rate Falls Despite Rise in Noncurrent Balances
    Total noncurrent loan and lease balances increased $176.7 million (1.4 percent) during the quarter. Lower 1–4 family residential, nonfarm nonresidential, and consumer noncurrent balances were more than offset by higher noncurrent balances in farm, C&I, and C&D categories. The largest increase in noncurrent balances occurred in farm loans (up $194.6 million, or 13.7 percent).

    Despite the rise in noncurrent balances, the total loan and lease noncurrent rate declined for the 35th time in the past 37 quarters. Strong loan growth caused the total loan noncurrent rate to fall 1 basis point quarter over quarter to 0.77 percent. The largest improvement occurred in consumer (down 10 basis points to 0.58 percent) and 1–4 family residential (down 9 basis points to 0.95 percent) categories. The noncurrent rate for farm loans increased 16 basis points during the quarter to 1.28 percent owing to increases in the noncurrent rates for farmland loans (up 17 basis points to 1.51 percent) and agricultural production loans (up 14 basis points to 0.93 percent).

    Quarterly Net Charge-Off Rate Nears Record Low
    The community bank first quarter 2019 net charge-off rate of 0.09 percent marked the lowest community bank net charge-off rate since first quarter 2006 and the second lowest net charge-off rate on record.2 The total loan net charge-off rate fell 4 basis points from first quarter 2018 led by declines in C&I (down 32 basis points) and consumer (down 15 basis points) categories. The net charge-off rate for loans secured by commercial real estate was 0.03 percent, while the rate for loans secured by residential real estate was 0.02 percent. The net charge-off rate on farm loans was 0.06 percent.

    Community Bank Capital Ratios Increase During the Quarter
    Equity capital totaled $259.8 billion, up $7.4 billion (2.9 percent) compared with first quarter 2018. The increase in capital exceeded the increase in risk-weighted assets, resulting in a higher average community bank tier 1 risk-based capital ratio (up 8 basis points to 14.80 percent) and a higher average community bank total risk-based capital ratio (up 7 basis points to 15.83 percent). The leverage capital ratio increased 2 basis points to 11.11 percent.

    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 2019, FDIC-Insured Community Banks

    TABLE V-B. Full Year 2018, FDIC-Insured Community Banks

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


    Footnotes:

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

    2 Record consists of data from first quarter 1984 to first quarter 2019.

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