Community Banking Initiative
Research and Reports
Research and Reports
In the fall of 2011, the FDIC announced a number of initiatives focused on understanding of the evolution of community banks over the past 25 years and the challenges and opportunities faced by this segment of the banking industry. The initial results of the FDIC's Community Banking Initiative are detailed below. Research published to this site is based on data available as of the date of publication. These data are subject to periodic revision and update.
- Merger Adjusting Bank Data: A Primer – PDF
(Fourth Quarter 2018)
Analysis of banking trends often focuses on specific industry subgroups. The analyst tracks the performance or characteristics of an industry subgroup over time, and the results, if compelling, can serve as input to policy decisions. An important component of analyzing industry subgroups is a procedure called merger adjustment. This article describes how and when FDIC analysts use merger adjustment when analyzing the banking industry. It discusses when to merger adjust and when not to merger adjust, and offers guidance for interpreting the results.
- Deposit Growth Slows and Office Decline Continues – PDF
(Third Quarter 2018) The 2018 Summary of Deposits Survey showed that FDIC-insured institutions reported an increase in deposits and a decrease in offices over the past year. During the year ended June 2018, deposits increased at both noncommunity banks and at community banks, but at slower rates than in recent years. The decrease in the number of offices is a decade-long trend in both community banks and noncommunity banks, although the office opening and closing patterns of these two types of institutions has differed markedly. This article will describe these trends in detail and will look at the association between office closures and changes in bank profitability and efficiency. Analysis of Call Report data indicates that banks that closed offices at higher rates between 2013 and 2018 reported improved efficiency ratios and stronger profitability.
- Factors Shaping Recent Trends in Banking Office Structure for Community and Noncommunity Banks - PDF (Third Quarter 2017)
Total industry deposits grew once again in 2017, and the rate of deposit growth was higher at community banks than at noncommunity banks, according to the 2017 Summary of Deposits (SOD) survey. Key findings from the SOD survey also show that the number of offices operated by noncommunity banks declined on a merger-adjusted basis in the most recent year and over the past five years, while the number of community bank offices increased slightly over both intervals. Relatively few banks have reported a net decline in their number of offices over the past five years, yet cutbacks in offices at these banks have been large enough to drive a sizable decline in the overall number of banking industry offices since 2012. This continuing trend of fewer banking offices can be attributed to factors such as population migration, office expense mitigation, industry consolidation, and financial technology.
- Community Bank Mergers Since the Financial Crisis: How Acquired Community Banks Compared With Their Peers - PDF (Third Quarter 2017)
An increase in mergers and a dearth of new charters in the post-crisis period have renewed the interest of researchers in banking industry consolidation. This analysis focuses on community banks acquired between 2010 and 2016 in voluntary, inter-bank transactions and compares their characteristics with selected peer institutions. It refines the peer-group selection used in previous research by applying the FDIC's community bank definition and controlling for asset size, geography, and lending specialty—a method that can be applied to future peer group analyses. A comparison of acquired community banks with their peers shows that acquired institutions were typically less profitable, reported lower capital ratios, and reported higher core deposit-to-asset ratios but lower ratios of nonperforming assets. The results of this research are consistent with past findings that acquired community banks generally underperform their peers.
- Banks Attract More Deposits While Operating Fewer Offices - PDF (Fourth Quarter 2016)
Deposits across the banking industry grew while the number of offices shrank among noncommunity banks and increased among community banks from the previous year, according to the 2016 Summary of Deposits survey. Meanwhile, offices in energy-dependent counties reported almost no deposit growth as natural gas, oil, and coal prices fell.
- Core Profitability of Community Banks, 1985–2015 - PDF (Third Quarter 2016)
The relatively low profitability reported by community banks since the 2008 financial crisis has sparked concerns about the core profitability of the community banking model. This paper constructs an econometric model using 31 years of data to estimate the impact of macroeconomic shocks on industry average pretax return on assets (ROA). After accounting for macroeconomic factors, the remaining unexplained variation is considered to be the core component of profitability. Core ROA is found to have been relatively stable between 1985 and 2015. It trended downward over the 1990s, but the effect of the financial crisis on industry composition has led to a reversal and a modest increase in core profitability. More than 80 percent of the post-crisis decline in profitability can be explained by negative macroeconomic shocks.
- Mutual Institutions: Owned by the Communities They Serve - PDF (Third Quarter 2016)
Mutual institutions—savings banks and savings and loans owned by their depositors—are a unique type of community bank. This paper provides an overview of mutual institutions and their place in the U.S. financial system. They generally earn lower returns on assets than stock community banks, but have higher-quality assets. Mutuals also failed less often between 2008 and 2014 than did stock community banks. From their 19th-century origins as providers of small-denomination savings accounts and the means of pooling funds to finance homeownership, to their dominance of U.S. mortgage finance for much of the 20th century, and to their strong performance during the recent financial crisis, mutuals remain an important segment of the community banking sector.
- Financial Performance and Management Structure of Small, Closely Held Banks - PDF (First Quarter 2016)
Closely held banks may face operational challenges in raising external capital and recruiting future managers, especially in rural areas. At the same time, closely held banks may have certain operational advantages, including the ability to focus on long-term goals and to minimize principal-agent problems that may arise from the separation of ownership and operational control. This paper compares the performance of closely and widely held banks as identified in a survey of FDIC bank examiners and finds that closely held banks do not appear, on net, to be underperforming widely held banks in recent years. Closely held banks where the day-to-day manager is a member of the ownership group seem to outperform banks with a hired manager. The survey of bank examiners in three FDIC supervisory Regions was used to identify the ownership and management structure of more than 1,350 community banks. The survey results suggest that almost 75 percent of community banks in these Regions can be regarded as closely held, typically on the basis of family or community ties.
- Brick-and-Mortar Banking Remains Prevalent in an Increasingly Virtual World - PDF (Fourth Quarter 2014)
This paper chronicles long-term trends in the number and density of U.S. banking offices from 1935 to 2014. The study examines the effects that population trends, bank crises, changes in banking laws, and online and mobile banking have had on the number and density of banking offices, and explores the relationship between technology and brick-and-mortar bank offices.
- Minority Depository Institutions: Structure, Performance, and Social Impact - PDF (Second Quarter 2014)
While the number of minority depository institutions (MDIs) and community development financial institutions (CDFIs) is relatively small compared with the total number of insured institutions, MDIs and CDFIs play an important role in providing financial services to the communities they seek to serve. This study describes MDIs and FDIC-insured CDFIs and how the structure of this segment of the financial services industry has changed over time. The study also compares the performance of MDIs with other insured institutions. Although MDIs tend to underperform non-MDI institutions in terms of standard industry financial performance measures, the study finds that MDI offices tend to be located in communities with higher shares of minority populations. In addition, MDIs were found to originate a greater share of their mortgages to borrowers living in low- and moderate-income census tracts and to minority borrowers compared with other financial institutions. These findings demonstrate a high level of commitment on the part of MDIs to the populations they seek to serve and the essential role they play in their local communities.
- Community Banks Remain Resilient Amid Industry Consolidation - PDF (First Quarter 2014)
There has been a great deal of focus recently on banking industry consolidation and its effects on community banks. New analysis based on the FDIC's functional definition of the community bank shows that these institutions have been highly resilient amid long-term industry consolidation. The rate of attrition among community banks over the past decade has been less than half that of noncommunity banks. When community banks have been acquired, almost two-thirds of the time the acquirer has been another community bank. After more than 30 years of consolidation, the evidence strongly suggests that community banks will continue to carry out their important financial role for the foreseeable future.
- Long-Term Trends in Rural Depopulation and Their Implications for Community Banks - PDF (First Quarter 2014)
This article discusses rural depopulation, a long-term trend that not only encompasses half of the nation's rural counties, but also intensified in many areas in the 2000s. Technological advances that continue to make farms larger are the main driver of the trends, and as such the Great Plains and the Corn Belt are the areas with the most counties experiencing population outflows. Community banks in depopulating areas tend to specialize in agricultural lending, which is far less common in metropolitan and micropolitan areas. The unusual strength in the agricultural sector in the 2000s, even through the U.S. recession, helped community banks in depopulating rural areas avoid many of the asset quality and earnings issues that affected banks located elsewhere. The strong agricultural sector also enabled these institutions to grow assets and deposits at relatively high rates, when such growth had been challenging in these areas before the agricultural boom.
- Community Bank Developments in 2012 - PDF (Third Quarter 2013)
This paper updates the FDIC Community Banking Study to reflect developments in the structure and performance of U.S. community banks through the end of 2012. It finds that while the community banking sector changed little in structural terms during the year, community banks showed continued improvement in financial performance following the disruptions associated with the recent financial crisis. Problem loans and failures declined among community banks in 2012, while their pretax profitability was the highest since 2007. While community banks hold just 14 percent of industry assets, they make up almost 95 percent of all U.S. banking organizations. The sector continues to hold nearly half of the industry's small loans to farms and businesses, as well as the majority of deposits in U.S. rural and micropolitan counties.
- Examination and Rulemaking Results - PDF (December 2012)
The FDIC has undertaken a review of its examination, rulemaking, and guidance processes during 2012 with a goal of identifying ways to make the supervisory process more efficient, consistent, and transparent. As a part of this process, we solicited feedback from supervisory staff in the Divisions of Risk Management Supervision and Depositor and Consumer Protection. In addition, we also received significant comments through the CBI Roundtables, the FDIC Advisory Committee on Community Banking, post exam surveys and other outreach venues (including two ad hoc additional roundtables focused on compliance and consumer protection issues).
- FDIC Community Banking Study - PDF (December 2012)
The FDIC's Community Banking Study is a data-driven effort to identify and explore issues and questions about community banks. This study is intended to be foundational, providing a platform for future research and analysis by the FDIC and other interested parties.
Quarterly Banking Profile: Community Bank Performance Section
This section of the Quarterly Banking Profile provides insight into the condition and performance of community banks.
- Fourth Quarter 2018
- Third Quarter 2018
- Second Quarter 2018
- First Quarter 2018
- Fourth Quarter 2017
- Third Quarter 2017
- Second Quarter 2017
- First Quarter 2017
- Fourth Quarter 2016
- Third Quarter 2016
- Second Quarter 2016
- First Quarter 2016
- Fourth Quarter 2015
- Third Quarter 2015
- Second Quarter 2015
- First Quarter 2015
- Fourth Quarter 2014
- Third Quarter 2014
- Second Quarter 2014
- First Quarter 2014