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Historical Archive of the Quarterly Banking Profile

Residential Lending During the Pandemic - PDF
FDIC Quarterly, 2021, Volume 15 Number 2

The housing market rebounded from the COVID-19 pandemic-induced recession faster than other sectors of the economy, helped by historically low interest rates and fiscal support. Still, weaker economic fundamentals led to tightening of mortgage credit and underwriting standards as lenders sought to reduce credit risk from new mortgages. Community banks in particular have maintained strength in residential lending. Community banks have declined in number over the years, from over 8,000 before 2005 to 4,531 in first quarter 2021, but they have maintained a consistent and supportive presence in residential lending. Mortgage credit performance improved after deteriorating at the start of the pandemic, but high rates of delinquent loans reflect lingering financial distress for many borrowers. Nevertheless, banks have been resilient and, despite the uncertain outlook, continue to extend residential loans.

2020 Summary of Deposits Highlights - PDF
FDIC Quarterly, 2021, Volume 15 Number 1

The 2020 Summary of Deposits Survey showed deposit growth of 21.7 percent between June 2019 and June 2020, the largest one-year increase in nearly 80 years. The large year-over year increase in deposits occurred primarily in the first two quarters of 2020, and was likely driven by reactions of individuals, businesses, and U.S. fiscal and monetary authorities to the COVID-19 pandemic. In the year ending June 30, 2020, the rate of deposit growth increased for community banks and noncommunity banks, for small, midsize, and large banks, for banks located in metropolitan, micropolitan, and rural counties, and for all but one lending specialization.

Farm Banks: Resilience Through Changing Conditions - PDF
FDIC Quarterly, 2021, Volume 15 Number 1

The U.S. agricultural sector has experienced large swings over the past decade and a half, from a lengthy period of prosperity in agriculture that ended in 2013 to subsequent years that presented a slow, weak recovery. Most farmers and farm banks were cautious with farm real estate lending during the strong years. As a result, farm banks have held up well despite the agricultural industry’s challenges since 2014. The COVID-19 pandemic initially looked to be harmful for U.S. agriculture, but record government payments helped forecasted 2020 farm income reach the highest level since 2013. Because of their small size and geographic footprint—45 percent of farm banks have only one or two locations—nearly all farm banks are considered “community banks” by the FDIC’s definition.

The Importance of Community Banks in Paycheck Protection Program Lending - PDF
FDIC Quarterly, 2020, Volume 14, Number 4
During the current public health emergency, community banks are playing a vital role in supporting small businesses through the Small Business Administration’s Paycheck Protection Program (PPP). Community banks throughout the country participated in the program, with community bank PPP loan portfolios representing over 30 percent of total bank PPP loans.

2019 Summary of Deposits Highlights - PDF
FDIC Quarerly, 2020, Volume 14 Number 1
In the 2019 Summary of Deposits (SOD) Survey, the banking industry reported an increase in deposits and a decrease in the number of branch offices, continuing recent trends. This article describes deposit gathering and office closures shown in the 2019 SOD, which reports data as of June 30, 2019. The rate of deposit growth increased for both community and noncommunity banks, but the merger-adjusted or “organic” rate of deposit growth at community banks exceeded that of noncommunity banks for the third consecutive year.

Bank and Nonbank Lending Over the Past 70 Years - PDF
FDIC Quarterly, 2019, Volume 13, Number 4
Total lending in the U.S. has grown dramatically since the 1970s. The share of community bank and noncommunity bank loans has generally fallen as nonbanks gained market share in residential mortgage and corporate lending. In other business lines, shifts in loan holdings from banks to nonbanks have been less pronounced as community banks, noncommunity banks and nonbanks continue to play important roles in lending for commercial real estate, agricultural loans, and consumer credit. Studying the roles that banks and nonbanks play in lending markets allows for a better understanding of how banks respond to growth in nonbank lending and the implications of associated risks for the banking sector and the broader economy.

Merger Adjusting Bank Data: A Primer
FDIC Quarterly, 2019, Volume 13, Number 1
Analysis of banking trends often focuses on specific industry subgroups, such as community banks. For example, the group of community banks today is not necessarily made up of the same institutions that constituted the group a year earlier; institutions merge, fail, or close, or they can change and no longer meet the criteria to be a community bank or noncommunity banks may become community banks. Given these ongoing structural changes, how should analysts measure year-over-year loan growth at community banks? 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
FDIC Quarterly, 2018, Volume 12, Number 4
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
FDIC Quarterly, 2017, Volume 11, Number 4
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.

Community Bank Mergers Since the Financial Crisis: How Acquired Community Banks Compared With Their Peers
FDIC Quarterly, 2017, Volume 11, Number 4
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.

Banks Attract More Deposits While Operating Fewer Offices
FDIC Quarterly, 2017, Volume 11, Number 1
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
FDIC Quarterly, 2016, Volume 10, Number 4
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
FDIC Quarterly, 2016, Volume 10, Number 4
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
FDIC Quarterly, 2015, Volume 9, Number 4
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
FDIC Quarterly, 2015, Volume 9, Number 1
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. Overall, the data provide a better understanding of how bank office trends affect community banks.

Community Banks Remain Resilient Amid Industry Consolidation
FDIC Quarterly, 2014, Volume 8, Number 2
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
FDIC Quarterly, 2014, Volume 8, Number 2
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
FDIC Quarterly, 2013, Volume 7, Number 4
In December 2012, the FDIC published the FDIC Community Banking Study, a comprehensive report on trends in U.S. community banking over the 27-year period from year-end 1984 through 2011. This paper seeks to answer this question by extending the results of the Study. It applies the community bank definition from the Study to year-end 2012 data, and recapitulates key elements of the analysis for 2012. Consistent with the previous Study, it focuses on recent trends in industry structure, balance sheet composition, geography, earnings, and capital formation.

Economies of Scale in Community Banks
Staff Study 2020-06
Using financial and supervisory data from the past 20 years, we show that scale economies in community banks with less than $10 billion in assets emerged during the run-up to the 2008 financial crisis due to declines in interest expenses and provisions for losses on loans and leases at larger banks. The financial crisis temporarily interrupted this trend and costs increased industry-wide, but a generally more cost-efficient industry re-emerged, returning in recent years to pre-crisis trends. We estimate that from 2000 to 2019, the cost-minimizing size of a bank’s loan portfolio rose from approximately $350 million to $3.3 billion. Though descriptive, our results suggest efficiency gains accrue early as a bank grows from $10 million in loans to $3.3 billion, with 90 percent of the potential efficiency gains occurring by $300 million.

The Importance of Community Banks in Paycheck Protection Program Lending
FDIC Quarterly Volume 14 Number 4
During the current public health emergency, community banks are playing a vital role in supporting small businesses through the Small Business Administration’s Paycheck Protection Program (PPP). Community banks throughout the country participated in the program, with community bank PPP loan portfolios representing over 30 percent of total bank PPP loans.

Shared Destinies? Small Banks and Small Business Consolidation
FDIC Center for Financial Research Working Paper No. 2020-04
We identify a new source of bank consolidation in the United States. For decades, both the financial and real sides of the economy have experienced considerable consolidation. We show that banking-sector consolidation is, in part, a consequence of real-sector consolidation; because small banks are a disproportionate source of small-business credit, they are disproportionately exposed to shocks to small-business growth. Using a Bartik instrument based on national small-business trends and county-level industry exposure, we show that changes to the real-side demand for small-business credit is partially responsible for the relative decline in small banks’ deposits, income, and loan growth.

Measurement of Small Business Lending Using Call Reports: Further Insights From the Small Business Lending Survey
Staff Studies Report No. 2020-04
Aggregate U.S. bank lending to small businesses is often approximated with regulatory data based on loan size using commercial and industrial (C&I) loans of $1 million or less as a proxy. We assess the validity of this proxy in measuring small business lending using data from the Federal Deposit Insurance Corporation’s (FDIC’s) Small Business Lending Survey (SBLS), a nationally representative survey of banks. We find that more than 30 percent of C&I lending by banks with $1 billion to $10 billion in assets is in small loans (less than $1 million) to large firms or larger loans to small firms, which contradicts the core assumption of high correlation between loan size and firm size that underpins usage of the proxy. When we relax the proxy’s assumption for loan size using parameters generated from the survey data, we find that aggregate small business lending by banks likely recovered from the 2007–2009 recession (Great Recession) two to four years earlier than indicated by the proxy. Using $10 million in gross annual revenue as a maximum small business size, we find that the proxy on net understates small business lending by banks with $1 billion to $10 billion in assets by up to 23 percentage points, with wide dispersion among banks in the degree of over- and understatement. This dispersion undermines the proxy’s ability to correctly rank banks by the proportion of their C&I loan portfolio devoted to small business lending. We also find that the proxy likely only mildly understates small business lending for the smallest banks, those with less than $1 billion in assets.

Analyzing the Community Bank Leverage Ratio
Staff Studies Report No. 2020-03
This note analyzes the newly introduced Community Bank Leverage Ratio (“CBLR”) framework. The analysis covers the framework’s eligibility, its capital stringency, and its potential impact on systemwide capital levels under a hypothetical adverse scenario.

2019 Summary of Deposits Highlights
FDIC Quarterly Volume 14 Number 1
In the 2019 Summary of Deposits (SOD) Survey, the banking industry reported an increase in deposits and a decrease in the number of branch offices, continuing recent trends. This article describes deposit gathering and office closures shown in the 2019 SOD, which reports data as of June 30, 2019. For selected topics, comparative information about credit unions is included. This article also examines characteristics of the offices of operating banks that close versus those that are sold or leased, and of offices that close versus those that remain open following bank acquisitions.

2019 Minority Depository Institutions: Structure, Performance, and Social Impact
This study updates the FDIC’s 2014 minority depository institution (MDI) research study and explores changes in FDIC-insured MDIs, their role in the financial services industry, and their impact on the communities they serve. The study period covers 2001 to 2018 and looks at the demographics, structural change, geography, financial performance, and social impact of MDIs. The study found that MDIs continue to consolidate, but the surviving MDIs are performing significantly better than they were five years ago. It also found that MDIs are effectively serving their communities.

2018 Small Business Lending Survey
The Small Business Lending Survey is a nationally-representative survey of U.S. banks and their small business lending practices. The report of survey findings offers new information for both small and large banks on many aspects of their small business lending. The results provide context for the implications of current bank consolidation trends on U.S. small businesses.