Research & Reports

Fourth Quarter 2021

Third Quarter 2021

Second Quarter 2021

First Quarter 2021

This highlighted herein are articles featured in the Quarterly Banking Profile from the last 12 months with specific focus on community banks. Focus articles older than 12 months are located in the Archives section of this page.

Small Bank Financing and Funding Hesitancy in a Crisis: Evidence from the Paycheck Protection Program
FDIC Center for Financial Research Working Paper 2021-01
We study the delivery of subsidized financing to small firms through the Paycheck Protection Program (PPP). Smaller firms are less likely to gain early PPP access, an effect attenuated in small banks and firms with prior lending relationships. Their more even treatment offers a new rationale, beyond traditional soft information arguments, for why small businesses pair with small banks. We also detect a “funding hesitancy” in PPP uptake by small businesses, partly reflecting their wariness of the extensive, subjective government powers to investigate PPP recipients. We discuss the implications of the results for research and policies on small business financing.

Consumer Lending Through the Pandemic and the Recovery - PDF
The COVID-19 pandemic pushed the economy into what was, by some measures, the worst contraction on record. However, consumer lending trends did not deteriorate as they usually do during a recession. Government support for households raised aggregate personal income in 2020 and helped support consumer loan performance. In comparison, credit card loan balances contracted in 2020 and remained below the pre-recession level through the third quarter of 2021, and auto and other consumer loans expanded throughout 2020 and 2021. Performance of all types of bank consumer loans improved thanks to government support, forbearance programs, and tighter underwriting standards for new loans. In both the consumer and auto loan categories, the noncurrent rate was lower in community banks than in noncommunity banks. While caution is warranted, and changes in the pandemic and responses could weaken the outlook, the future of consumer lending appears strong.

2021 Summary of Deposits Highlights - PDF
The 2021 Summary of Deposits data reflect the effects of the COVID-19 pandemic, changing spending patterns, and government stimulus programs on deposit levels and the number of branch openings and closures. This article evaluates changes in community banks compared with those of noncommunity banks. A special feature discusses branch openings and closings of minority depository institutions. This article also evaluates the likely effect on branch levels of increased availability and use of mobile and electronic banking applications. Responses from the 2021 Summary of Deposits survey show that deposit growth rates for the industry were higher than pre-pandemic growth rates. However, deposit growth rates have moderated compared with the record highs in 2020. Over the past year, deposit growth rates have been higher among community banks compared with those of noncommunity banks. In 2021, the decline in the number of branches accelerated from a year ago, with branches of noncommunity banks closing at a higher rate compared with that of community banks.

Commercial Real Estate: Resilience, Recovery, and Risks Ahead - PDF
Commercial real estate (CRE) lending is important to the banking industry, which holds $2.7 trillion in CRE loans. In the pandemic, CRE conditions in several property types came under stress. The pandemic challenged the brick-and-mortar retail, hotel, and office sectors, while multifamily largely held up and the industrial sector benefitted from increased demand. Market conditions improved with economic recovery in 2021, but some of the changes the CRE industry experienced in the pandemic may be long-lasting. The issues facing CRE will be important considerations for a large share of the banking industry. Initially the pandemic threatened to significantly challenge banks’ CRE loan quality, but loan delinquency rates remained low through third quarter 2021 against the backdrop of economic rebound, stimulus support, and loan forbearance. This article analyzes conditions across major CRE property types and discusses FDIC-insured institutions’ exposure to CRE loans, credit quality, and potential challenges ahead.

Implications of Record Deposit Inflows for Banks During the Pandemic - PDF
In 2020, the pandemic disrupted the global economy, creating stress and uncertainties for consumers and businesses. The U.S. government responded with assistance programs that, combined with increased personal savings, contributed to a record inflow of deposits to banks. The deposit inflows created historically high bank liquidity and many banks shifted their balance sheet composition to shorter-term, lower-yielding and non-yielding assets. The shift in asset composition and a prolonged period of low interest rates caused the net interest margin to decline to its lowest level on record. The loans-to-deposits ratio reached record lows in 2020 and 2021, while the cash-to-deposits ratio rose to 1.6 times the pre-pandemic level and almost three times the previous trough in 2006. Benefits of higher liquidity include reduced dependence on less stable sources of funding and an ability to respond to unforeseen deposit account withdrawals. However, higher liquidity can also challenge bank earnings, depending on loan demand and the shape of the yield curve.

The Importance of Technology Investments for Community Bank Lending and Deposit Taking During the Pandemic - PDF
Community banks that invested more in technology generally reported faster loan and deposit growth in 2020 than did banks with less technology investment. Moreover, the differences in loan and deposit growth associated with technology investment were greater in 2020 than the differences reported prior to the pandemic. Faster loan growth for community banks with greater technology investment largely stemmed from participation in the Paycheck Protection Program (PPP). These community banks, on average, originated a greater share of PPP loans regardless of the loan size, origination date, or borrower distance from the nearest bank branch. Meanwhile, the larger increases in deposit growth of community banks that invested more in technology were due to increases in deposit balances of existing customers rather than from new depositors.

The Historic Relationship Between Bank Net Interest Margins and Short-Term Interest Rates - PDF
The years since the Great Recession generally demonstrate that protracted periods of low interest rates tend to compress net interest margin (NIM) at FDIC-insured banks. NIM decreased during the period of historically low interest rates after that recession, increased during the upward interest rate cycle between 2015 and 2019, and decreased again as interest rates fell toward zero with the onset of the COVID-19 pandemic. In most rate cycles since the 1980s, the median NIM, representative of typical banks, has moved in the same direction as changes in the federal funds rate. But this relationship has been much less pronounced for banks with high concentrations of long-term assets. Those banks with a relatively high proportion of long-term assets to total assets report greater insulation from changes in short-term interest rates. This means that their NIM falls less during downward rate cycles but rises less during upward rate cycles. The overall positive relationship between short-term interest rates and NIM and the effect of maturity structure on this relationship generally hold true over time for both community and noncommunity banks.

Residential Lending During the Pandemic - PDF
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. 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. The coming expiration of federal programs that have aided homeowners raises concern about the possible increased risk of mortgage credit quality deterioration and reduced credit availability. Nevertheless, banks have been resilient and, despite the uncertain outlook, continue to extend residential loans.

Farm Banks: Resilience Through Changing Conditions - PDF
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.

2020 Summary of Deposits Highlights - PDF
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. Deposits increased the most for noncommunity banks, midsize banks, banks with a mortgage lending specialization, and offices in metropolitan counties. The number of bank offices declined for the 11th consecutive year but at a lower rate than in the previous three years. The relatively low rate of decline in the number of offices was influenced by a low rate of closures among offices acquired through mergers. Further, the number of noncommunity bank offices and offices in metropolitan counties declined at low rates from June 2019 to June 2020 compared to previous years.