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Quarterly Banking Profile

COMMUNITY BANK PERFORMANCE
FIRST QUARTER 2014

Notes to Users

  • Community Banks Earn $4.4 Billion in First Quarter 2014
  • Net Interest Income Up 5 Percent From a Year Ago, Boosted by Loan Growth
  • Loan Balances Rise During the Quarter, Outpacing Industry Growth
  • Asset Quality Indicators Show Continuing Improvement
  • Community Banks Account for 45 Percent of Small Loans to Businesses

  • Community Banks Represent 93 Percent of Insured Institutions
    In December 2012, the FDIC released the Community Banking Study which examined institutions that provide traditional, relationship-based banking services in their communities. Based on criteria developed for the study, there were 6,234 community banks (93 percent of all FDIC-insured institutions) in the first quarter of 2014 with assets of $2.0 trillion (14 percent of industry assets). This new section of the Quarterly Banking Profile will provide insight into the condition and performance of this important part of the banking industry.

    Earnings Down 1.5 Percent From a Year Ago, Far Less Than the Industry Decline
    Community banks reported net income of $4.4 billion, down $67 million (1.5 percent) from first quarter 2013.1 Despite the decline, more than half (54 percent) of all community banks reported higher earnings from a year ago and the percentage reporting a quarterly loss fell to 7.5 percent from 8.7 percent. The percentage decline in earnings at community banks was far less than the 7.6 percent decline for the industry.

    Net Interest Income Increases at a Faster Pace Than the Industry
    Net interest income—which accounts for about 80 percent of net operating revenue at community banks—was $16.6 billion during the quarter, up $790 million (5 percent) from a year ago. Two-thirds (67 percent) of community banks reported a year-over-year increase. The average net interest margin at community banks of 3.57 percent was 4 basis points higher than a year ago and 40 basis points above the industry average. Nearly 76 percent of community banks reported net interest margins above the industry average of 3.17 percent.

    Lower Noninterest Income and Higher Noninterest Expense Reduce Earnings
    Noninterest income—which accounts for about 20 percent of net operating revenue at community banks—was $4.1 billion in the first quarter, down $562 million (12 percent) from first quarter 2013 as revenue from loan sales—including mortgage sales—declined by $657 million (52 percent) from a year ago. Like community banks, the industry experienced an 11 percent year-over-year decline in noninterest income, driven by a 44 percent decline in income from loan sales. Noninterest expense at community banks was $315 million (2.2 percent) higher than a year earlier. Relative to total assets at community banks, noninterest expense declined to 0.72 percent from 0.73 percent a year ago, as assets grew at a faster pace than noninterest expense.

    Loan Growth at Community Banks Higher Than the Industry
    Total assets at community banks increased by $28 billion (1.4 percent) from the previous quarter, as loan balances grew by $12.3 billion (0.9 percent). Community banks reported higher loan growth than the industry, which experienced 0.5 percent growth. Over 75 percent of the increase in loan balances at community banks during the quarter was due to nonfarm nonresidential real estate loans (up $5.8 billion or 1.5 percent) and commercial and industrial loans (up $3.6 billion or 2.0 percent). Year-over-year loan growth at community banks of 6.6 percent also outpaced the industry at 3.6 percent. Total unused loan commitments at community banks increased by $12.1 billion (5.2 percent) during the quarter to $245 billion, indicating the potential for additional on-balance sheet loan growth in future quarters.

    Community Banks Hold 45 Percent of Small Loans to Businesses
    Small loans to businesses—loans to commercial borrowers up to $1 million, and farm loans up to $500,000—at community banks totaled $296.1 billion in the first quarter, down by $920 million (0.3 percent) from the prior quarter but up by $8.2 billion (2.9 percent) from a year ago. Commercial and industrial loans increased by $1.4 billion (1.6 percent) from last quarter, while agricultural production loans fell by $2.8 billion (10.5 percent). Over two-thirds (68 percent) of the year-over-year increase in small loans to businesses was driven by improvement in commercial and industrial loans, and nonfarm nonresidential real estate loans.

    Noncurrent Loan Rate at Community Banks Declines for 16 Consecutive Quarters
    Loan performance at community banks continued to improve, as the noncurrent loan rate and the net-charge off rate both declined from the previous quarter and a year ago. Noncurrent loans (those 90+ days past due or in nonaccrual status) totaled $22 billion, down $6.2 billion (22 percent) from a year ago. Over 60 percent of community banks reported a decline in noncurrent loans relative to a year ago. The noncurrent rate was 1.68 percent in the first quarter, its lowest level since the first quarter of 2008. The noncurrent rate fell 11 basis points from the previous quarter and 65 basis points from a year ago, and it is 78 basis points below the industry rate of 2.46 percent. The coverage ratio (loan loss reserves relative to noncurrent loans) for community banks improved for a 10th consecutive quarter, rising from 87.4 percent to 91.2 percent despite a small ($55 million or 0.3 percent) decline in reserves during the quarter. The coverage ratio at community banks is well above the industry average of 67.8 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

    TABLE I-B. Selected Indicators, FDIC-Insured Community Banks

    TABLE II-B. Aggregate Condition and Income Data, FDIC-Insured Community Banks

    TABLE III-B. Aggregate Condition and Income Data by Geographic Region, FDIC-Insured Community Banks

    TABLE IV-B. First Quarter 2014, FDIC-Insured Community Banks

    TABLE V-B. Full Year 2013, FDIC-Insured Community Banks

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


    Footnotes:

    1 Prior period dollar amounts used for comparisons are merger-adjusted, meaning the same institutions identified as community banks in the current quarter are used to determine dollar amounts in prior quarters, after taking into account acquisitions. Performance ratios are not merger-adjusted.

    Last Updated 05/28/2014 Questions, Suggestions & Requests