fdic community banking study

Before laws allowed for tions in 2010 (see Chart A.1). ! ! ! ! !! ! ! !! Headquarters offices of both community and they do businessover time. ! ! ! ! ! ! ! ! !! ! !! !! !! ! ! ! Source: Federal Reserve, Flow of Funds. ! !!! !!! ! !!! After 2007, community banks upon rental income for repayment and the other half were that shifted to these alternative lending strategies under- secured by owner-occupied properties. These developments raise the possibility that specialty groups were generally the strongest and steadiest much of the large decline in noninterest expenses at performers over the study period, reporting lower provision noncommunity banks that occurred before the crisis will expenses to assets and a lower incidence of failure than be reversed as these deficiencies are fully addressed. !!! !!! ! The study shows that effort to identify and explore issues and questions about community banks hold the majority of banking deposits in community banks. ! ! While the 0% 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 community bank efficiency ratio increased from 61.9 Source: FDIC. ! !! ! !! ! ! ! !! !! ! ! ! ! !! ! ! ! !!! Noncommunity banks were able to lower such group is community banks that operated continuously their noninterest expenses as a percent of assets in the pre- crisis years by reducing average expenses associated with 3 FDIC calculations based on data from the Bureau of Economic Analy- employees and premises. !! ! ! Source: FDIC. ! ! !! ! !! ! ! ! ! ! ! ! ! ! ! !! ! ! !!! ! By compari- noncommunity bank Call Report filers in 2011. ! ! ! ! !! !! ! ! Searchable database of over 45,000 postings! ! ! ! !!! ! ! ! ! ! !! ! First, the Troubled Asset the total frequency of capital raising for community and Relief Program (TARP) was authorized in October 2008.16 noncommunity banks, respectively, since 2002, as well as The Treasury Department created the Capital Purchase the frequency of capital raising for banks in organizations Program (CPP) under TARP to stabilize the financial that had issued TruPS and those that participated in the system by directly providing capital to financial institu- TARP or SBLF programs.20 The charts show that between tions. A bankers bank is a financial ing company. ! !! ! ! ! ! ! ! FDIC Community Banking Study December 2012 61, 78 !!! ! ! Noncommunity fees appear to be the single most important component of banks also generate much higher levels of income from other noninterest income for both community and asset servicing and fiduciary (trust) activities. !! The efficiency of financial institutions: a review and preview of research past, present and future. !! ! ! ! !! ! ! ! !! ! ! ! reported a pretax ROA that averaged 35 basis points higher than for community banks. ! FDIC Community Banking Study December 2012 B2, 101 !!!! ! !! ! ! ! !!! !! ! alized commercial loans. ! ! ! This survey indicated that compliance with regulatory reform was cumulative effects of regulations were driving their overall cited as a key concern by 91 percent of respondents. !! ! Of the 6,914 a limited geographic scope. ! ! ! ! ! ! !! By Federal Deposit Insurance Corporation (FDIC) Press Of the more positive retained earnings and dividends. ! ! gate all charter-level data reported under each holding company into a single banking organization. ! ! !! ! !! ! ! ! ! ! ! ! Sources: FDIC, Federal Reserve. ! ! ! ! !! ! ! ! !! !! !! ! ! ! ! ! ! !!! !! !! !! Banks and thrifts were 20% made eligible to choose the Subchapter S form of 10% ownership in 1996. !!! The subsequent decline in the net interest neous in structure and terms than loans made by noncom- margin has had more significant competitive implications munity banks, which are more likely to be large-scale, for community banks, as net interest income accounts for transactional lenders. ! ! ! !! ! !! However, a company not only allows for the centralization of capital significant number have chosen the Subchapter S form of raising, but it may also confer the advantage of stock issu- ownership. !!! ! holding companies were too small to issue their own Overall, 2,712 existing community banks raised external TruPS in public markets, by the early 2000s investment capital at least once between 2008 and 2010, adding $27.4 banks were increasingly securitizing small TruPS into billion to their equity capital. ! ! ! ! stock solely because there are differences in voting rights among the In these structures, the subsidiary banks are stock banks that are shares of common stock. ! U.S. counties into two main categories: metropolitan (or Nonmetro counties can be divided into two subcategories: metro) and nonmetropolitan (or nonmetro).2 Metro coun- micropolitan (or micro) and rural. ! ! !!! Reference Data- The FDIC Community Banking study relies on a comprehensive database that enables multi-specialists (1.71). terms of total, mean or median holdings, loans secured by commercial and residential real estate are the two largest loan types held by community banks. ! ! !!! ! !! ! Community banks reporting 2000s were able to grow faster by raising their concentra- positive earnings set aside 57 percent of their net income tions in C&D and CRE loans than by maintaining a as retained earnings during the study period. !! ! ! ! !! ! munity banks and discusses the implications for relative rates of growth between these two sectors of the banking A much different picture emerges, however, when looking industry. ! !! ! ! Community banks that remained in the 2006. ! ! !! Report, Chapter 1- Community Bank Financial Performance, Chapter 2- Structural Change Among Community and Noncommunity Banks, Chapter 3- The Effects of Demographic Changes on Community Banks, Chapter 4- Notable Lending Strengths of Community Banks, Chapter 5- Regulatory Change and Community Banks, Chapter 6- Technology in Community Banks, Appendix B- Selected Federal Agency Actions Affecting Community Banks, 20082019. !! ! ! ! ! ! ! ! ! ! Over the than 33 percent of assets. ! !! ! ! ! !!! ! !! !! ! !!! !! !! ! !!!! ! These comparisons show share of capital raises by troubled community banks, which that while a small portion of community banks have raised were the highest in the crisis years. ! !! ! !!! ! !! !!!!! !! ! ! ! ! The 2020 Community Banking Study is an update to the Federal FDIC first community banking study, published in 2012, and covers the period from year-end 2011 through year-end 2019. ! ! !!!! ! Here are some of the key findings in the study: Structural Changes: Voluntary mergers between unaffiliated institutions were the primary cause of the decline in the number of insured depository institutions between 2012 and 2019. ! ! !! Of community banks that The ability of any bank to consistently meet the credit belonged to one of the three baseline specialty groups in needs of its borrowers over time depends on maintaining a 2000, those that switched to a C&D strategy grew more solid base of equity capital. ! ! !! ! ! ! Because it was not used the funds to convert existing CPP investments. !! ! ! ! ! ! ! !!! ! ! ! !! !! ! ! !!!!! !! ! !! ! ! ! ! ! !! !! !! ! !! ! ! ! While the number of banking organizations, the number of char- noncommunity banking organizations held $2.3 trillion in ters, and total assets. !!!! ! ! !! ! ! !! These existing community banks may 8 Ibid, p. 48. !! in the northeastern United States, where mutual savings banks have a long history. ! !! !! !! !! !! ! !! ! ! collection of financial education materials, data tools, Strategy 1 (C&D loans greater than 10 percent of assets) or Strategy 2 (total CRE loans greater than 30 percent of assets) by 2005 have shifted into either the CRE lending specialist group or the multi-specialist 8 For a more complete description of the various organizational forms group. ! ! ! !!!! FDIC Community Banking Study December 2012 63, 80 !! !! ! !! ! ! !! areas, community banks hold a much stronger competitive position in nonmetro counties. ! ! ! !! ! ! ! !!! ! Community Banking Research Programs; Analysis. ! !!! !! ! ! ! ! !! ! ! ! ! ! ! ! ! ! ! Note: Figures represent weighted average net interest income as a percent of average total assets for federally insured community banks reporting in each group during the period. ! For exam- ple, a demand deposit could be considered either an input or an output. Banks in years prior to 1987 for which 1987 SOD data are not available are evaluated based on the loan-to-asset number of banking offices that varies over time, from 40 ratio, core-deposit-to-asset ratio, and minimum and maximum office in 1985 to 75 in the baseline year of 2010. ! loans secured by owner-occupied nonfarm, nonresidential properties generally performing better than the other CRE loan categories. !! ! !! ! ! ! !!! ! !! !! ! ! ! !! ! ! ! !!!!! ! ! ! ! ! !! ! ! ! !!!! ! Among Community Banks? ! ! ! ! !! ! ! ! ! are applied uniformly for each year-end data period. !! ! ! ! ! ! !!! ! ! !! ! ! !! ! In addition, the majority of interview partici- cies could alleviate some of their increased reliance on pants stated that they had not discontinued offering prod- consultants. ! ! ! ! ! !!! While community banks located in rural areas appear to still perform well, their long-term growth potential will likely remain lower than for banks located in metropolitan markets. ! ! ! ! ! !! ! !! ! ! The while banks meeting none of the specialty definitions are majority of community bank loans fall into one of five grouped into the no specialty category.2 These categories major loan categories: mortgage loans, consumer loans, are helpful in understanding the various lending strategies CRE loans, agricultural loans, and C&I loans. ! !!! Fact Sheets, PDF wane. See 26 U.S.C. ! ! ! ! !! Earnings at community banks located in depopulating rural areas exceeded those in metro-based community banks across all time periods. !! ! !! ! ! ! expenses dipped sharply for CRE specialists in the 1996- 2000 and 2001-2005 intervals, when generally strong real Table 5.12 shows that the lending specialty groups with the estate market conditions helped to keep CRE credit losses lowest failure indexes for the entire period were banks with low. ! ! ! ! ! !! ! The site is secure. the official website and that any information you provide is ! ! As a changes in equity capital from retained earnings and share of prior period equity, community banks and external capital at community and noncommunity banks noncommunity banks increased capital through retained during the study period. !! !!! !! ! !! and regulations and supervisory guidelines. ! ! ! !! !! ! ! ! ! !!!! !! ! ! ! ! ! ! ! ! !! !! ! In this way, institutions reporting as noncommunity banks in 2011 directly or indi- rectly absorbed 71 percent of the charters that exited the industry between 1984 and 2011. ! ! ! !! ! ! !! !!! !!! ! !! ! ! ! !! ! !! ! ! ! !!!! ! Community institutions continued to have 2011, the average noncommunity banking organization a narrower geographic scope than noncommunity institu- operated more than 30 times more banking offices than tions through 2011, although the disparity narrowed some- the average community bank. ! ! ! ! !! In third quarter 2021, this section included the financial information of 4,450 FDIC-insured community banks. !! !!!!! ! ! ! As of 2011, community banks held 14 percent important trend that altered community bank loan portfo- of banking industry assets, but 46 percent of the industrys lios over this period was the shift away from a retail focus small loans to farms and businesses.1 Noncommunity and toward a commercial focus. !!!! !! ! !! ! ! !!! ! Note: Excludes institutions in their first year of existence. ! !! ! !! ! ! ! In terms of economic output, U.S. metro counties have grown at a compound annual rate of 2.6 percent over this period, compared with 2.4 percent for micropolitan coun- ties and 2.2 percent for rural counties. ! ! ! ! ! ! ! ! ! ! !!! ! ! In mid-December, the Federal Deposit Insurance Corp. (FDIC) released the 2020 Community Banking Study, a new large-scale study on the state of the nations community banks. !! !! All of the increase in real ing, with a particular emphasis on loans secured by estate lending by noncommunity banks during this period commercial real estate. ! ! !! ! Note: Noncurrent loans are loans 90 days or more past due or on nonaccrual status. ! A summary local customers, while some larger institutions may of the designation process appears in Table 1.1, and details continue to do just that. ! ! ! !! !! Between 1984 and 2011, the total number of feder- The banking industry experienced much consolidation ally insured bank and thrift charters declined by 59 during the study period from 1984 through 2011.1 Of the percent, from 17,901 to 7,357. ! !!! ! 2004. ! ! ! ! !! ! Map 5.4 Headquarters Locations of Community Banks That Are Multi-Specialists, Year-End 2011 Multi- State Specialists % DE 36% CA 31% AK 24% OR 22% FL 20% DC 17% AZ 17% Multi Specialty Community Banks UT 17% Metro County Nonmetro County NV 16% Top 10 states based on percentage of multi specialty community banks to total community NC 16% Source: FDIC. ! ! ! ! ! ! The offices of noncommunity banks outnumber well as the Southern and Western states. ! **CRE loans include construction and development (C&D) loans, loans secured by multifamily properties, and loans secured by nonfarm, nonresidential real estate. ! ! ! ! !! ! !! ! !! ! !!! !! ! !!! ! ! !!! ! ! ! ! !!! !! N/A indicates data withheld to avoid disclosing confidential information. ! ! ! This definition was developed during Step 2: Exclude specialty banks. !! ! ! ! ! ! ! ! ! ! !! !! ! ! ! !!!! !! !! ! The study was produced under the leadership of Shayna M. ! ! ! ! !! ! ! !! ! ! !! ! narrowed in recent years, as the net interest margin for noncommunity banks rose sharply from 2008 through Another possibility, however, is that community banks 2010. have maintained higher yields in part by changing the composition of their loan portfolios, as shown by the three measures in Table 4.3. ! ! !! ! !! !! !! ! nity banks. ! ! ! ! ! ! !!! !! ! ! ! ! ! !!! ! Because this is such an important topic, additional had a high frequency of failure, while C&I specialists were FDIC analysis evaluated the importance of economies of well above the overall community bank average during the scale among community bank lending specialty groups. ! ! ! ! ! !! !!! ! ! ! ! !! ! !! ! ! ! ! The most basic measure is the leverage percent and were approaching historic highs. ! at community banks in the middle 2000s, while both community and noncommunity banks raised substantial Charts 6.10 and 6.11 track the percent of existing commu- volumes after the onset of the financial crisis in 2008. nity and noncommunity banks, respectively, that raised capital from external sources each year, and indicates Raising Capital Through Trust Preferred Securities. 2001-36. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=285937 Critchfield, Tim, Tyler Davis, Lee Davison, Heather Gratton, George Hanc, and Katherine Samolyk. ! ! ! ! ! !! ! ! Learn about the FDICs mission, leadership, ! ! ! !! ! ! ! ! Community banks generally have an advantage over noncommunity banks in each of those areas, reporting both higher average yields and lower loan losses than noncommunity banks. ! !!! ! !! ! !!! Copyright 2002-2022 BeSpacific LLC. ! !! Next, community banks are char- can be accounted for by a rise in their holdings of residen- acterized by their lending specialty to observe how their tial mortgages. !! tal during the study period involved frequent raisers, the The frequent raisers are defined as those that raised group that also made up more than half of raisers in every external capital more than one time and did so in more year after 1986. than 20 percent of the years they operated during the study period. ! ! ! ! !! !! ! ! For the sample of banks that raised more than 75 percent of their deposits from one county, the The model finds that community banks that stick to the gain is maximized when asset size approaches $1 billion.2 basics with regard to lending and deposit gathering typi- The estimated increase in ROA that accrues from above- cally perform better than other community banks. ! Still, the total risk-based capital that community banks have been able to raise external ratio remained higher at community banks than at capital when needed. ! !!!! ! More than 60 percent of the year-end financial reports filed by all federally insured Most federally insured banks and thrift institutions report stock institutions during the study period showed both positive annual net income in most years. ! ! !!! ! 2004. ! ! !!!!!!! ! ! !! ! ! !!!! !! ! ! ! ! ! Mortgage specialists, agricultural specialists, multi- no specialty (0.41) and agricultural specialists (0.53). Schedule CA, Capital, reported 1990 through 1995: Perpetual Meanwhile, the lowest percentages for retained earnings Preferred Stock Issued (CA120) - Perpetual Preferred Stock Retired are found among agricultural specialists (42 percent of net (CA130) - Common Stock Issued (CA220) - Common Stock Retired income for the entire study period). ! ! ! fourth quarter of 2000. were clustered in the Pacific Northwest. ! ! ! ! ! ! ! !! ! ! !!!! !! ! ! !!! ! ! ! FDIC is not responsible for Section 508 compliance ! ! ! !! !!! ! !! ! ! ! ! In 2008 and 2009, Treasury invested approximately 2002 and 2011, community banks in holding companies $205 billion under the CPP by purchasing preferred stock that had TruPS outstanding represented one-third of all or subordinated debentures in 707 financial institutions.17 community banks that raised external capital and 40 Second, the Small Business Lending Fund (SBLF) was percent of the total volume of capital raised. Chapter 1 - Defining the Community Bank To begin a study of community banking, it is necessary to community differently from a larger institution with stron- define what it means to be a community bank.1 Most ger ties to the capital markets.3 people are able to articulate the characteristics of commu- nity banks, as the characteristics tend to revolve around While a rough consensus exists on the attributes that how and where a community bank conducts business. ! ! !! !! !! ! ! ! ! per year between 1985 and 2000 but slowed to 107 per year the mid-to-late 1980s, followed by smaller waves in the from 2001 through 2011. late-1990s and the mid-2000s. ! ! ! Some of the economic and demographic challenges faced by depop- ulating regions appear likely to continue in the future. ! ! !!! Much of the benefit from economies of scale appears to dissipate once community banks reach $100 million in total assets. ! The GAOs study, Causes and Consequences of Recent Bank Failures, the FDIC Inspector Generals Comprehensive Study on the Impact of the Failure of Insured Depository Institutions, and the FDIC Community Banking Study. Over the revenue, compared with about two-thirds of revenue at study period, earning assets averaged 91.8 percent of total noncommunity banks. !! ! ! ! !!! !!! ! !! !! ! !!!! ! ! ! !!! !! ! ! ! ! ! ! ! ! ! !! ! !! !! !!! tal through retained earnings. ! ! ! ! ! In this way, banks individual banks, community banks have risen as a that closed the study period with assets greater than $10 proportion of all federally insured banks and thrifts, from billion directly or indirectly absorbed 57 percent of the 87 percent to 92 percent. !! ! !! ! ! ! !! !!! ! However, this percentage amounts of capital from external sources. ! ! ! ! ! !!!!!!! ! ! !! !! Most mutual institutions are located Source: FDIC. !! ! !! ! !! !! !! ! ! In addition, banking organizations with either no bank itself represents the organization. ! !! !!! ! In Nebraska, South Dakota, North Dakota, and Iowa, more What Factors Explain Differences in than one-half of community banks were agricultural Pretax ROA Among Community Banks? ! ! banking industry research, including quarterly banking ! !! ! !! ! ! ! ! !!! !! ! ! ! ! ! Consolidation in US banking: Implications for efficiency and risk. ! ! 1 For purposes of this study, the term bank refers to FDIC-insured banks 6 See, for example, Statement by Maryann F. Hunter, Deputy Director, and thrifts. !! ! ! !! !!!! ! !! ! !! ! !!! ! ! ! ! ! !! ! !!! ! From made up 92 percent of FDIC-insured banks and 95 percent this experience, it is clear that the future pace of industry consolidation depends in large part on whether the 1 Source: Federal Reserve, Flow of Funds, Table L.1. Table 5.5 Assets and Number of Community Banks by Lending Specialty Group, 2011 Lending Specialty Group Year-End 2011 Number of Institutions / Percent of Community Banks 1,620 24% Commercial Real Estate (CRE) Specialists Total Assets ($ Billions) / Percent of Community Bank Assets $659.6 33% Number of Institutions / Percent of Community Banks 1,108 16% Mortgage Specialists Total Assets ($ Billions) / Percent of Community Bank Assets $323.8 16% Number of Institutions / Percent of Community Banks 972 14% Agricultural Specialists Total Assets ($ Billions) / Percent of Community Bank Assets $121.3 6% Number of Institutions / Percent of Community Banks 153 2% C&I Specialists Total Assets ($ Billions) / Percent of Community Bank Assets $62.1 3% Number of Institutions / Percent of Community Banks 46 1% Consumer Specialists Total Assets ($ Billions) / Percent of Community Bank Assets $18.3 1% Number of Institutions / Percent of Community Banks 2,080 31% No Specialty Total Assets ($ Billions) / Percent of Community Bank Assets $507.0 26% Number of Institutions / Percent of Community Banks 823 12% Multi-Specialists Total Assets ($ Billions) / Percent of Community Bank Assets $280.5 14% Source: FDIC. ! !! !! ! !!! !!! !! C&I specialists and 30 consumer specialists were more prevalent among 25 23.8 24.7 Community Banks Noncommunity Banks noncommunity banks, with about 7 percent meeting the 20 definition for each group in 2011. !! ! ! ! ! Source: FDIC. ! ! ! ! ! !! ! !!! !! ! ! ! !!! ! !! ! ! !!! ! ! ! !! !! ! !!!!! !! ! ! !! ! ! ! ! !! ! !!! ! The average cost curve estimated for CRE specialists for 2009 looks somewhat different from the 2006 cost curve because of changes in the composition of the group, not the least of which was the failure of 88 community bank CRE specialists during that interval (see Chart 5.15). ! !! ! ! !! ! ! ! !!! ! !!! Banks recent crisis, both community and noncommunity banks organized as mutual institutions have no stockholders and had to offset three years of negative retained earnings typically do not pay dividends. !! ! ! ! created by the Congress to maintain stability and public confidence in the ! !! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! !! ! ! ! !! ! ! ! ! ! !!!! ! ! !! !! ! ! !! ! !! ! !! ! ! ! !! ! 2016, 2017 and 2018 !!!!! ! ! ! ! !! ! The District of Columbia is not included in these state counts. !!! !!! ! ! !!!! !! Performing these calculations, substituting in Chart 4.16 depicts the same breakdown in terms of the appropriate ratios for each year, and accumulating the changes in the noncommunity bank efficiency ratio. ! ! ! For banking tions (upper right of Table 1.2) failed to meet the require- offices, banks must have more than one office, and the ments for banking activities and limited geography, and maximum number of offices starts at 40 in 1985 and exceeded the 2010 asset-size limit of $1 billion under which reaches 75 in 2010. ! !!! ! ! !! !! !!! charge-off ratio under 1 percent for the combined other CRE and commercial loan categories. !! ! This study is intended to be foundational, providing a ! ! ! !!! ! ! ! ! !! ! ! FDIC Community Banking Study December 2012A5, 98 !! ! ! ! !! ! !! ! !! ! !! !! ! ! ! ! ! have almost always been lower at community banks than at noncommunity banks (see Chart 4.10). ! ! ! ! ! ! ! !!!! ! !!!!!! Examples of items that might be at community banks in all but one year. !! !! ! !! !! ! ! ! Even if the FDIC is not your primary regulator, you would be wise to read ! !! ! !! ! Industrial loan companies can be owned by charters) reported under multi-bank holding companies, while another commercial firms that are not regulated by a federal banking agency. ! ! Source: FDIC. ! ! ! ! ! (CRE) loans are associated with lower ROA compared with holdings of other asset types. !!!! ! However, many values reported in these items are very small 8.4 percent, versus 6.8 percent for community banks head- and may not be appropriate to include in the definition of a capital raise. !! ! ! ! ! !! ! ! !! ! ! !! ! Community banks listed under Strategy 3 include all community banks that shifted out of the three baseline specialty groups that did not meet the criteria for Strategy 1 or Strategy 2, including those that no longer qualified as community banks. !! ! ! !! !!!! Wednesday Sep 07 Friday Sep 09 Wednesday Sep 14 Wednesday Sep 21 Wednesday Sep 28 Late Start Schedule All Day View Calendar If you are having trouble viewing the document, you may download the document. !! ! ! ! !! From One reason that the shift in loan mix and the overall 1985 through 2011, time deposits funded an average of 41 increase in the risk of community bank portfolios has not percent of community bank assets, more than twice the average for noncommunity banks. ! Mortgage specialists also tended to be headquartered in The Geography of the Lending Specialist metro counties (61 percent) and are largely located in the Groups eastern half of the country as shown in Map 5.2. !! ! ! As noted earlier, income between dividends and retained earnings. !!! ! !!!! !!! ! What Community banks are also more likely to be privately owned and locally controlled than larger banks. ! ! !! ! ! ! !! !! !! !!!! ! ! ! !! !!!! !!!!!!! ! ! !!! ! ! ! !! ! ! !! ! ! ! ! ! !! ! Note: Figures represent weighted average pretax return on assets for federally insured community banks reporting in each group during the period. ! ! ! !! ! ! !! rapidly diminished after the onset of this crisis, and as Across the entire study period through 2009, there were a financial losses made it necessary for more institutions to total of 10,835 capital raises (40 percent of the total) by raise external capital, federal programs made capital avail- community banks where the bank was neither troubled able to community and, especially, noncommunity banks. ! ! ! !! ! ! Community banks meeting the criteria for remained in one of the baseline groups. and overhead expenses. ! ! ! ! ! ! ! !!! !! !! !! ! ! !!! ! See Part 325 of the FDIC Rules and Regulations. !! ! ! !! ! ! Samsung Magician software is developed and distributed exclusively for owners of Samsung > Solid Sate Drives (SSDs). ! !! !!! ! reporters between December 31, 1984 and December 31, 2011. ! ! Moreover, noncommunity banks have been Large-scale structural change in the banking industry overrepresented among new charters. ! ! ! !! A majority of the whether they tracked regulatory compliance costs within interview participants discussed their increasing reliance their internal cost structure. (For a fuller discussion of (2007-2009 for noncommunity banks, 2008-2010 for bank ownership structures, see the inset box Bank community banks) with large volumes of capital raised Ownership Structure and Access to External Capital.) ! ! !! !! !! ! ! ! ! ! ! *The failure index for each group is calculated as failures within that group as a ratio to all failures divided by institutions in that group as a ratio to all institutions in that period. ! ! ! ! ! bank holding company, all banks under the holding company are combined into one organization. ! ! ! Note: Figures represent weighted noninterest expense as a ratio to net operating income for federally insured community banks reporting in each group during the period. !! First, the role of retained earnings as a source of capital is discussed and the rate of earnings retention is compared across various types of banks. !! ! ! !! ! Indirect acquisitions refer to banks or banking organizations that were previously acquired by the their first year end, most of them tended to grow and move target bank or banking organization in a merger transaction. history, career opportunities, and more. ! ! ! ! ! !! ! ! !! ! ! ! !!! !! ! ! ! ! Following a merger, it can be difficult to identify whether gains are achieved from improved operating efficiency or from enhanced scale benefits. ! ! !! Most of this growth, however, predated the financial crisis from 1984 through 2011. ! ! ! ! ! !! !!! ! ! The categories investments. !! ! The increase was even larger as a percent of all community banks. ! !! ! Sale, conversion, acquisition, or retirement of capital stock, net entire study period), followed by CRE specialists and multi- 6. !! ! ! ! ! ! !! !! !! Community the past 15 years, most community banks in most periods banks also have traditionally incurred lower noninterest have been profitable. ! ! !!! ! ! !! ! !!!! ! ! !! (0.98 percent), mortgage specialists (1 percent) and C&I exception, when CRE specialists earned just 0.75 percent specialists (1.03 percent). ! !! Notes: Excludes community banks chartered after 2000. ! ! ! ! !!!! !!! ! ! !!!! ! ! ! ! !! !! ! !!! ! ! !!! ! ! ! !! ! ! !!! !! !!! ! !! ! !! ! !!! !!! ! ! ! !!! their organizations included regional or nationwide confer- ence calls, regional directors colleges, and contact with field office management, case managers, or review Common Themes Identified Across the examiners. ! !! business strategy has changed over time and to measure the relative performance of different business models. ! While these challenges and the lack of opportunity for growth, the economic and demographic challenges do not appear to be 2004 study found that banks headquartered in depopulat- adversely affecting financial performance or leading to ing rural areas performed comparably to other rural banks higher rates of consolidation among nonmetro community in terms of their rate of charter consolidation and most banks, they do appear to limit growth opportunities. ! earnings also helps to explain this trend. ! ! !! Community banks with no community banks both in number and in total assets. !!! ! However, increases from external capital 3 It should be noted that banks report other changes to equity capital, raises represented an average of 5 percent of prior year some of which are relatively large, but they do not represent net capital equity at noncommunity banks, compared with only 3.5 formation and are not part of the analysis in this chapter. ! ! ! ! Exclude: Include: Any organization with: All remaining banking organizations with: No loans or no core deposits Total assets < indexed size threshold2 Foreign Assets > 10% of total Total assets > indexed size threshold, where: assets Loan to assets > 33% More than 50% of assets in Core deposits to assets > 50% certain specialty banks, More than 1 office but no more than the including: indexed maximum number of offices.3 credit card specialists Number of large MSAs with offices < 2 consumer nonbank banks1 Number of states with offices < 3 industrial loan companies No single office with deposits > indexed trust companies maximum branch deposit size.4 bankers banks 2 Asset size threshold indexed to equal $250 million in 1985 and $1 billion in 1 Consumer nonbank banks are financial institutions 2010. with limited charters that can make commercial loans or 3 Maximum number of offices indexed to equal 40 in 1985 and 75 in 2010. !!!! ! !! ! !! ! !!!!!!!! !! !!! !! While provi- Chart 5.3 Chart 5.4 Commercial Real Estate Loans Held by FDIC-Insured Percent of Community Banks by Lending Specialty Group, Community Banks, Year-End 2011 1984-2011 50% Mortgage Specialists Consumer Specialists Loans Secured by Multifamily Properties Multi-Specialists $58.0 B, 11% CRE Specialists 40% C&I Specialists Secured by Ag Specialists Nonowner-Occupied No Specialty Properties Nonresidential 30% $63.5 B, 12% $198.8 B, 38% Construction and Loans Secured by 20% Development Nonfarm, (C&D) Loans: Secured by Nonresidential Owner-Occupied Properties: $83.8 B, 16% Properties $381.9 B, 73% 10% $183.1 B, 35% Residential $20.3 B, 4% 0% 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Source: FDIC. !!! ! ! Over this period, the number of community banks assets at noncommunity banks has resulted in a rising declined by 56 percent while the number of noncommu- disparity in the average size of institutions in these two nity banks declined by 23 percent. !! !! ! ! ! ! The FDIC is proud to be a pre-eminent source of U.S. ! ! The Summer 2022 issue of the FDICs Supervisory Insights issues a harsh warning to banks with CRE concentrations about getting their risk management act together, pronto.. !! ! ! !! ! ! ! ! !! ! ! !! ! !! ! ! ! !! !!! Relative to their numbers, commu- nity banks reporting in 2011 accounted for far fewer direct and, especially, indirect acquisitions than did noncommu- nity banks. ! ! ! ! ! Interview participants do not specifically track or report on the cost of regulatory compliance for their boards of directors. ! ! !! !! ! ! ! ! ! tions in 1984, by 2011 they had become 74 times as large. ! ! ! ! ! !!!! ! ! !!!!! Federal government websites often end in .gov or .mil. ! ! ! !! ! !! ! ! !!!! ! ! ! ! ! ! ! Browse our extensive research tools and reports. ! ! !! ! ! ! !! ! ! !!!! ! !! ! ! ! ! ! ! ! !! !!! ! ! ! Note: Troubled institutions are defined as those rated 3, 4 or 5 at their most recent examination. !!! !! ! !! ! Community banks are almost three times more likely the less consolidation will take place as a result of failures. !! ! ! !! ! ! !! ! ! ! ! !! They are: (i) the institution must not use the nies were not used to group organizations for purposes of this study. ! in the period 1991-1995. ! The first wave of new charters occurred during smallest size class, with assets less than $100 million. ! ! ! Analysis. !! ! !! ! ters of community banks with CRE, mortgage, and agricul- ture specialties, as well as the headquarters of multi-specialists, banks with no lending specialty, and Not surprisingly, agricultural specialists were largely head- those with at least 10 percent of total assets in C&D loans. ! !! ! !!! ! ! ! Even the 1,091 community banks headquartered in depopulating rural With the relaxation of restrictions on branching and inter- counties in 2011 outperformed their counterparts head- state banking in the late 1980s and early 1990s, the pace quartered in metro areas over the past decade. ! !! ! ! ! ! Loan-loss rates at Several factors explain the higher cost of funds for community banks have remained lower throughout the community banks in recent years. ! ! !! !! Another factor contributing to the earnings gap between community and noncommunity banks has been the ability of noncommunity banks to generate noninterest income The Implications of Performance Gaps Between from a wider variety of sources. ! ! !! ! ! Sign up today to stay in the loopits free! !!!! ! !! ! ! !! ! !! ! ! Despite generally higher loans than noncommunity institutions (see Table 4.4). ! ! !! !! !! ! ! ! ! Source: FDIC. !!! ! community banking organizations located all of their banking offices within a single county, while another 17 percent located all of their offices within a three-county The Geographic Footprint of Community area (Table 3.2). ! ! !! ! ! ! !! ! FDIC Community Banking Study December 2012 11, 14 !! ! !! !!! ! ! !! !! ! ! Estimate 95% Confidence FDIC Community Banking Study December 2012 524, 77 !! 2/3:85-133. ! ! ! !! supervises financial institutions for safety, soundness, and consumer ! ! ! Overall, footprint of community banks is in terms of the number of the number of community banking offices declined by 18 counties in which each community banking organization percent between 1987 and 2011, while the number of maintains banking offices. !! Moreover, these changes and other struc- another 32 percent consolidated with other charters tural changes in the industry (such as the enormous within their existing bank holding company.2 These fail- growth among the very largest banks) have taken place in ures, mergers, and consolidation have occurred in distinct distinct waves associated with banking crises and the busi- waves. !!!!! !!! ! !! ! ! ! In rare cases, it is and 2005, the share of community banks in the baseline possible for a bank with C&D loans greater than 10 percent of assets to belong to the no specialty group if that institution has total loans less groups declined from 68 percent to 55 percent. ! !! Payments to TruPS investors were tax TruPS difficult to issue in highly risk-averse capital deductible for the holding companies that issued them, markets. ! ! ! !!! ! ! ! ! ! ! ! ! !! Index values above 1 indicate that institutions in the group failed more often than their prevalence in the population, while index values less than 1 indicate that they failed less often. ! ! ! ! ! !! !! ! The FDIC's 2012 Community Banking Study is a data-driven effort to identify and explore issues and questions ! ! vidual banks rather than to all banks in a banking organi- zation; that is, at the charter level rather than the banking This relationship approach to lending is particularly organization level. ! ! More information coming soon. ! ! The 694 U.S. micropoli- tan counties are also centered on an urban core, but one Table 3.2 Geographic Scope of Community and Noncommunity Banking Organizations Percent of with population between 10,000 and 50,000 people, while Banking Offices Within 1 to 3 Counties, 1987-2011 the 1,376 rural counties are defined by populations with Percent of Percent of fewer than 10,000 people. ! ! !! ! ! ! !! ! ! ! !!! ! ! ! Community Banks: Their Recent Past, Current Performance, and Future Prospects. ! ! !! ! !! ! 110-343, 18 Small Business Jobs Act, Public Law 111-240, September 27, 2010, p.1. !! The decline in the number Community Banks Retain a Unique Identity of banks with assets less than $100 million was large enough to account for all of the net decline in total bank- Far-reaching changes in the U.S. financial sector in recent ing charters over this period. All Banking Offices in All Banking Offices in Offices in 2 or 3 Offices in 2 or 3 Year 1 County Counties 1 County Counties As of 2011, over 55 percent of bank headquarters and 1987 77% 17% 26% 10% nearly 78 percent of all banking offices were located in 1988 76% 18% 28% 9% 1989 75% 19% 29% 9% metro counties (Table 3.3). ! enormous growth that took place among the largest banks. ! ! !! !!! ! ! ! !! ! ! ! ! ! ! !!! !! ! !! !! ! !! ! ! !!! ! ! ! ! FDIC Community Banking Study December 2012 38, 39 !! ! At year-end 2010, 7,658 FDIC-insured banking charters 2 Credit card banks are defined as institutions with credit card loans operated within 6,914 separate banking organizations. !! banks raised external capital more frequently than community banks in every year, and nearly twice as Chart 6.9 shows the percent of community banks and frequently on a weighted average basis over the entire their total assets that fall into each of these three capital study period. ! ! ! ! !! While community banks made up 97 percent of all U.S. banking organizations in 1984, their share had fallen only slightly to 95 percent by 2011. !!! ! You can join if you are above 18 years. ! ! ! FDIC Research Study on Long-Term Bank Consolidation Demonstrates the Ongoing Resilience of Community Banks. In Chart 5.5 tracks the rise of community banks that met the fact, community banks held more CRE loans secured by CRE specialty designation criteria in each year based on owner-occupied properties than C&I loans ($164 billion) whether the designation was derived from C&D lending, in 2011. !! whole and even during the crisis years of the late 2000s. 5 The Riegle-Neal Act required that every state allow interstate The number of institutions with assets greater than $10 branching by 1997, but included an opt-out provision that was invoked only by Texas and Montana. ! ! ! ! Map 3.1 Community Bank Headquarters and Branch Locations, Year-End 2011 !! ! ! !! !! ! !! ! ! ! !! periods when assets and earnings are growing at roughly the same rates, community banks can generate most of the capital they need from internal sources. ! !! ! !! ! !! ! ! !! ! !! These thresholds percent loans-to-assets requirement than under the 50 are designed to allow for the fact that some institutions percent core-deposits-to-assets requirement. !! !!! The failure index is calculated for federally insured community banks. ! They are likely to be owned privately or have public shares that are not widely traded, and therefore tend to place the long-term interest of their local communities high relative to the demands of the capital markets. ! ! ! !! ! !! !! ! ! 1998 62% 29% 36% 9% 1999 61% 29% 37% 9% 2000 59% 30% 37% 10% In Relative Terms, Community Banks Are 2001 57% 31% 38% 9% 2002 56% 32% 37% 8% More Likely to be Located in Nonmetro Areas 2003 54% 33% 32% 8% Despite this overall tilt in the location of banking offices 2004 54% 33% 31% 9% 2005 52% 34% 32% 8% toward metro areas, community banks are more likely to 2006 51% 34% 31% 8% locate their headquarters and banking offices in nonmetro 2007 50% 35% 30% 9% areas than are noncommunity banks (see Table 3.4). ! In periods where earnings have faltered, retained earnings have declined sharply or become negative, requir- ing more community banks to raise capital from external sources. ! !! ! ! age number of unassisted mergers was 346 per year between 1985 and 2000 and declined to 182 per year from This chapter analyzes the decline in the number of banks 2001 through 2011, with the three slowest years for merger to determine the effects of consolidation, mergers, failures, activity occurring between 2009 and 2011. ! ! ! !! ! ! ! !! ! !!!!! ! 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