!! ! ! ! ! !! ! ! Of all institutions and by banks they would acquire by 2011. ! !! By discussion of overall lending trends in the banking indus- comparison, total real estate loans held by noncommunity try and documents how community banks have shifted banks increased from 36 percent of all loans in 1984 to 51 their focus away from retail and toward commercial lend- percent at the end of 2011. ! !! ! ! ! ! There are important differences between commu- between community banks organized as mutual organiza- nity and noncommunity banks in the allocation of net tions, C corporations and S corporations. ! !! !! ! ! Among the lend- ing specialist groups, CRE specialists have the largest potential benefit from economies of scale, as their 2006 average costs decline by about 400 basis points between asset sizes of $10 million and $10 billion (see Chart 5.14). ! ! !! !!! ! ! Manteca High respects others, follows a tradition of excellence, while honoring the code, and takes pride in who we are and who we will become. !! Agricultural special- ists, consumer specialists, and banks with no lending FDIC Community Banking Study December 2012 521, 74 ! ! !! ! The first such category capital each year remained relatively small, never exceed- includes community banks that never raised material ing 10 percent until 2002. ! !!! ! ! ! Because of their focus on loan portfolios at noncommunity banks in the years ahead traditional lending and deposit gathering, community depends in no small part on the extent to which the pre- banks derive 80 percent of their revenue from net interest crisis pattern of growth reasserts itself in coming years. ! ! half times more often than the older banks over the Summary 27-year period. ! !! I Chapter 1 - Defining the Community Bank .. 11 Chapter 2 - Structural Change Among Community and Noncommunity Banks . 21 Chapter 3 - The Geography of Community Banks . 31 Chapter 4 - Comparative Financial Performance: Community versus Noncommunity Banks .. 41 Chapter 5 - Comparative Performance of Community Bank Lending Specialty Groups . 51 Chapter 6 - Capital Formation at Community Banks . 61 Bibliography. i Appendix A - Details of the Research Definition of the Community Bank . A1 Appendix B - Regulatory Compliance Costs A Summary of Interviews with Community Bankers .. B1 FDIC Community Banking Study December 2012, 4 ! !! ! ! ! ! !! ! ! !! This compares with a peak net loan and are therefore reviewed separately. !! ! ! !!!! ! While most of the United States is institutions to locate their offices in a nonmetro area in divided into counties, not all of it is (for example, Louisiana has 2011, and were four times more likely to operate offices in parishes). !! !!! !! ! Stiroh (1999) finds that consolidation over the second half of the 1990s, a period characterized by mergers among larger institutions, was asso- ciated with reduced profitability as the largest bank mergers underperformed. !!! !! ! !!! !! ! ! ! Note: Noncurrent loans are loans 90 days or more past due or on nonaccrual status. !! !! ! ! ! Community banks pursuing Strategy 3 (all other percent of banks that had shifted to Strategy 2. shifts in lending specialty) also generally underperformed the three baseline groups in 2008 and 2009, but recovered Chart 5.13 compares the incidence of failure for commu- nity banks in the three baseline groups and those that Table 5.17 Troubled Institutions as Percent of Community Banks That Belonged to Baseline Lending Specialty Groups in 2000 According to the Lending Strategy Pursued as of 2005 Troubled Institutions as Percent of Community Banks in Group 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Remained in Mortgage Specialists 4% 5% 7% 5% 4% 5% 6% 7% 9% 14% 17% 17% Baseline Lending Agricultural Specialists 5% 5% 5% 7% 5% 3% 3% 5% 7% 12% 15% 12% Specialty Groups No Specialty 4% 4% 5% 5% 5% 5% 4% 3% 6% 12% 16% 14% C&D Loans > 10% 1: 7% 5% 6% 7% 5% 4% 4% 9% 27% 51% 56% 52% of Assets Pursued Alternative Total CRE Loans > 2: 7% 9% 8% 7% 6% 7% 5% 8% 19% 36% 44% 46% Lending 30% of Assets Strategies Other Changes in 3: 5% 5% 5% 5% 6% 5% 5% 8% 14% 23% 29% 25% Strategy Source: FDIC. !! 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. ! ! ! ! ! !!!! ! !! ! ! !! Of all the institutions that started out in study period came directly from the acquisition and 1984 with total assets less than $100 million, 2,774 of consolidation of other charters. !! ! !! ! !! ! ! !!! ! ! ! ! ! !!!!! !! !! !! Table 4.4 Average Net Charge-Off Rates by Loan Type Aggregate Loan Type Bank Type 1991-1995 1996-2000 2001-2005 2006-2010 1991-2011 Nonfarm, nonresidential Community 0.55% 0.07% 0.09% 0.35% 0.29% CRE Noncommunity 1.21% 0.04% 0.11% 0.61% 0.49% Construction and Community 0.87% 0.08% 0.09% 2.04% 1.25% development Noncommunity 2.56% 0.04% 0.09% 2.86% 1.82% Community 0.13% 0.06% 0.06% 0.35% 0.18% 1-4 family residential Noncommunity 0.24% 0.12% 0.11% 1.16% 0.65% Community 1.30% 0.63% 0.67% 1.06% 0.89% C&I Noncommunity 0.83% 0.48% 1.13% 1.24% 0.91% Community 2.41% 3.61% 4.02% 7.76% 3.73% Credit card Noncommunity 3.80% 4.70% 5.30% 6.91% 5.58% Community 0.59% 0.70% 0.81% 0.90% 0.74% Other consumer Noncommunity 0.82% 1.12% 1.46% 2.11% 1.54% Community 0.17% 0.15% 0.14% 0.15% 0.15% Agricultural* Noncommunity 0.26% 0.20% 0.33% 0.44% 0.34% Source: FDIC. ! ! !! !! ! FDIC Community Banking Study December 2012 44, 45 !!! ! ! ! !!! ! ! ! ! ! With the financial crisis that policy issue for future research. ! ! ! !! ! !! !! !! ! Executive Summary The FDIC Community Banking Study is a data-driven of U.S. banking organizations. !! ! ! !! ! ! ! ! ! !! ! !!! ! ! !!!! !! !! ! ! ! ! ! ! ! !! ! !! The existence of inefficient banks also serves as an impetus for consolidation as effi- cient banks may gain by acquiring less efficient institutions and altering management practices. In order to gauge the stabil- number of intracompany consolidations (see Chart 2.3) ity of banks of differing asset size, rates of consolidation, also generally rose in the late 1980s and then declined merger, failure, and survivorship are calculated by asset size after the mid-1990s. ! ! ! !! ! ! ! ! !! ! The erosion in recent years of the advan- levels of noninterest income relative to community banks tage that community banks have typically enjoyed in is closely connected to their ability to earn noninterest generating net interest income from traditional lending income from a wider range of sources. 4,000 2,000 Under the mutual form of ownership, there are no share- 0 holders; the bank is owned by its depositors and typically 1984 1989 1994 1999 2004 2009 managed by trustees. ! ! !! !! !! ! Table 3.5 Community Bank Share of Banking Offices and Total Deposits Located in Metro, Micro and Rural Counties, 1987-2011 Community Bank Share of Banking Offices, Community Bank Share of Total Deposits, by County Type (Percent) by County Type (Percent) Total Total Year Metro Micro Rural Share Metro Micro Rural Share 1987 44.9% 68.1% 81.0% 51.8% 35.9% 68.5% 79.7% 40.9% 1988 43.1% 66.3% 78.8% 49.9% 33.9% 65.0% 75.9% 38.7% 1989 42.3% 65.5% 78.7% 49.2% 32.4% 63.0% 75.5% 37.2% 1990 40.7% 64.3% 77.6% 47.8% 31.4% 61.2% 74.1% 36.2% 1991 39.7% 63.7% 77.9% 46.9% 31.1% 60.2% 74.7% 36.0% 1992 38.8% 63.6% 77.5% 46.3% 30.7% 60.5% 74.8% 35.8% 1993 38.3% 62.1% 76.1% 45.8% 29.7% 59.5% 74.1% 35.0% 1994 36.1% 59.7% 74.7% 43.6% 28.1% 57.4% 73.3% 33.4% 1995 35.3% 58.9% 74.2% 42.9% 26.8% 55.7% 72.1% 32.2% 1996 35.2% 59.5% 75.2% 42.9% 25.9% 54.5% 72.9% 31.3% 1997 34.3% 59.1% 74.4% 42.2% 24.2% 54.3% 72.8% 29.8% 1998 32.0% 56.5% 72.1% 39.8% 22.1% 51.0% 69.0% 27.4% 1999 31.9% 56.6% 72.2% 39.8% 21.9% 50.9% 70.1% 27.3% 2000 32.1% 56.4% 71.3% 39.8% 21.2% 48.4% 69.5% 26.3% 2001 32.8% 57.5% 71.6% 40.5% 21.2% 49.2% 70.2% 26.3% 2002 32.5% 58.0% 72.2% 40.3% 20.6% 50.1% 70.9% 25.7% 2003 32.1% 58.2% 72.7% 40.1% 19.4% 49.1% 71.5% 24.4% 2004 30.4% 57.2% 71.9% 38.4% 17.8% 49.3% 70.4% 22.7% 2005 30.3% 57.3% 71.7% 38.2% 17.7% 49.2% 70.0% 22.3% 2006 29.7% 56.7% 71.6% 37.4% 16.7% 50.1% 69.1% 21.3% 2007 29.4% 56.6% 71.6% 37.1% 16.6% 49.3% 69.0% 21.2% 2008 29.5% 56.4% 71.8% 37.1% 16.0% 49.8% 69.5% 20.7% 2009 29.9% 56.5% 71.4% 37.4% 16.2% 50.5% 69.3% 20.7% 2010 29.4% 55.8% 70.7% 36.8% 16.0% 50.0% 70.1% 20.6% 2011 29.0% 55.8% 70.5% 36.5% 14.9% 50.8% 70.5% 19.4% Source: FDIC. ! ! ! !! ! !! ! ! !!!! ! !!! ! !! !! ! Historically, core deposits have been defined for analytical and examination purposes as the sum of demand deposits, all NOW and automatic transfer service accounts, money market deposit accounts, other savings deposits, and time deposits under $100,000. ! !!! ! ! ! !! !!! ! ! ! ! ! ! ! ! ! ! ! !! ! ! ! ! !!!! ! ! Map 3.1 Community Bank Headquarters and Branch Locations, Year-End 2011 !! ! !! total changes attributable to each component since 1998, While the efficiency ratio for this group underwent only a yields the results in Charts 4.15 and 4.16. very small 0.4 percentage point decline between 1998 and 2011, this net change belies more substantialand largely Chart 4.15 depicts the components of cumulative change offsettingchanges to the components of the ratio. !!!! ! ! !!! ! !!!! !! ! !! ! ! Farmland loans experienced when the percentage for multi-specialists fell to 4.8 the best overall performance of any group, both in terms percent. ! ! !! ! ! nity banks. !! ! ! ! ! ! ! !! All interview participants were fers Act. ! development of real estate (C&D loans, 16 percent of CRE than doubling between 2003 and 2007 to a peak level of loans), and loans secured by multifamily properties (11 $206 billion, total C&D loans held by community banks percent of CRE loans). ! Chart 6.12 Chart 6.13 Annual Volume of External Capital Raised Annual Volume of External Capital Raised All Community Banks All Noncommunity Banks Percent of Equity Capital on Hand at Beginning of Year Percent of Equity Capital on Hand at Beginning of Year 15 15 10 10 Average: 5.0 Percent 5 5 Average: 3.5 Percent 0 0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Source: FDIC. ! !! ! ! Similarly, while noncommunity banks have generally reported lower average loss rates on commercial and indus- Chart 4.9 Chart 4.10 Loss Provision to Average Assets, 1985-2011* Noninterest Expense to Average Assets, 1985-2011 2.5% 4.0% 3.5% 2.0% 3.0% Community Banks 1.5% Noncommunity Banks 2.5% 2.0% 1.0% Community Banks 1.5% Noncommunity Banks 0.5% 1.0% 0.5% 0.0% 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 0.0% Source: FDIC. ! ! ! !!!!! !!!! ! !!!!! ! ! !! be categorized into three groups according to the 6.10 shows that in the early years of the study period, the frequency with which they raised capital from external percentage of all community banks that raised external sources during the study period. !! ! ! ! Consumer As Map 5.1 shows, CRE specialists were primarily head- specialists comprised 1 percent of both the number and quartered in metro counties (80 percent) and tended to be total assets of community banks. !! ! ! ! !! !! ! !! ! bankers to understand what drives the cost of regulatory compliance and, where possible, obtain actual financial data to better understand how regulation and supervision (2) Interview participants were asked several questions to affects bank performance. Meanwhile, community banks have contributed to changes in the ratio over time. !! ! this reason, some items on this page will be unavailable. ! !! Banks that limit their use of the model also controls for changes in macroeconomic noncore funding and maintain lower overall funding conditions over time, as well as differences between indi- costs also generate relatively higher returns. ! ! !! ! 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. !! ! !!!! If the number of new community bank charters in Unfortunately, the data available through Call Reports the next decade were to approach the 997 de novo and other regulatory filings do not provide a breakdown of community banks established in the 2000s, the likely regulatory versus other types of noninterest expenses. ! ! !! ! ! ! ! 2000s Among the community bank lending specialty groups Higher Levels of C&D Lending Are Associated studied in this chapter, three groups stand out as represent- With Higher Rates of Failure ing the largest percentages of community banks as of 2000, and for exhibiting relatively strong and stable performance During the crisis years of the late 1980s and early 1990s, as over most of the study period. ! !! !! !! ! ! ! ! ! !! , ! ! !! ! ! !! !! !! ! !!!! !!! ! ! ! !! company is almost always the vehicle for raising that capital from existing or new shareholders. ! !! ! ! !! !! !! ! Moreover, a comparison of have enjoyed in terms of lower loan-loss expenses has loss rates on individual loan categories suggests that served only to mitigate, not reverse, their overall earnings community banks may also do a better job of underwriting gap with noncommunity banks. ! ! ! !!!!!!!!!! ! ! ! ! ! !! ! !!! ! !! !! ! Research & Reports. ! ! ! 2006 2007 2008 2009 2010 2011 Note: Noncurrent loans are loans 90 days or more past due or on nonaccrual status. ! ! ! ! ! !! ! !!!!!! ! ! ! ! FDIC Community Banking Study December 2012 B2, 101 ! ! ! !! !! !!! 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. ! !!! ! related to traditional lending and deposit gathering activi- ties and limited geographic scope. !! ! ! !!! !!! !!! ! !! ! Headquarters offices of both community and they do businessover time. ! For banks in a loans or no core deposits are also excluded. Some smaller institutions may have business specialties The process of designating community banks for this that are far removed from deposit gathering and lending to purpose consists of five steps, described below. ! Consumer specialists and C&I specialists recorded the highest levels of net interest income for the entire study period and for most of the five- Table 5.9 shows that the mortgage specialists had the year intervals. !! ! ! ! ! ! ! ! To operations of community banks; (2) specific regulations or support this statement, many of the interview participants supervisory practices that have affected regulatory costs; indicated that they have increased staff over the past ten and (3) cost of regulatory compliance. ! !! (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.) ! ! ! !!!!! ! ! ! local scale, community banks foster economic growth and In the past, most analysts have used a maximum asset size, help to ensure that the financial resources of the local often $1 billion. ! !! ! ! ! !!! !!! ! ! ! The failure index is calculated for federally insured community banks. !!! !!! The FDIC's 2012 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.. All items below are PDF files. ! ! ! !! !!! In contrast, institutions starting out the period with assets less than $100 millionthe group that would experience a Structural consolidation also brought about the other net decline of 82 percent in their numbers by 2011were main development reflected in Chart 2.6, the elevenfold in fact more likely than any other size group to survive the increase in banking industry assets at charters with assets entire 27-year period. ! ! ! ! ! ! ! ! ! ! !! ! ! !! Taken together, these data noncommunity banks in 2011. ! ! !! !! ! ! ! ! !! ! !!! !! While these changes incident to business combinations represent an increase in the Chart 6.4 capital of the acquiring bank, the increase is largely offset by the elimi- nation of equity capital at the target institution. ! !! ! ! ! ! ! ! ! Economies of scale exist when the average cost of producing a unit of output declines as the volume of output increases. !! ! ! ! ! !! !! !! !! !! ! !! (CRE) loans are associated with lower ROA compared with holdings of other asset types. ! !! ! ! ! !!!! ! ! ! ! ! !! This difference has been most notable in economic While it is true that community banks have earned a downturns, and is likely a result of the relationship lending lower average pretax ROA than noncommunity banks over approach favored by most community banks. ! !! ! ! ! !!!!! ! FDIC Community Banking Study December 2012 514, 67 !!! !! ! ! !! ! !! !! !! !!!! ! ! ! ! From 2007 through 2011, however, metro bank growth rates dropped below those of depopulating rural banks. Through 2011, the ratio of noninterest expenses to average assets at noncommunity Whether the performance gaps of recent years might banks had already risen by more than 11 percent from its persist into the future appears to depend on three factors. ! ! ! ! ! ! ! ! ! !! Provides a listing of all reporters as of September 30, 2022 and their community bank status on that date. !!!!!! !! !! Because it was not used the funds to convert existing CPP investments. ! ! ! !!! ! ! ! ! ! ! While commu- those of community banks by around 75 percent, demon- nity bank offices are also mostly located in metropolitan strating a physical presence far beyond their headquarters areas, they also exist in large numbers outside the metro- locations. 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. ! ! !!! !!! First, community banks study period even as their loan mix shifted in the opposite rely much more on time deposits for funding compared direction, from retail to commercial loans. !! ! !! ! Factors Explain Differences in Return on !! ! ! ! ! ! !! !! ! ! !!! ! !! !!! ! Newly chartered institutions require an adequate level of starting A 2012 report by the Government Accountability Office capital to commence operations. !! ! ! ! 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. ! !! ! ! ! ! ! ! ! !! !!! ! ! ! !!!!! Data as ! !! ! ! ! ! ! ! For the remaining lend- The definition also includes the beginning capital reported by new entrants, defined as total equity less any reported retained earnings. !! !! ! !! 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. The .gov means its official. ! ! ! ! !! ! ! !! !! ! ! ! !! ! Nevertheless, the 2009 cost curve still shows that the average costs level off above $500 million, indicating that most cost advantages are realized at that size. ! ! ! !!! ! ! ! !!! ! ! ! ! yield on earning assets. !! ! ! ! ! ! Table 5.6 Pretax Return on Assets (ROA) by Lending Specialty Group, 1985-2011 Time Period Five-Year Intervals All Years: Lending Specialty Group 1986-1990 1991-1995 1996-2000 2001-2005 2006-2010 2011 1985-2011 Agricultural Specialists 0.98% 1.68% 1.65% 1.50% 1.25% 1.38% 1.40% Consumer Specialists 0.85% 1.55% 1.55% 1.44% 0.89% 2.22% 1.27% C&I Specialists 0.60% 1.09% 1.50% 1.45% 1.04% 0.89% 1.03% Mortgage Specialists 0.55% 1.24% 1.39% 1.33% 0.63% 0.69% 1.00% CRE Specialists -1.57% 0.75% 1.78% 1.68% 0.25% 0.37% 0.64% No Specialty 0.88% 1.48% 1.62% 1.42% 1.05% 1.08% 1.28% Multi-Specialists 0.28% 1.15% 1.65% 1.52% 0.69% 0.72% 0.98% Total 0.47% 1.31% 1.56% 1.49% 0.60% 0.75% 1.02% Source: FDIC. Wharton Financial Institutions Center Work- ing Paper 02-39. http://fic.wharton.upenn.edu/fic/papers/02/0239.pdf Chapter 3 - The Geography of Community Banks Anderlik, John and Jeffrey Walser. !! ! !! ! The study points to the considerable costs and volume of their capital raising from external sources. ! declining during the 2000s. ! ! !! ! ! !! ! ! !! ! ! !! ! ! ! ! !! !!! ! !! ! ! The annual and new charters individually. For exam- ple, a demand deposit could be considered either an input or an output. !! ! ! ! !!! ! ! ! Learn about the FDICs mission, leadership, ! ! !! ! !! ! ! !! ! ! !! !! ! ! !! !! ! !! ! ! ! ! !!! !! ! ! ! Over the study period, other 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 comprehensive income has totaled negative $6.1 billion at noncommu- Source: FDIC. ! !! ! ! ! ! ! Summary Community banking is defined to a substantial degree by geography. ! !!! ! !! ! !! in each group relative to the prevalence of that group in Given the underperformance of community banks that the larger population of community banks. !! ! ! ! !! ! ! ! ! The majority of interview partici- pants indicated that while direct costs can be more easily identified, it would be very costly to separate indirect costs from normal operational costs. ! ! What this study does not docu- into them after 2000, they proved to be highly problematic ment are the social benefits that arise from commercial during the crisis period that followed. ! ! ! !! !! !!!! !!!!!! ! !! !! ! ! ! !! !! ! ! ! ! ! ! !! !!!! ! ! ! !! ! ! ! ! !! !!! ! ! ! ! ! ! ! ! !!! ! ! The site is secure. ! ! ! ! !! !!! ! ! ! ! ! !! ! !! ! ! headquartered in a metro county or in a state where home prices were rising rapidly, and those with trust preferred 5 Paul Kupiec and Stefan Jacewitz, Community Bank Efficiency and securities (TruPS) outstanding at the holding company Economies of Scale, FDIC, December 2012, http://www.fdic.gov/regula- level. !! ! !! history, career opportunities, and more. !! Over the same nizations operated within three or fewer counties in 2011. period, the average number of banking offices per noncom- munity banking organization more than doubled from 73 to 171. !! !!!!! !! ! banks have had greater success in generating noninterest income from a variety of sources, explaining much of the The ability of noncommunity banks to generate such high gap in earnings. !! ! ! !!! ! ! ! ! ! These results show that while some small community banks may be able to reduce their average costs through growth, there is no indication of any significant benefit beyond $500 million in asset size. ! ! !! !!! !! ! ! ! ! !! ! !! ! Community Banking: CSBS Policy Proposals Right-Sizing Regulation Regulation should support community bank portfolio lending !! ! !! !! ! !! Sale, conversion, acquisition, or retirement of capital stock, net entire study period), followed by CRE specialists and multi- 6. ! The Federal Deposit Insurance Corporation (FDIC) today released a new large-scale study on the state of the nations community banks. ! !!! !! Source: FDIC. The Implications of Community Bank Capital One of the factors that appears to have contributed to the Strategies shift from the baseline groups to the C&D and CRE strat- egies is the search for growth. During the study period, (GAO) analyzed sources of capital for small banks.5 The a total of 3,649 new community banks were chartered.9 In GAO found that a majority of banks they surveyed total, these new community banks reported $25.5 billion expressed confidence that they could raise new capital in total equity capital at the end of their first year of oper- from their board members or members of their communi- ation, along with negative retained earnings of $3.2 billion. rate over the study period was 58 percent of net income for community banks, substantially lower than the 78 percent Capital Formation Through Retained Earnings rate for noncommunity banks. ! !! !! ! ! ! !! Do Economies of Scale Work Against Small Community Banks? ! !! Chart 2.9 The Four Largest Banking Organizations Have Greatly Expanded Their Branch Networks and Office Share in the Largest U.S. Cities Percent Share of Total Banking Offices, by Geography* 30% 25% Top 25 Percent of MSAs by Population 20% All Other MSAs All Nonmetropolitan Areas 15% 10% 5% 0% 1994 1998 2002 2006 2010 Sources: FDIC, Moody's Analytics, U.S. Bureau of Census. !! !! ! !! ! !! ! ! ! ! ! ! Chart 4.15 Declining Net Interest Income to Assets Explains More Than 70 Percent of the Increase in the Community Bank Efficiency Ratio Since 1998 Components of Cumulative Change in the Community Bank Efficiency Ratio Since 1998 12% Noninterest Income Total cumulative Factors Contributing to change in 10% Net Interest Income Deterioration in the Efficiency Ratio efficiency ratio: +8% 8% Noninterest Expense +0.6% Cumulative Net Change in Efficiency Ratio 6% +5.8% 4% 2% +1.6% 0% -2% Factors Contributing to Improvement in the Efficiency Ratio -4% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: FDIC. ! ! ! ! ! ! ! ! ! ! !! !! !! ! ! ! ! ! ! ! ! !! !! The include: compliance personnel salaries, employee training, interview participants expressed a strong desire to comply consulting fees, external and internal audit fees, and with outstanding rules and regulations; however, they feel specific software and hardware costs that are directly asso- dependent on service providers to provide the means for ciated with compliance regulations. ! ! The higher the concentra- Summary tion in C&D or total CRE lending in 2005, before the real Community banks shifted the composition of their loan estate downturn began, the higher the incidence of failure portfolios from retail loans to commercial loans during the after 2005. study period, and this shift was mainly due to an increase in the share of loans secured by CRE. ! !!!! ! ! 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. ! !! !! ! ! !!!! !! By contrast, in the 20 percent of all year-end reports where dividends Chart 6.5 Community Banks With Positive Net Income Consistently Retain Bank Ownership Structure and Access a Higher Percent of Earnings Than Noncommunity Banks to External Capital Retained Earnings as Percent of Annual Net Income for Banks With Positive Net Income Banks can be organized either as stock corporations or 90% 80% Noncommunity Banks as mutual institutions. ! !! ! !! ! !! ! !! ! ! ! !!! !!!! !! In total, the ten most concentrated states for agricultural specialists had 84 percent of all community Local economic conditions have important influences banks with that specialty. ! ! !! ! N/A indicates data withheld to avoid disclosing confidential information. ! ! ! ! Despite these slowly or even declined in population. !!!! ! 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Taken together, these data Noncommunity banks in 2011. as the volume of increases. For raising that capital from existing or new shareholders they would acquire by 2011. of September 30, 2022 their! Community and Noncommunity banks in a loans or no core deposits are excluded..., however, metro Bank growth rates dropped below those of depopulating banks... Community Banking Study is a data-driven effort to identify and explore issues and questions about Community?. Federal deposit Insurance Corporation ( FDIC ) today released a new large-scale Study on the state the!.. B1 FDIC Community Banking Study December 2012, 4 issues and questions about Community banks Insurance Corporation ( ). The underperformance of Community banks Among Community and they do businessover time underperformance of Community banks contributed... The Federal deposit Insurance Corporation ( FDIC ) today released a new large-scale Study on state. 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