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1
The FDIC Community Banking Research Project
FDIC Future of Community Banking ConferenceFebruary 16, 2012
Community Banking by the Numbers
2
Outline
•
Bank size and long-term industry consolidation
•
Defining the community bank for research purposes
•
A snapshot of U.S. community banks
•
Structural changes over time
•
Performance comparisons over time
•
Directions for future research
3
-
2,500
5,000
7,500
10,000
12,500
15,000
17,500
20,000
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Assets < $100 millionAssets $100 million To $250 millionAssets $250 million to $1 billionAssets $1 billion to $10 billionAssets > $10 billion
198513,631
2,5471,289
53036
18,033
20102,6252,4741,893
559107
7,658
Number of FDIC-Insured InstitutionsBy Size Group
Source: FDIC
All of the net decline in FDIC-insured institutions since 1985 has come from banks under $100 million.
Number of Institutions
4
What happened to the 18,033 federally-insured banks and thrifts that operated at year-end 1985? (By 1985 asset size group)
22.7%
28.7%24.3%
27.2%
13.9%
0%
10%
20%
30%
40%
<$100M $100M-$250M
$250M-$1B $1B-$10B >$10B
Consolidated Within Company
9.9%12.6%
18.3%
21.3%
11.1%
0%
5%
10%
15%
20%
25%
<$100M $100M-$250M
$250M-$1B
$1B-$10B >$10B
Failed
Source: FDIC
36.0%
21.8%
12.3% 11.9%
19.4%
0%
10%
20%
30%
40%
<$100M $100M-$250M
$250M-$1B
$1B-$10B >$10B
Still Operating
29.5%33.8%
37.0% 34.5%
52.8%
0%
10%
20%
30%
40%
50%
60%
<$100M $100M-$250M
$250M-$1B
$1B-$10B >$10B
Merged
5
What Is a Community Bank?
•
Common definition: Total assets < $1 billion–
Size threshold needs to be indexed over time
–
Shortcomings:•
Includes some non-community banks•
Excludes some banks that look like community banks
•
Needed: A better conceptual definition–
Not purely
a function of size
–
Associated with basic banking functions of deposit gathering and lending
–
Business within a fairly circumscribed geographic area–
Emphasis on “relationship banking”
vs. “transactional
banking”
6
FDIC Research Definition
Exclude:•
Any organization with:–
No loans or no core deposits–
Foreign assets > 10% of total assets
–
More than 50% of assets in certain specialty banks, including:
•
credit card specialists•
consumer nonbank banks•
ILCs•
trust companies•
bankers banks
Include: •
All remaining banking organizations with:–
Total assets < $1 billion (indexed over time)
–
Total assets > $1 billion where:•
Loan to assets > 33%•
Core deposits to assets > 50%•
1 < Offices ≤
75•
Number of large MSAs
with offices < 3
•
Number of states with offices< 4
•
No single office with deposits > $5 billion
Designate community banks at the level of the banking organization –
the decision-making unit.
7
Where Do These Criteria Take Us?
330 organizations
6,196organizations
6,526organizationsdesignated as “community institutions”
7,016 chartersout of 7,658 total
264 organizations
Large organizations that did not meet tests
for loans-to-assets, core deposits or
limited geography.
Year-end 2010
Excluded: no loans, or no core deposits,
or certain spec. group
34 large
organizationsexcluded
92 small
organizationsexcluded
Siz
e $ 1 billion
8
Community banks have declined just slightly since 1985 as a percent of all banking organizations, from 97 to 94 percent.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Non-Community BanksLarge Community Banking OrganizationsSmall Community Banking Organizations
Source: FDIC Community Banking Research Project
13,128 community banking organizations under $250
million in 1985
1,137 community banking organizations over $250
million in 1985
6,196 community banking organizations under $1
billion in 2010
330 community banking organizations over $1 billion in
2010
9
The total assets of non-community banks have grown much faster than those of community banks since the early 1990s.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Non-Community Banks
Large Community Banking Organizations
Small Community Banking Organizations
Source: FDIC Community Bank Research Project
Total Assets, Dollars in Billions
10
Snapshot of U.S. Community Banks
•
How big are they?
•
Where do they operate?
•
What do their balance sheets look like?
•
What business lines do they specialize in?
•
How often do they fail?
•
How has industry structure changed since 1985?
11
0
2
4
6
8
10
12
14
16
18
20
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Source: FDIC Community Banking Research Project
Average Asset Size (Dollars in Billions)
Other Banks
Community Banks $0.28 billion
$17.7 billion
12 times larger
64 times larger
Community banks tend to be small, and the size disparity with other banks is growing.
12
Where Do Community Banks Operate?
Source: FDIC Summary of Deposits
Community Bank Share of All Branches Operating Within State as of 2Q 2010.
13Source: FDIC Community Banking Research Project
Comparing Balance Sheet StructureWeighted Averages, Year-End 2010
Average Loans to Assets
64%
52%
0%
20%
40%
60%
80%
100%
CommunityBanks
Other Banks
Average Core Deposits to Assets
79%
50%
0%
20%
40%
60%
80%
100%
CommunityBanks
Other Banks
14
Community banks have traditionally held more capital, on average, than other banks.
0%
2%
4%
6%
8%
10%
12%
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Community Banks
All Other Banks
Core Capital (Leverage) Ratio, Percent
Source: FDIC Community Banking Research Project
15
0.0%
1.0%
2.0%
3.0%
4.0%
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Source: FDIC Community Banking Research Project Year-End
Failures During the Succeeding Year as a Percent of Institutions at Year-End
Other Banks
Community Banks
26-Year Average Annual Failure RateCommunity Banks: 0.69%Other Banks: 0.66%
The long-term failure rate for community banks is comparable to that of other banks.
16
4% 8%22%
60%
3%2%
0%10%20%30%40%50%60%70%
Survived to 2010 Failed Merged Consolidated Other Exit
Percent of Other Banks Reporting at Year-End 1985
As Community
Bank
12%32%
18%
34%
3%
2%
0%10%20%30%40%50%60%70%
Survived to 2010 Failed Merged Consolidated Other Exit
Percent of Community Banks Reporting at Year-End 1985
As Community
Bank
As Other Bank
Source: FDIC Community Banking Research Project
What Happened to Community Banks and Other Banks that Reported at Year-End 1985?
12%32%
18% 3%
Failed Merged Consolidated Other Exit
Exited Industry Before Year-End 2010
8%22%
60%
3%
Failed Merged Consolidated Other Exit
Exited Industry Before Year-End 2010
17
Change in percent share among main community bank specialty groups, 1985-2010
0%
10%
20%
30%
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Percent of All Community InstitutionsCRE Specialists
Mortgage Specialists
Ag Specialists
C&I Specialists
Consumer Specialists
Source: FDIC Community Banking Research Project
18
16%
1%
26%
2%
15%
9%6%
31%
6%
2%
0%
5%
10%
15%
20%
25%
30%
35%
MortgageSpecialists
ConsumerSpecialists
CRE Specialists C&I Specialists Ag Specialists
Community BanksOther Banks
Source: FDIC Community Banking Research Project
Comparing Community Banks and Other Banks by Business Specialty Breakdown
Percent of Institutions in Each Business Specialty Group Year-End 2010
19
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
1986-1990 1991-1995 1996-2000 2001-2005 2006-2010
Source: FDIC Community Banking Research Project
Five Year Averages for Pre-tax ROA, By Community Bank Single-Specialty Groups
Ag Specialists
CRE Specialists
Consumer Specialists
C&I Specialists
Mortgage Specialists
20
Percent of Failures Accounted for by All Single-Business Line Specialists, by Five-Year Period
7%1%
17%
0% 2%0%
10%20%30%40%50%60%70%
1986-1990
1991-1995
1996-2000
2001-2005
2006-2010
Ag Specialists
102 4 4 0 6Gross Number of Bus. Line Failures in Period
16%8%
13%
30%
2%0%
10%20%30%40%50%60%70%
1986-1990
1991-1995
1996-2000
2001-2005
2006-2010
C&I Specialists
230 43 3 6 5Gross Number of Bus. Line Failures in Period
13%18%
0%
10%
66%
0%10%20%30%40%50%60%70%
1986-1990
1991-1995
1996-2000
2001-2005
2006-2010
CRE Specialists
186 92 0 2 213Gross Number of Bus. Line Failures in Period
19%
31%
17% 20%
7%
0%10%20%30%40%50%60%70%
1986-1990
1991-1995
1996-2000
2001-2005
2006-2010
Mortgage Specialists
283 160 4 4 24Gross Number of Bus. Line Failures in Period
Source: FDIC Community Banking Research Project
21
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Community Banks
All Other Banks
Pre-Tax Return on Assets, 1985 - 2010
Source: FDIC Community Banking Research Project
22
Community Bank Earnings Performancevs. All Other Banks, 1985 - 2010
0.0%
1.0%
2.0%
3.0%
4.0%
1985 1989 1993 1997 2001 2005 2009
Provision Expense to Assets
0.0%
1.0%
2.0%
3.0%
4.0%
1985 1989 1993 1997 2001 2005 2009
Noninterest Income to Assets
0.0%
1.0%
2.0%
3.0%
4.0%
1985 1989 1993 1997 2001 2005 2009
Noninterest Expense to Assets
0.0%
1.0%
2.0%
3.0%
4.0%
1985 1989 1993 1997 2001 2005 2009
Net Interest Income to Assets
Community Banks
All Other Banks
23
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Community Banks
All Other Banks
Efficiency Ratio, 1985 - 2010
Source: FDIC Community Banking Research Project
Noninterest Expense
Net Operating RevenueEfficiency Ratio =
Net Operating Revenue = Net Interest Income + Noninterest Income
24
Community Bank Earnings Performancevs. All Other Banks, 1985 - 2010
0.0%
1.0%
2.0%
3.0%
4.0%
1985 1989 1993 1997 2001 2005 2009
Noninterest Income to Assets
0.0%
1.0%
2.0%
3.0%
4.0%
1985 1989 1993 1997 2001 2005 2009
Noninterest Expense to Assets
0.0%
1.0%
2.0%
3.0%
4.0%
1985 1989 1993 1997 2001 2005 2009
Net Interest Income to Assets
Community Banks
All Other Banks
0.0%
1.0%
2.0%
3.0%
4.0%
1985 1989 1993 1997 2001 2005 2009
Provision Expense to Assets
25
Directions for Future Research
•
Bank cost structure and economies of scale
•
Successful business models
•
Alternative bank performance metrics
•
Factors that make community banks unique
•
Connections to local communities
•
The small business economy
•
Rural depopulation
•
Role and use of technology
•
Lessons of the crisis
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