Community Banks Record Another Positive Quarter of Earnings

Industry Updates  »  Community Banks Record Another Positive Quarter of Earnings

Likely benefiting from rising interest rates and a strengthening economy, net income at community banks increased 17.7% from first quarter of 2017 based on the FDIC Quarterly Banking Profile. (available at https://www.fdic.gov/bank/analytical/qbp/2018mar/qbpall.html). 

In the first quarter of this year, 5,168 insured institutions identified as community banks reported $6.1 billion in net income, an increase of $913.1 million (17.7 percent) from a year earlier.  

Higher net operating revenue and a lower effective tax rate boosted first quarter net income. Net operating revenue rose by $1.8 billion (8.3 percent) from first quarter 2017, led by higher net interest income (up $1.6 billion, or 9.7 percent) and noninterest income (up $127.6 million, or 2.9 percent).

Loan-loss provisions increased by $154.1 million (23.7 percent), while noninterest expenses were $963.9 million (6.9 percent) higher.

What is a Community Bank?

The term community bank is used frequently, but there is no real tangible definition of what a this kind of bank is. They are not defined by size, number of branches, deposits, and not even completely by geography. So what is a community bank, really?

Perhaps a good way to define the term is that the phrase community bank describes a business model – a way of doing business and operating. 

First, community banks have strong ties to the communities in which they operate. This is the one component that is related to geography and that is that they are typically well known in the markets in which they do business.

Second, community banks build and do business based on relationship. They are invested in the communities and people that they serve and focus on having these ties. Management of the typical community bank is heavily local with the decision makers having long standing ties to the communities. 

Third, these banks have long focused on commercial banking and lending and specifically small business. As any business owner knows, the risk of small business is extremely high with treacherous waters  abounding at many turns. Community banks, however have thrived in this space and this is due to the power of relationship and understanding their communities and local business. As of 2011, they held 14 percent of banking industry assets, but 46 percent of the industry’s small loans to farms and businesses.

More details about characteristics of community banks can be found here:
https://www.fdic.gov/regulations/resources/cbi/report/cbi-full.pdf.

Also, see our recent post about trends in branch locations:
https://www.premierinsights.com/blog/the-future-of-traditional-brick-and-mortar-bank-branches-remains-a-contradiction.

The quarterly report also indicated asset quality continues to improve and the number of “problem banks” continues to decline. 

Other highlights from the report which apply to all FDIC insured institutions include:

  • Net Interest Income Rises 8.5 Percent from a Year Ago
  • Noninterest Income Increases 7.9 Percent from a Year Earlier
    Loan Balances Rise 4.9 Percent over 12 Months

Noncurrent Loan Rate Declines Modestly, While Net Charge-Off Rate Remains Stable


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