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Quarterly Quarterly Banking Profile: First Quarter 2021 The Historic Relationship Between Bank Net Interest Margins and Short-Term Interest Rates Residential Lending During the Pandemic 2021 Volume 15, Number 2 Federal Deposit Insurance Corporation FDIC QUARTERLY A The FDIC Quarterly is published by the Division of Insurance and Research of the Federal Deposit Insurance Corporation and contains a comprehensive summary of the most current financial results for the banking industry. Feature articles appearing in the FDIC Quarterly range from timely analysis of economic and banking trends at the national and regional level that may affect the risk exposure of FDIC-insured institutions to research on issues affecting the banking system and the development of regulatory policy. Single copy subscriptions of the FDIC Quarterly can be obtained through the FDIC Public Information Center, 3501 Fairfax Drive, Room E-1002, Arlington, VA 22226. E-mail requests should be sent to publicinfo@fdic.gov. Change of address information also should be submitted to the Public Information Center. The FDIC Quarterly is available online by visiting the FDIC website at www.fdic.gov. To receive e-mail notification of the electronic release of the FDIC Quarterly and the individual feature articles, subscribe at www.fdic.gov/about/subscriptions/index.html. Chairman Jelena McWilliams Director, Division of Insurance and Research Diane Ellis Executive Editors George French Shayna M. Olesiuk Managing Editors Rosalind Bennett Alan Deaton Patrick Mitchell Philip A. Shively Editors Clayton Boyce Kathy Zeidler Publication Manager Lynne Montgomery Media Inquiries (202) 898-6993 FDIC QUARTERLY 2021 FDICQUARTERLY Volume 15 • Number 2 Quarterly Banking Profile: First Quarter 2021 FDIC-insured institutions reported aggregate net income of $76.8 billion in first quarter 2021, an increase of $17.3 billion (29.1 percent) from fourth quarter 2020 and $58.3 billion (315.3 percent) from a year ago. Aggregate negative provision expense, reflecting improvements in the economy and asset quality, drove the increase in quarterly net income. Three-fourths of all institutions (74.8 percent) reported year-over-year increases in quarterly net income. The share of unprofitable institutions dropped from 7.4 percent a year ago to 3.9 percent. The average return on assets ratio was 1.38 percent for the quarter, up 1 percentage point from a year ago and 28 basis points from fourth quarter 2020. See page 1. Community Bank Performance Community banks—which represent 91 percent of insured institutions—reported yearover-year quarterly net income growth of $3.7 billion (77.5 percent) in first quarter 2021, despite a narrower net interest margin. Nearly three-quarters of all community banks (74 percent) reported higher net income from the year-ago quarter. The pretax return on assets ratio increased 56 basis points from the year-ago quarter to 1.58 percent as net income growth outpaced the growth in average assets. See page 15. Insurance Fund Indicators The Deposit Insurance Fund (DIF) balance totaled $119.4 billion at the end of first quarter 2021, an increase of $1.5 billion from the previous quarter. Assessment income, interest earned on investments, and negative provisions for insurance losses were the largest sources of the increase, offset partially by operating expenses and unrealized losses on availablefor-sale securities. The DIF reserve ratio was 1.25 percent on March 31, 2021, down 4 basis points from December 31, 2020, and down 13 basis points from March 31, 2020. See page 23. Featured Articles: The Historic Relationship Between Bank Net Interest Margins and Short-Term Interest Rates The years since the Great Recession generally demonstrate that protracted periods of low interest rates tend to compress net interest margin (NIM) at FDIC-insured banks. NIM decreased during the period of historically low interest rates after that recession, increased during the upward interest rate cycle between 2015 and 2019, and decreased again as interest rates fell toward zero with the onset of the COVID-19 pandemic. In most rate cycles since the 1980s, the median NIM, representative of typical banks, has moved in the same direction as changes in the federal funds rate. But this relationship has been much less pronounced for banks with high concentrations of long-term assets. Those banks with a relatively high proportion of long-term assets to total assets report greater insulation from changes in short-term interest rates. This means that their NIM falls less during downward rate cycles but rises less during upward rate cycles. The overall positive relationship between short-term interest rates and NIM and the effect of maturity structure on this relationship generally hold true over time for both community and noncommunity banks. See page 31. Residential Lending During the Pandemic The housing market rebounded from the COVID-19 pandemic-induced recession faster than other sectors of the economy, helped by historically low interest rates and fiscal support. Still, weaker economic fundamentals led to tightening of mortgage credit and underwriting standards as lenders sought to reduce credit risk from new mortgages. Mortgage credit performance improved after deteriorating at the start of the pandemic, but high rates of delinquent loans reflect lingering financial distress for many borrowers. The coming expiration of federal programs that have aided homeowners raises concern about the possible increased risk of mortgage credit quality deterioration and reduced credit availability. Nevertheless, banks have been resilient and, despite the uncertain outlook, continue to extend residential loans. See page 43. The views expressed are those of the authors and do not necessarily reflect official positions of the Federal Deposit Insurance Corporation. Some of the information used in the preparation of this publication was obtained from publicly available sources that are considered reliable. However, the use of this information does not constitute an endorsement of its accuracy by the Federal Deposit Insurance Corporation. Articles may be reprinted or abstracted if the publication and author(s) are credited. Please provide the FDIC’s Division of Insurance and Research with a copy of any publications containing reprinted material. FDIC QUARTERLY i QUARTERLY BANKING PROFILE First Quarter 2021 INSURED INSTITUTION PERFORMANCE Quarterly Net Income Rose From a Year Ago Primarily Because of Negative Provisions for Credit Losses Net Interest Margin Contracted Further, Setting a Record Low Loan Balances Declined From the Previous Quarter and Year, Driven by a Reduction in Credit Card Balances Asset Quality Improved Quarterly Net Income More Than Tripled From the Year-Ago Quarter Net income totaled $76.8 billion in first quarter 2021, an increase of $17.3 billion (29.1 percent) from fourth quarter 2020 and $58.3 billion (315.3 percent) from a year ago. Aggregate negative provision expense of $14.5 billion, which declined $17.7 billion from fourth quarter 2020, drove the improvement in net income from the previous quarter. Three-fourths of all banks (74.8 percent) reported higher quarterly net income compared with the year-ago quarter.1 The share of unprofitable institutions dropped from 7.4 percent a year ago to 3.9 percent. The banking industry reported an aggregate return on average assets ratio of 1.38 percent, up 1 percentage point from a year ago and 28 basis points from fourth quarter 2020. Net Interest Margin Contracted Further to a New Record Low The average net interest margin contracted 57 basis points from a year ago to 2.56 percent, the lowest level on record in the Quarterly Banking Profile (QBP). Net interest income declined $7.6 billion (5.6 percent) from first quarter 2020 as the year-over-year reduction in interest income (down $29.8 billion, or 17.6 percent) outpaced the decline in interest expense (down $22.2 billion, or 68.7 percent). Despite the aggregate decline in net interest income, more than three-fifths of all banks (64.4 percent) reported higher net interest income compared with a year ago. The average yield on earning assets declined 1.1 percentage points from the year-ago quarter to 2.76 percent, while the average cost of funding earning assets declined 54 basis points to 0.20 percent, both of which are record lows. More Than Two-Thirds of Banks Reported Higher Noninterest Income Year Over Year More than two thirds of all banks (67.9 percent) reported an annual increase in noninterest income. Increased revenue from servicing fees, loan sales, and trading activities lifted noninterest income by $9.9 billion (14.8 percent) to $76.8 billion from a year ago. Servicing fee revenue increased $5.2 billion, net gains on loan sales increased $4.5 billion, and trading revenue increased $3.8 billion. A decline in “other noninterest income” of $4.3 billion (12.1 percent) partially offset the improvement in noninterest income from the year-ago quarter.2 1 Industry participation counts consist of institutions existing in both reporting periods. noninterest income includes items such as bank card and credit card interchange fees, income and fees from automated teller machines, and other related items. 2 Other Chart 1 Chart 2 Quarterly Net Income Quarterly Net Interest Margin All FDIC-Insured Institutions $ Billions 100 All FDIC-Insured Institutions Securities and Other Gains/Losses, Net Net Operating Income 80 Percent 5.0 4.0 40 3.5 3.0 2.5 0 2.0 -20 1.5 -40 -60 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: FDIC. Assets $100 Million - $1 Billion Assets < $100 Million 4.5 60 20 Assets > $250 Billion Assets $10 Billion - $250 Billion Assets $1 Billion - $10 Billion 1.0 0.5 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: FDIC. FDIC QUARTERLY 1 2021 • Volume 15 • Number 2 Noninterest Expense Declined From the Year-Ago Quarter A decline in amortization expense of intangible assets drove a $4.1 billion (3.2 percent) reduction in total noninterest expense year over year. Amortization expense declined $8.4 billion (88.8 percent). An increase in salary and employee benefits (up $6.2 billion, or 10.6 percent) offset the annual reduction in noninterest expense. Average assets per employee rose $1.1 million from a year ago to $10.9 million. Nearly two-thirds of all banks (65.3 percent) reported higher noninterest expense year over year. However, the average efficiency ratio (noninterest expense as a percentage of net interest income plus noninterest income, which indicates the cost of generating bank income) during this period declined 2.7 percentage points to 60.5 percent. Banks in all QBP asset size groups reported improvements in this ratio. Provisions for Credit Losses Were Negative for the First Time on Record Provisions for credit losses (provisions) declined $17.7 billion (552.6 percent) from the previous quarter and $67.2 billion from the year-ago quarter to negative $14.5 billion, the lowest level on record. Less than one-fourth of all institutions (24.5 percent) reported higher provisions compared with the year-ago quarter.3 The number of banks that have adopted current expected credit loss (CECL) accounting rose by 41 to 320 from fourth quarter 2020. CECL adopters reported aggregate negative provisions of $14.9 billion in the first quarter, a reduction of $16.1 billion from the previous quarter and a reduction of $63.0 billion from one year ago. Provisions for banks that have not adopted CECL accounting totaled $391.4 million (a reduction of $1.7 billion from a quarter ago and $4.0 billion from one year ago). The Coverage Ratio Remained Above the Financial Crisis Average The allowance for loan and lease losses as a percentage of loans that are 90 days or more past due or in nonaccrual status (coverage ratio) declined 9.4 percentage points to 174.2 percent from fourth quarter 2020. This ratio remains above the financial crisis average of 79.1 percent.4 Coverage ratios for banks in the largest two QBP asset size groups (“$10 billion to $250 billion” and “greater than $250 billion”) declined the most from fourth quarter 2020. 3 Provisions for credit losses include both losses for loans and securities for CECL adopters and only loan losses for non-adopters. 4 The financial crisis refers to the period between December 2007 and June 2009. Chart 3 Chart 4 Change in Quarterly Loan-Loss Provisions Reserve Coverage Ratio All FDIC-Insured Institutions All FDIC-Insured Institutions Loan-Loss Reserves (Left Axis) Reserve Coverage Ratio (Right Axis) Noncurrent Loans (Left Axis) Coverage Adjusted for GNMA Guaranteed Loans (Right Axis) Noncurrents Adjusted for GNMA Guaranteed Loans (Left Axis) Quarter-Over-Quarter Change ($ Billions) 50 40 $ Billions 450 30 20 400 10 300 0 -10 -20 -30 -40 -50 -60 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: FDIC. 2 FDIC QUARTERLY Coverage Ratio (Percent) 250 200 350 150 250 200 100 150 100 50 50 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: FDIC. Note: The reserve coverage ratio is the loan-loss reserves to noncurrent loans and leases. QUARTERLY BANKING PROFILE The Noncurrent Rate Declined Modestly From Fourth Quarter 2020 Loans and leases that were 90 days or more past due or in nonaccrual status (noncurrent loans and leases) declined $5.9 billion (4.6 percent) to $122.9 billion from fourth quarter 2020. The noncurrent rate for total loans and leases improved 5 basis points to 1.14 percent from the previous quarter. However, the noncurrent rate for construction and development loans increased 7 basis points from the previous quarter to 0.72 percent, and the noncurrent rate for home equity credit lines increased 5 basis points from the previous quarter to 2.17 percent. Net Charge-Off Volume Declined From the Year-Ago Quarter During the year ending first quarter 2021, net charge-offs declined $5.4 billion (36.8 percent), and the net charge-off rate fell 20 basis points to 0.34 percent, slightly above the record low of 0.32 percent. Reductions in charged-off credit card balances (down $3.3 billion, or 36.4 percent) and charged-off commercial and industrial (C&I) loans (down $1.2 billion, or 43.5 percent) contributed most to the decline. Total Assets Increased From the Previous Quarter Total assets increased $680.9 billion (3.1 percent) from fourth quarter 2020 to $22.6 trillion. Cash and balances due from depository institutions expanded $440.1 billion (13.8 percent), and securities rose a record $366.9 billion (7.2 percent). Mortgage-backed securities led the quarterly growth, rising $220.4 billion (7.2 percent), followed by growth in U.S. Treasury securities, which rose $110.7 billion (11.5 percent). Total loan and lease volume declined by a modest 0.4 percent from the previous quarter. Together, the asset growth and loan volume contraction led to a decline in the net loans and leases to total assets ratio to 47.0 percent, a record low. Loan Volume Continued to Decline, Driven by a Reduction in Credit Card Balances Total loan and lease balances contracted $38.7 billion (0.4 percent) from the previous quarter. A reduction in credit card balances (down $60.9 billion, or 7.4 percent) drove the quarterly decline in loan volume. Unused credit card commitments declined for a fourth consecutive quarter (down $364.6 billion, or 9.2 percent). This was the largest percentage reduction in credit card commitments since first quarter 2009. Growth in Paycheck Protection Program loans, guaranteed by the Small Business Administration, grew $61.2 billion from the previous quarter to $469.4 billion. Compared with the year-ago quarter, total loan and lease balances declined $136.3 billion (1.2 percent). This was the first annual contraction in loan and lease volume reported by the banking industry since third quarter 2011. Reductions in credit card balances (down $111.9 billion, or 12.8 percent) and C&I loans (down $93.2 billion, or 3.7 percent) drove the annual decline in loan volume. Despite the aggregate decline in loan volume, more than twothirds of all banks (71.9 percent) reported year-over-year growth in loan and lease volume. Chart 5 Chart 6 Noncurrent Loan Rate and Quarterly Net Charge-Off Rate All FDIC-Insured Institutions Percent 6 Noncurrent Rate Quarterly Net Charge-Off Rate Quarterly Change in Loan Balances All FDIC-Insured Institutions $ Billions 500 400 5 300 200 4 Quarterly Change (Left Axis) 12-Month Growth Rate (Right Axis) Percent 12 8 4 100 0 3 -100 2 -200 0 -4 -300 -8 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 1 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: FDIC. Source: FDIC. Note: FASB Statements 166 and 167 resulted in the consolidation of large amounts of securitized loan balances back onto banks’ balance sheets in the first quarter of 2010. Although the total amount consolidated cannot be precisely quantified, the industry would have reported a decline in loan balances for the quarter absent this change in accounting standards. FDIC QUARTERLY 3 2021 • Volume 15 • Number 2 Deposit Growth Remained Strong Deposits grew $635.2 billion (3.6 percent) from fourth quarter 2020 to $18.5 trillion, continuing several quarters of unprecedented deposit growth. Among deposit categories, deposits above $250,000 (up $424.8 billion, or 4.7 percent) and noninterest-bearing deposits (up $371.1 billion, or 8.1 percent) grew most from the previous quarter. Deposits as a percentage of total assets reached a record high for the QBP of 81.8 percent in first quarter 2021. Equity Capital Continued to Grow Equity capital rose $26.1 billion (1.2 percent) from fourth quarter 2020, supported by an increase in retained earnings of $15.3 billion (40.5 percent). Cash dividends totaled $23.9 billion, up 9.4 percent from the previous quarter. Fewer institutions—six banks with total assets of $536.5 million—reported capital ratios that did not meet Prompt Corrective Action (PCA) requirements for the well-capitalized category, compared with eight banks that did not meet this requirement in fourth quarter 2020.5 The number of banks that are not “well capitalized” for PCA purposes is the lowest on record. Three New Banks Opened in First Quarter 2021 Three new banks opened and 25 institutions merged in first quarter 2021. No banks failed during the quarter. With these changes, the number of FDIC-insured commercial banks and savings institutions declined from 5,002 to 4,978 in first quarter 2021.6 The number of institutions on the FDIC’s “Problem Bank List” declined by one to 55 from fourth quarter 2020. Total assets of problem banks declined $1.7 billion from the fourth quarter to $54.2 billion. Author: Erica Jill Tholmer Senior Financial Analyst Division of Insurance and Research 5 Prompt corrective action (PCA) categories are assigned based on reported capital ratios only and do not include the effects of regulatory downgrades. 6 The total number of insured financial institutions includes 2 banks that did not file Call Reports this quarter because most of their assets were sold to credit unions, but their banking charters remain active. Chart 7 Quarterly Change in Deposits All FDIC-Insured Institutions Quarterly Change ($ Billions) Chart 8 Number and Assets of Banks on the “Problem Bank List” Number 1,000 Assets of Problem Banks Number of Problem Banks Assets ($ Billions) 500 1,400 900 450 1,200 800 400 1,000 700 350 600 300 500 250 400 200 300 150 200 100 100 50 800 600 400 200 0 -200 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: FDIC. 4 FDIC QUARTERLY 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: FDIC. QUARTERLY BANKING PROFILE TABLE I-A. Selected Indicators, All FDIC-Insured Institutions* Return on assets (%) Return on equity (%) Core capital (leverage) ratio (%) Noncurrent assets plus other real estate owned to assets (%) Net charge-offs to loans (%) Asset growth rate (%) Net interest margin (%) Net operating income growth (%) Number of institutions reporting Commercial banks Savings institutions Percentage of unprofitable institutions (%) Number of problem institutions Assets of problem institutions (in billions) Number of failed institutions 2021** 2020** 2020 2019 2018 2017 2016 1.38 13.73 8.85 0.57 0.34 11.41 2.56 343.81 4,978 4,357 621 3.88 55 $54 0 0.38 3.50 9.41 0.54 0.54 11.96 3.13 -71.60 5,116 4,464 652 7.39 54 $45 1 0.72 6.85 8.81 0.61 0.50 17.37 2.82 -38.77 5,002 4,375 627 4.64 56 $56 4 1.29 11.38 9.66 0.55 0.52 3.91 3.36 -3.14 5,177 4,518 659 3.75 51 $46 4 1.35 11.98 9.70 0.60 0.48 3.03 3.40 45.45 5,406 4,715 691 3.44 60 $48 0 0.97 8.60 9.63 0.73 0.50 3.79 3.25 -3.27 5,670 4,918 752 5.61 95 $14 8 1.04 9.27 9.48 0.86 0.47 5.09 3.13 4.43 5,913 5,112 801 4.48 123 $28 5 * Excludes insured branches of foreign banks (IBAs). ** Through March 31, ratios annualized where appropriate. Asset growth rates are for 12 months ending March 31. TABLE II-A. Aggregate Condition and Income Data, All FDIC-Insured Institutions (dollar figures in millions) Number of institutions reporting Total employees (full-time equivalent) CONDITION DATA Total assets Loans secured by real estate 1-4 Family residential mortgages Nonfarm nonresidential Construction and development Home equity lines Commercial & industrial loans Loans to individuals Credit cards Farm loans Other loans & leases Less: Unearned income Total loans & leases Less: Reserve for losses* Net loans and leases Securities** Other real estate owned Goodwill and other intangibles All other assets 1st Quarter 2021 4th Quarter 2020 1st Quarter 2020 %Change 20Q1-21Q1 4,978 2,067,213 5,002 2,065,606 5,116 2,069,356 -2.7 -0.1 $22,564,200 5,079,208 2,178,126 1,575,028 388,391 286,055 2,457,390 1,689,878 761,103 68,053 1,533,496 3,094 10,824,931 214,253 10,610,678 5,479,337 4,434 392,016 6,077,735 $21,883,275 5,118,278 2,210,916 1,568,515 386,009 300,311 2,440,715 1,744,175 822,028 71,781 1,491,872 3,196 10,863,625 236,615 10,627,010 5,112,405 4,627 386,755 5,752,478 $20,253,734 5,084,049 2,207,005 1,534,469 370,042 338,273 2,550,595 1,771,389 872,980 75,242 1,482,242 2,300 10,961,218 196,406 10,764,812 4,208,512 5,588 391,789 4,883,033 11.4 -0.1 -1.3 2.6 5.0 -15.4 -3.7 -4.6 -12.8 -9.6 3.5 34.5 -1.2 9.1 -1.4 30.2 -20.6 0.1 24.5 22,564,200 18,458,784 16,935,688 1,523,096 1,099,727 66,470 686,249 2,252,971 2,250,497 21,883,275 17,823,563 16,289,744 1,533,819 1,091,994 68,230 672,504 2,226,984 2,224,378 20,253,734 15,777,037 14,305,863 1,471,174 1,560,167 69,459 729,182 2,117,887 2,115,323 11.4 17.0 18.4 3.5 -29.5 -4.3 -5.9 6.4 6.4 Total liabilities and capital Deposits Domestic office deposits Foreign office deposits Other borrowed funds Subordinated debt All other liabilities Total equity capital (includes minority interests) Bank equity capital Loans and leases 30-89 days past due Noncurrent loans and leases Restructured loans and leases Mortgage-backed securities Earning assets FHLB Advances Unused loan commitments Trust assets Assets securitized and sold Notional amount of derivatives INCOME DATA Full Year 2020 51,801 122,979 50,804 3,264,138 20,576,308 231,304 8,316,938 18,925,437 460,283 191,683,719 Full Year 2019 Total interest income Total interest expense Net interest income Provision for credit losses*** Total noninterest income Total noninterest expense Securities gains (losses) Applicable income taxes Extraordinary gains, net**** Total net income (includes minority interests) Bank net income Net charge-offs Cash dividends Retained earnings Net operating income $603,753 77,098 526,655 132,252 280,237 498,986 8,144 36,334 -101 147,362 147,126 54,112 84,029 63,097 140,600 $705,398 158,731 546,668 55,101 264,374 466,147 3,977 60,926 164 233,008 232,772 52,164 182,407 50,365 229,633 %Change 63,210 128,873 49,323 3,043,762 19,920,261 255,985 8,444,142 18,875,483 480,364 165,711,590 1st Quarter 2021 72,387 102,391 46,841 2,546,452 18,236,418 612,677 8,034,514 20,003,202 551,354 199,743,579 1st Quarter 2020 -28.4 20.1 8.5 28.2 12.8 -62.2 3.5 -5.4 -16.5 -4.0 %Change 20Q1-21Q1 -14.4 -51.4 -3.7 140.0 6.0 7.0 104.8 -40.4 -161.6 -36.8 -36.8 3.7 -53.9 25.3 -38.8 $139,745 10,086 129,659 -14,532 76,814 124,857 1,395 20,686 0 76,857 76,787 9,225 23,860 52,928 75,724 $169,537 32,240 137,297 52,695 66,934 128,920 1,757 5,812 -26 18,535 18,491 14,606 32,678 -14,187 17,062 -17.6 -68.7 -5.6 -127.6 14.8 -3.2 -20.6 255.9 100.0 314.7 315.3 -36.9 -27.0 473.1 343.8 * For institutions that have adopted ASU 2016-13, this item represents the allowance for credit losses on loans and leases held for investment and allocated transfer risk. ** For institutions that have adopted ASU 2016-13, securities are reported net of allowances for credit losses. *** For institutions that have adopted ASU 2016-13, this item represents provisions for credit losses on a consolidated basis; for institutions that have not adopted ASU 2016-13, this item represents the provision for loan and lease losses. **** See Notes to Users for explanation. N/M - Not Meaningful FDIC QUARTERLY 5 2021 • Volume 15 • Number 2 TABLE III-A. First Quarter 2021, All FDIC-Insured Institutions Asset Concentration Groups* FIRST QUARTER (The way it is...) Number of institutions reporting Commercial banks Savings institutions Total assets (in billions) Commercial banks Savings institutions Total deposits (in billions) Commercial banks Savings institutions Bank net income (in millions) Commercial banks Savings institutions Performance Ratios (annualized, %) Yield on earning assets Cost of funding earning assets Net interest margin Noninterest income to assets Noninterest expense to assets Credit loss provision to assets** Net operating income to assets Pretax return on assets Return on assets Return on equity Net charge-offs to loans and leases Loan and lease loss provision to net charge-offs Efficiency ratio % of unprofitable institutions % of institutions with earnings gains Condition Ratios (%) Earning assets to total assets Loss allowance to: Loans and leases Noncurrent loans and leases Noncurrent assets plus other real estate owned to assets Equity capital ratio Core capital (leverage) ratio Common equity tier 1 capital ratio*** Tier 1 risk-based capital ratio*** Total risk-based capital ratio*** Net loans and leases to deposits Net loans to total assets Domestic deposits to total assets Structural Changes New reporters Institutions absorbed by mergers Failed institutions All Insured Institutions 4,978 4,357 621 $22,564.2 21,128.9 1,435.3 18,458.8 17,261.9 1,196.9 76,787 72,796 3,992 Credit Card Banks 11 10 1 $493.9 408.5 85.4 351.2 285.9 65.3 7,077 6,230 847 International Banks 5 5 0 $5,752.9 5,752.9 0.0 4,408.2 4,408.2 0.0 19,387 19,387 0 Agricultural Banks 1,124 1,113 11 $279.3 273.9 5.4 237.8 234.5 3.3 991 945 46 Commercial Lenders 2,645 2,386 259 $7,867.4 7,401.2 466.2 6,554.4 6,190.1 364.3 25,715 24,331 1,384 Mortgage Lenders 270 76 194 $672.6 117.8 554.8 598.6 101.3 497.4 1,546 401 1,145 Consumer Lenders 40 24 16 $151.7 144.3 7.3 129.9 123.7 6.2 1,020 1,007 13 Other Specialized <$1 Billion 297 272 25 $58.2 53.9 4.2 47.6 44.9 2.7 288 108 180 All Other <$1 Billion 509 407 102 $116.2 92.3 23.9 99.8 80.0 19.8 345 298 47 All Other >$1 Billion 77 64 13 $7,171.9 6,883.9 288.0 6,031.3 5,793.3 238.0 20,419 20,088 330 2.76 0.20 2.56 1.38 2.25 -0.26 1.36 1.75 1.38 13.73 0.34 10.68 1.06 9.63 4.64 7.04 -0.74 5.73 7.49 5.74 44.38 2.66 1.99 0.11 1.88 1.75 2.09 -0.46 1.36 1.79 1.37 15.47 0.55 3.83 0.44 3.39 0.71 2.24 0.05 1.41 1.64 1.45 12.96 0.01 3.22 0.24 2.99 1.05 2.26 -0.12 1.31 1.68 1.33 12.05 0.15 1.86 0.18 1.68 1.00 1.50 -0.02 0.91 1.20 0.93 11.35 0.02 3.34 0.54 2.79 1.35 0.97 -0.55 2.72 3.67 2.73 30.49 0.27 2.63 0.26 2.37 3.97 3.69 0.07 1.92 2.56 2.04 13.39 0.05 3.46 0.37 3.09 1.58 3.09 0.06 1.17 1.39 1.22 10.64 0.04 2.31 0.15 2.16 1.26 2.10 -0.26 1.13 1.42 1.15 11.70 0.30 -145.25 59.96 3.88 74.71 -35.65 50.69 0.00 100.00 -243.33 60.91 0.00 60.00 619.68 57.22 2.85 66.37 -111.29 58.86 2.57 84.91 -303.12 56.35 9.26 58.15 -157.39 23.75 7.50 92.50 502.13 59.42 12.46 42.76 293.65 68.82 5.30 65.03 -189.10 64.48 1.30 79.22 91.19 95.03 88.62 93.91 91.61 97.44 97.78 93.37 93.69 91.64 1.98 174.22 9.41 800.27 2.43 232.53 1.48 150.20 1.44 135.65 0.77 86.47 1.50 438.02 1.64 159.52 1.28 143.49 1.85 136.48 0.57 9.97 8.85 14.17 14.27 15.75 57.48 47.02 75.06 0.87 13.25 14.20 18.87 19.03 20.85 94.43 67.14 68.25 0.34 8.81 7.88 15.06 15.14 16.54 38.97 29.86 53.65 0.65 10.92 10.61 14.81 14.81 15.95 68.55 58.35 85.12 0.72 10.88 9.43 12.72 12.84 14.31 75.87 63.20 83.10 0.25 8.12 8.02 22.19 22.19 22.63 30.56 27.20 88.83 0.25 8.74 9.16 20.62 20.73 21.19 83.21 71.26 85.64 0.33 14.66 14.40 33.48 33.48 34.38 32.06 26.24 81.87 0.56 11.15 11.16 18.43 18.44 19.51 61.87 53.11 85.82 0.60 9.79 8.55 14.27 14.35 15.96 50.69 42.63 81.73 3 25 0 0 0 0 0 0 0 0 7 0 1 14 0 0 1 0 0 0 0 2 1 0 0 1 0 0 1 0 PRIOR FIRST QUARTERS (The way it was...) Number of institutions 2020 2018 2016 5,116 5,606 6,122 11 11 14 5 5 5 1,261 1,355 1,459 2,706 2,936 3,045 384 412 502 50 61 60 214 274 336 428 495 635 57 57 66 Total assets (in billions) 2020 2018 2016 $20,253.7 17,530.3 16,293.3 $503.8 542.0 540.1 $5,231.1 4,278.6 4,014.9 $279.1 270.7 275.5 $7,548.7 6,143.8 5,741.8 $388.1 353.4 404.6 $154.6 278.1 193.1 $37.0 45.6 60.1 $78.8 85.5 112.5 $6,032.7 5,532.6 4,950.8 Return on assets (%) 2020 2018 2016 0.38 1.28 0.97 0.11 2.64 2.72 0.44 1.21 0.83 1.28 1.30 1.21 0.22 1.23 0.90 0.15 1.04 0.97 1.79 1.42 1.08 2.63 3.16 2.36 0.93 1.01 0.89 0.47 1.25 0.92 Net charge-offs to loans & leases (%) 2020 2018 2016 0.54 0.50 0.46 4.32 4.26 3.07 0.74 0.55 0.57 0.10 0.07 0.10 0.26 0.19 0.20 0.04 0.04 0.06 0.54 0.61 0.68 0.27 0.15 0.07 0.09 0.15 0.16 0.46 0.40 0.42 Noncurrent assets plus OREO to assets (%) 2020 2018 2016 0.54 0.70 0.96 1.39 1.25 0.88 0.30 0.47 0.69 0.94 0.87 0.75 0.64 0.69 0.99 1.18 1.77 1.84 0.41 0.42 0.90 0.40 0.55 0.62 0.65 0.78 1.10 0.50 0.77 1.10 Equity capital ratio (%) 2020 2018 2016 10.44 11.20 11.25 11.51 16.03 14.82 8.77 9.81 9.89 11.85 11.20 11.57 11.63 11.90 11.82 9.66 11.27 11.36 9.61 10.05 10.02 17.77 15.71 14.67 12.65 11.56 11.90 10.26 11.04 11.28 * See Table V-A (page 10) for explanations. ** For institutions that have adopted ASU 2016-13, the numerator represents provisions for credit losses on a consolidated basis; for institutions that have not adopted ASU 2016-13, the numerator represents the provision for loan and lease losses. *** Beginning March 2020, does not include institutions that have a Community Bank Leverage Ratio election in effect at the report date. 6 FDIC QUARTERLY QUARTERLY BANKING PROFILE TABLE III-A. First Quarter 2021, All FDIC-Insured Institutions Asset Size Distribution FIRST QUARTER (The way it is...) Number of institutions reporting Commercial banks Savings institutions Total assets (in billions) Commercial banks Savings institutions Total deposits (in billions) Commercial banks Savings institutions Bank net income (in millions) Commercial banks Savings institutions Performance Ratios (annualized, %) Yield on earning assets Cost of funding earning assets Net interest margin Noninterest income to assets Noninterest expense to assets Credit loss provision to assets** Net operating income to assets Pretax return on assets Return on assets Return on equity Net charge-offs to loans and leases Loan and lease loss provision to net charge-offs Efficiency ratio % of unprofitable institutions % of institutions with earnings gains Condition Ratios (%) Earning assets to total assets Loss allowance to: Loans and leases Noncurrent loans and leases Noncurrent assets plus other real estate owned to assets Equity capital ratio Core capital (leverage) ratio Common equity tier 1 capital ratio*** Tier 1 risk-based capital ratio*** Total risk-based capital ratio*** Net loans and leases to deposits Net loans to total assets Domestic deposits to total assets Structural Changes New reporters Institutions absorbed by mergers Failed institutions $100 Million to $1 Billion to $1 Billion $10 Billion 3,119 806 2,768 668 351 138 $1,118.0 $2,133.6 979.9 1,780.9 138.1 352.7 951.7 1,780.3 839.2 1,492.7 112.6 287.6 3,690 7,983 3,187 6,917 503 1,066 Geographic Regions* All Insured Institutions 4,978 4,357 621 $22,564.2 21,128.9 1,435.3 18,458.8 17,261.9 1,196.9 76,787 72,796 3,992 Less Than $100 Million 895 780 115 $54.8 48.0 6.8 45.9 40.7 5.2 144 130 14 $10 Billion to $250 Billion 145 129 16 $6,638.9 6,052.3 586.6 5,496.0 5,032.8 463.2 26,186 24,363 1,823 Greater Than $250 Billion New York 13 588 12 308 1 280 $12,618.9 $4,112.7 12,267.8 3,684.4 351.1 428.3 10,184.8 3,395.2 9,856.5 3,055.5 328.4 339.7 38,784 12,054 38,199 10,969 585 1,085 2.76 0.20 2.56 1.38 2.25 -0.26 1.36 1.75 1.38 13.73 0.34 3.77 0.44 3.33 1.61 3.45 0.04 1.05 1.20 1.07 7.92 0.04 3.78 0.41 3.37 1.35 2.88 0.09 1.31 1.58 1.35 12.27 0.04 3.70 0.34 3.36 1.38 2.60 0.04 1.49 1.92 1.53 14.10 0.15 3.39 0.28 3.12 1.29 2.36 -0.23 1.58 2.07 1.60 14.96 0.41 2.16 0.11 2.05 1.43 2.07 -0.36 1.23 1.58 1.25 13.12 0.39 -145.25 59.96 3.88 74.71 189.32 73.73 12.63 57.43 401.46 63.64 2.31 74.99 44.04 57.14 0.74 89.95 -81.50 55.87 1.38 90.34 91.19 92.35 93.94 93.21 1.98 174.22 1.44 128.33 1.36 179.14 0.57 9.97 8.85 14.17 14.27 15.75 57.48 47.02 75.06 0.70 13.20 13.20 23.50 23.51 24.57 61.13 51.27 83.87 3 25 0 Atlanta 568 516 52 $4,607.6 4,464.8 142.9 3,848.5 3,729.0 119.5 15,323 15,070 253 Chicago 1,064 918 146 $5,417.3 5,321.4 95.8 4,201.0 4,131.1 69.9 19,140 18,580 560 Kansas City 1,285 1,245 40 $4,209.4 4,169.7 39.8 3,434.2 3,401.9 32.3 14,001 13,876 125 Dallas 1,103 1,034 69 $1,871.5 1,293.6 577.9 1,609.8 1,096.0 513.8 5,493 4,569 924 San Francisco 370 336 34 $2,345.7 2,195.0 150.6 1,970.1 1,848.5 121.6 10,776 9,731 1,045 2.71 0.25 2.46 1.21 2.11 -0.15 1.16 1.52 1.19 11.37 0.35 2.79 0.17 2.61 1.19 2.19 -0.30 1.34 1.68 1.35 12.62 0.36 2.30 0.12 2.18 1.76 2.27 -0.41 1.44 1.87 1.44 15.28 0.28 2.75 0.19 2.55 1.27 2.24 -0.28 1.31 1.65 1.34 13.70 0.42 2.95 0.21 2.74 1.02 2.19 -0.05 1.19 1.46 1.20 12.11 0.13 3.69 0.34 3.35 1.69 2.60 -0.15 1.83 2.46 1.88 18.27 0.43 -228.63 62.82 0.00 76.92 -83.04 60.61 5.10 79.42 -161.69 60.96 6.69 75.18 -340.71 60.64 4.70 75.09 -114.04 62.05 2.02 75.02 -67.51 60.58 3.08 69.45 -48.91 53.27 4.05 80.00 92.52 89.90 90.66 90.91 90.26 90.38 93.80 94.18 1.45 178.79 2.12 163.79 2.11 182.78 1.83 163.80 2.10 197.10 1.87 182.88 2.19 171.30 1.40 67.75 2.27 335.25 0.55 10.79 10.77 16.07 16.09 17.22 71.55 60.91 85.12 0.60 10.72 10.29 14.67 14.69 15.84 77.06 64.30 83.36 0.79 10.62 9.55 14.08 14.30 15.71 70.30 58.19 80.83 0.45 9.42 8.05 14.01 14.04 15.64 45.82 36.98 69.69 0.57 10.39 9.09 14.08 14.16 15.62 59.41 49.04 77.40 0.53 10.58 8.68 13.90 14.00 15.41 55.25 46.15 81.10 0.46 9.30 8.30 14.33 14.38 15.77 53.90 41.80 68.36 0.61 9.77 8.94 13.76 13.85 15.77 55.98 45.67 65.65 1.04 9.74 8.82 14.74 14.85 16.01 54.88 47.21 85.98 0.44 10.16 9.90 14.87 15.07 16.34 70.91 59.55 82.69 3 8 0 0 15 0 0 2 0 0 0 0 0 0 0 0 5 0 0 3 0 1 3 0 0 8 0 1 4 0 1 2 0 PRIOR FIRST QUARTERS (The way it was...) Number of institutions 2020 2018 2016 5,116 5,606 6,122 1,124 1,393 1,663 3,168 3,453 3,734 680 628 616 131 123 100 13 9 9 617 684 752 582 656 753 1,099 1,208 1,325 1,317 1,426 1,528 1,126 1,214 1,299 375 418 465 Total assets (in billions) 2020 2018 2016 $20,253.7 17,530.3 16,293.3 $66.6 83.2 97.8 $1,066.7 1,130.2 1,179.8 $1,802.6 1,700.5 1,723.1 $5,770.4 5,827.3 5,013.9 $11,547.5 8,789.1 8,278.7 $3,787.4 3,273.9 3,084.7 $4,128.7 3,604.2 3,417.7 $4,719.6 3,969.6 3,624.0 $4,027.1 3,674.5 3,543.5 $1,547.4 1,102.9 962.2 $2,043.5 1,905.3 1,661.2 Return on assets (%) 2020 2018 2016 0.38 1.28 0.97 0.83 0.93 0.92 1.09 1.18 1.03 0.76 1.27 1.04 -0.16 1.37 1.01 0.52 1.24 0.92 0.55 1.15 0.81 0.04 1.31 0.88 0.49 1.27 0.93 0.49 1.17 1.03 0.77 1.35 1.05 0.00 1.63 1.32 Net charge-offs to loans & leases (%) 2020 2018 2016 0.54 0.50 0.46 0.12 0.19 0.12 0.11 0.08 0.10 0.22 0.18 0.19 0.76 0.74 0.62 0.53 0.46 0.49 0.51 0.62 0.49 0.62 0.56 0.54 0.43 0.24 0.26 0.53 0.53 0.55 0.31 0.21 0.30 0.81 0.74 0.52 Noncurrent assets plus OREO to assets (%) 2020 2018 2016 0.54 0.70 0.96 0.97 1.02 1.22 0.74 0.83 1.10 0.68 0.70 0.93 0.68 0.68 0.81 0.43 0.69 1.04 0.49 0.63 0.77 0.55 0.79 1.13 0.47 0.66 0.93 0.61 0.79 1.15 0.70 0.82 1.10 0.52 0.47 0.56 Equity capital ratio (%) 2020 2018 2016 10.44 11.20 11.25 14.05 13.10 12.86 11.98 11.24 11.34 11.69 11.71 11.72 11.27 12.19 12.04 9.68 10.43 10.65 10.71 12.36 12.00 11.24 12.04 12.35 9.83 10.37 10.32 9.75 10.04 10.14 10.94 11.48 11.10 10.76 11.45 12.12 * See Table V-A (page 11) for explanations. ** For institutions that have adopted ASU 2016-13, the numerator represents provisions for credit losses on a consolidated basis; for institutions that have not adopted ASU 2016-13, the numerator represents the provision for loan and lease losses. *** Beginning March 2020, does not include institutions that have a Community Bank Leverage Ratio election in effect at the report date. FDIC QUARTERLY 7 2021 • Volume 15 • Number 2 TABLE IV-A. Full Year 2020, All FDIC-Insured Institutions Asset Concentration Groups* FULL YEAR (The way it is...) Number of institutions reporting Commercial banks Savings institutions Total assets (in billions) Commercial banks Savings institutions Total deposits (in billions) Commercial banks Savings institutions Bank net income (in millions) Commercial banks Savings institutions Performance Ratios (%) Yield on earning assets Cost of funding earning assets Net interest margin Noninterest income to assets Noninterest expense to assets Credit loss provision to assets** Net operating income to assets Pretax return on assets Return on assets Return on equity Net charge-offs to loans and leases Loan and lease loss provision to net charge-offs Efficiency ratio % of unprofitable institutions % of institutions with earnings gains Condition Ratios (%) Earning assets to total assets Loss allowance to: Loans and leases Noncurrent loans and leases Noncurrent assets plus other real estate owned to assets Equity capital ratio Core capital (leverage) ratio Common equity tier 1 capital ratio*** Tier 1 risk-based capital ratio*** Total risk-based capital ratio*** Net loans and leases to deposits Net loans to total assets Domestic deposits to total assets Structural Changes New reporters Institutions absorbed by mergers Failed institutions All Insured Institutions 5,002 4,375 627 $21,883.3 20,505.3 1,377.9 17,823.6 16,684.2 1,139.3 147,126 136,457 10,669 Credit Card Banks 11 10 1 $492.6 407.3 85.3 349.0 283.2 65.8 9,710 8,281 1,429 International Banks 5 5 0 $5,553.8 5,553.8 0.0 4,270.5 4,270.5 0.0 35,890 35,890 0 Agricultural Banks 1,163 1,152 11 $287.7 282.6 5.2 242.5 239.3 3.2 3,499 3,337 162 Commercial Lenders 2,667 2,403 264 $7,591.1 7,135.6 455.5 6,251.3 5,900.1 351.3 52,700 48,936 3,765 Mortgage Lenders 291 75 216 $684.0 81.0 603.0 603.1 67.7 535.4 5,480 1,107 4,372 Consumer Lenders 36 24 12 $144.8 138.7 6.0 123.1 118.0 5.2 2,118 2,068 49 Other Specialized <$1 Billion 277 251 26 $51.5 46.7 4.8 41.9 38.7 3.2 1,244 455 789 All Other <$1 Billion 485 399 86 $105.7 84.1 21.7 89.9 72.3 17.6 1,082 953 129 All Other >$1 Billion 67 56 11 $6,972.0 6,775.5 196.5 5,852.1 5,694.4 157.7 35,403 35,430 -26 3.24 0.41 2.82 1.36 2.43 0.64 0.68 0.89 0.72 6.85 0.50 11.24 1.51 9.73 4.36 6.44 4.75 1.92 2.44 1.92 16.09 3.73 2.51 0.29 2.22 1.69 2.20 0.60 0.66 0.89 0.70 7.59 0.69 4.22 0.67 3.54 0.68 2.40 0.18 1.25 1.46 1.30 11.14 0.14 3.63 0.47 3.16 1.07 2.54 0.51 0.71 0.93 0.74 6.40 0.25 2.10 0.25 1.84 0.99 1.54 0.08 0.91 1.18 0.92 10.53 0.05 3.96 0.84 3.11 0.44 1.05 0.32 1.57 2.13 1.59 16.46 0.52 2.95 0.38 2.57 4.70 3.97 0.09 2.46 3.18 2.59 16.22 0.19 3.87 0.53 3.34 1.26 3.03 0.14 1.07 1.24 1.10 8.98 0.07 2.77 0.35 2.42 1.25 2.25 0.60 0.50 0.64 0.53 5.24 0.43 243.46 59.84 4.64 52.96 162.41 46.80 27.27 27.27 258.82 59.94 0.00 20.00 195.38 59.74 2.67 49.96 292.95 59.91 4.39 57.86 615.10 55.16 9.97 45.02 83.46 30.28 8.33 61.11 157.77 55.77 8.30 35.02 312.10 69.20 4.74 49.90 276.63 64.43 4.48 43.28 91.03 94.81 88.60 93.39 91.35 97.37 97.56 93.04 93.46 91.44 2.18 183.60 9.79 838.76 2.90 254.94 1.49 147.92 1.52 140.88 0.83 69.09 1.76 499.26 1.59 158.17 1.28 149.27 2.03 142.29 0.61 10.16 8.81 13.85 13.94 15.46 59.62 48.56 74.44 0.92 12.61 13.63 17.68 17.54 19.44 99.89 70.78 67.96 0.38 8.92 7.94 14.97 15.04 16.43 40.03 30.78 53.14 0.69 11.37 10.66 14.45 14.45 15.60 71.85 60.56 84.29 0.76 11.22 9.38 12.43 12.53 14.04 79.09 65.13 82.13 0.30 8.40 7.80 21.41 21.41 21.84 27.17 23.96 88.01 0.26 9.21 9.86 20.91 21.02 21.80 83.01 70.62 85.05 0.34 15.79 14.71 34.27 34.27 35.15 32.72 26.64 81.42 0.56 11.81 11.36 19.28 19.29 20.36 63.58 54.06 85.02 0.66 9.90 8.45 13.90 13.98 15.65 53.21 44.66 81.32 6 168 4 0 1 0 0 0 0 0 27 2 1 131 2 0 4 0 0 0 0 5 0 0 0 2 0 0 3 0 PRIOR FULL YEARS (The way it was...) Number of institutions 2019 2017 2015 5,177 5,670 6,182 12 11 14 5 5 4 1,291 1,389 1,479 2,733 2,944 3,089 393 420 500 58 59 65 210 272 332 428 510 632 47 60 67 Total assets (in billions) 2019 2017 2015 $18,645.3 17,415.4 15,967.7 $530.8 562.7 549.1 $4,481.1 4,196.0 3,774.6 $283.5 282.6 277.6 $6,735.8 6,026.0 5,892.1 $392.7 349.2 385.4 $230.7 270.9 187.3 $38.3 46.9 57.5 $76.3 88.8 113.9 $5,876.2 5,592.2 4,730.3 Return on assets (%) 2019 2017 2015 1.29 0.97 1.04 3.27 1.52 2.84 1.23 0.62 0.87 1.33 1.05 0.96 1.18 1.02 0.95 1.20 0.93 0.83 1.21 1.02 1.04 3.56 2.61 2.69 1.17 0.91 0.91 1.27 1.10 1.12 Net charge-offs to loans & leases (%) 2019 2017 2015 0.52 0.50 0.44 4.15 3.95 2.79 0.72 0.56 0.59 0.18 0.16 0.10 0.20 0.21 0.20 0.03 0.04 0.13 0.82 0.60 0.62 0.17 0.23 0.20 0.13 0.15 0.20 0.39 0.43 0.41 Noncurrent assets plus OREO to assets (%) 2019 2017 2015 0.55 0.73 0.97 1.39 1.25 0.90 0.33 0.51 0.71 0.81 0.77 0.68 0.60 0.70 0.93 1.18 1.70 1.92 0.48 0.36 0.97 0.45 0.59 0.61 0.62 0.81 1.19 0.52 0.82 1.16 Equity capital ratio (%) 2019 2017 2015 11.32 11.22 11.24 12.81 15.10 14.29 10.20 9.83 10.13 11.85 11.18 11.32 12.27 11.95 11.76 10.94 11.21 11.36 10.41 10.00 10.12 18.48 15.26 15.04 12.79 11.94 11.80 10.93 11.09 11.08 * See Table V-A (page 10) for explanations. ** For institutions that have adopted ASU 2016-13, the numerator represents provisions for credit losses on a consolidated basis; for institutions that have not adopted ASU 2016-13, the numerator represents the provision for loan and lease losses. *** Beginning March 2020, does not include institutions that have a Community Bank Leverage Ratio election in effect at the report date. 8 FDIC QUARTERLY QUARTERLY BANKING PROFILE TABLE IV-A. Full Year 2020, All FDIC-Insured Institutions Asset Size Distribution FULL YEAR (The way it is...) Number of institutions reporting Commercial banks Savings institutions Total assets (in billions) Commercial banks Savings institutions Total deposits (in billions) Commercial banks Savings institutions Bank net income (in millions) Commercial banks Savings institutions Performance Ratios (%) Yield on earning assets Cost of funding earning assets Net interest margin Noninterest income to assets Noninterest expense to assets Credit loss provision to assets** Net operating income to assets Pretax return on assets Return on assets Return on equity Net charge-offs to loans and leases Loan and lease loss provision to net charge-offs Efficiency ratio % of unprofitable institutions % of institutions with earnings gains Condition Ratios (%) Earning assets to total assets Loss allowance to: Loans and leases Noncurrent loans and leases Noncurrent assets plus other real estate owned to assets Equity capital ratio Core capital (leverage) ratio Common equity tier 1 capital ratio*** Tier 1 risk-based capital ratio*** Total risk-based capital ratio*** Net loans and leases to deposits Net loans to total assets Domestic deposits to total assets Structural Changes New reporters Institutions absorbed by mergers Failed institutions $100 Million to $1 Billion to $1 Billion $10 Billion 3,129 776 2,769 644 360 132 $1,101.4 $2,069.8 959.5 1,727.3 141.9 342.5 926.1 1,703.8 812.1 1,428.9 114.0 274.9 12,506 21,310 10,676 18,267 1,830 3,043 Geographic Regions* All Insured Institutions 5,002 4,375 627 $21,883.3 20,505.3 1,377.9 17,823.6 16,684.2 1,139.3 147,126 136,457 10,669 Less Than $100 Million 946 827 119 $57.2 50.1 7.0 47.6 42.3 5.3 457 421 36 $10 Billion to $250 Billion 138 123 15 $6,358.5 5,814.0 544.5 5,226.2 4,798.8 427.3 42,349 39,150 3,198 Greater Than $250 Billion New York 13 593 12 308 1 285 $12,296.4 $4,015.1 11,954.4 3,596.1 342.0 418.9 9,919.9 3,304.6 9,602.1 2,977.3 317.8 327.4 70,505 23,601 67,943 20,530 2,562 3,071 3.24 0.41 2.82 1.36 2.43 0.64 0.68 0.89 0.72 6.85 0.50 4.04 0.61 3.43 1.41 3.55 0.13 0.81 0.95 0.84 6.09 0.13 4.12 0.63 3.49 1.33 3.01 0.23 1.17 1.40 1.21 10.44 0.12 3.99 0.58 3.41 1.30 2.71 0.43 1.07 1.38 1.11 9.90 0.22 3.92 0.55 3.37 1.32 2.65 0.86 0.68 0.94 0.71 6.34 0.66 2.65 0.29 2.36 1.40 2.20 0.61 0.58 0.74 0.61 6.19 0.51 243.46 59.84 4.64 52.96 167.39 77.21 11.42 39.43 284.76 65.17 3.04 58.07 282.30 59.75 1.80 54.90 205.34 55.02 10.87 22.46 91.03 91.97 93.64 93.06 2.18 183.60 1.43 126.49 1.35 169.35 0.61 10.16 8.81 13.85 13.94 15.46 59.62 48.56 74.44 0.74 13.44 13.04 22.35 22.35 23.42 63.98 53.26 83.25 6 168 4 Atlanta 570 518 52 $4,485.3 4,360.6 124.7 3,718.1 3,617.6 100.5 24,728 24,987 -259 Chicago 1,069 922 147 $5,205.7 5,108.3 97.4 4,041.0 3,971.4 69.6 41,818 39,720 2,098 Kansas City 1,292 1,252 40 $4,148.6 4,110.3 38.2 3,366.6 3,335.8 30.7 19,610 19,190 420 Dallas 1,107 1,038 69 $1,792.6 1,241.8 550.9 1,529.7 1,038.1 491.6 15,761 12,558 3,204 San Francisco 371 337 34 $2,236.1 2,088.2 147.9 1,863.6 1,744.1 119.5 21,607 19,472 2,135 3.15 0.50 2.65 1.21 2.24 0.60 0.61 0.78 0.62 5.76 0.48 3.25 0.36 2.88 1.21 2.42 0.69 0.56 0.74 0.59 5.27 0.54 2.79 0.30 2.49 1.76 2.37 0.55 0.84 1.10 0.87 8.75 0.41 3.21 0.41 2.80 1.14 2.45 0.74 0.43 0.55 0.49 4.95 0.53 3.42 0.38 3.05 1.10 2.41 0.41 0.94 1.17 0.98 9.28 0.31 4.25 0.64 3.61 1.65 2.86 0.84 0.99 1.38 1.03 9.59 0.70 275.34 62.26 0.00 15.38 237.34 59.44 6.75 46.21 238.98 60.31 7.89 47.02 280.72 59.16 4.12 59.31 276.08 65.51 2.48 56.89 252.82 60.52 3.97 49.86 180.23 52.52 7.28 50.13 92.37 89.76 90.93 90.49 90.03 90.25 93.72 93.91 1.41 164.00 2.35 177.76 2.39 194.23 2.00 173.36 2.30 215.27 2.17 197.98 2.37 168.93 1.46 69.97 2.45 350.99 0.60 11.27 10.86 15.92 15.94 17.08 74.89 62.97 84.08 0.65 10.94 10.20 14.21 14.23 15.38 80.98 66.66 82.20 0.83 10.84 9.47 13.57 13.77 15.26 72.65 59.71 80.11 0.50 9.57 8.04 13.81 13.85 15.48 47.65 38.44 69.29 0.60 10.49 9.04 13.78 13.86 15.37 60.49 49.79 76.48 0.55 10.78 8.60 13.54 13.63 15.13 58.06 48.13 80.34 0.52 9.59 8.38 14.02 14.08 15.49 55.85 43.36 68.03 0.69 9.80 8.85 13.70 13.79 15.67 58.07 47.13 65.32 1.08 10.08 8.66 13.93 14.04 15.23 57.34 48.93 85.30 0.48 10.44 9.88 14.45 14.61 15.93 74.06 61.72 82.08 4 42 1 2 107 3 0 17 0 0 2 0 0 0 0 0 35 0 4 16 2 0 36 0 0 35 2 0 39 0 2 7 0 PRIOR FULL YEARS (The way it was…) Number of institutions 2019 2017 2015 5,177 5,670 6,182 1,156 1,407 1,688 3,225 3,513 3,792 656 627 595 130 114 99 10 9 8 625 693 762 587 668 762 1,118 1,214 1,337 1,330 1,438 1,543 1,138 1,235 1,307 379 422 471 Total assets (in billions) 2019 2017 2015 $18,645.3 17,415.4 15,967.7 $68.6 83.7 99.2 $1,087.9 1,154.2 1,199.9 $1,753.9 1,751.7 1,682.4 $6,071.6 5,699.2 5,163.6 $9,663.4 8,726.7 7,822.6 $3,407.7 3,248.1 3,074.1 $3,847.5 3,601.0 3,372.6 $4,235.2 3,918.1 3,503.7 $3,796.7 3,683.2 3,444.0 $1,204.6 1,090.0 943.1 $2,153.7 1,875.1 1,630.3 Return on assets (%) 2019 2017 2015 1.29 0.97 1.04 1.01 0.83 0.84 1.29 1.04 1.07 1.30 1.05 1.10 1.35 1.04 1.02 1.26 0.89 1.05 1.09 0.85 0.87 1.29 1.00 1.03 1.34 1.00 0.96 1.20 0.76 1.16 1.32 1.12 1.09 1.66 1.36 1.31 Net charge-offs to loans & leases (%) 2019 2017 2015 0.52 0.50 0.44 0.21 0.21 0.19 0.14 0.15 0.16 0.21 0.22 0.21 0.70 0.71 0.56 0.51 0.47 0.48 0.48 0.58 0.48 0.58 0.61 0.50 0.42 0.27 0.27 0.53 0.51 0.52 0.24 0.28 0.24 0.78 0.67 0.52 Noncurrent assets plus OREO to assets (%) 2019 2017 2015 0.55 0.73 0.97 0.94 1.01 1.25 0.70 0.83 1.12 0.57 0.66 0.93 0.62 0.70 0.75 0.48 0.74 1.09 0.51 0.65 0.75 0.57 0.83 1.15 0.49 0.67 0.94 0.61 0.86 1.19 0.84 0.81 1.04 0.42 0.45 0.53 Equity capital ratio (%) 2019 2017 2015 11.32 11.22 11.24 14.27 13.01 12.55 12.01 11.29 11.25 12.03 11.82 11.69 11.86 12.13 12.02 10.76 10.47 10.60 11.83 12.34 11.78 12.23 12.06 12.22 10.89 10.42 10.50 10.24 9.99 10.22 12.16 11.49 11.04 11.15 11.58 12.03 * See Table V-A (page 11) for explanations. ** For institutions that have adopted ASU 2016-13, the numerator represents provisions for credit losses on a consolidated basis; for institutions that have not adopted ASU 2016-13, the numerator represents the provision for loan and lease losses. *** Beginning March 2020, does not include institutions that have a Community Bank Leverage Ratio election in effect at the report date. FDIC QUARTERLY 9 2021 • Volume 15 • Number 2 TABLE V-A. Loan Performance, All FDIC-Insured Institutions Asset Concentration Groups* All Insured Institutions Credit Card Banks International Banks Agricultural Banks Commercial Lenders Mortgage Lenders Consumer Lenders Other Specialized <$1 Billion All Other <$1 Billion All Other >$1 Billion Percent of Loans 30-89 Days Past Due All loans secured by real estate Construction and development Nonfarm nonresidential Multifamily residential real estate Home equity loans Other 1-4 family residential Commercial and industrial loans Loans to individuals Credit card loans Other loans to individuals All other loans and leases (including farm) Total loans and leases 0.50 0.39 0.27 0.17 0.37 0.77 0.27 0.88 0.87 0.89 0.32 0.48 0.31 0.48 0.00 0.00 0.00 0.31 0.40 0.97 0.98 0.78 0.41 0.91 0.35 0.35 0.43 0.26 0.35 0.38 0.45 0.74 0.73 0.78 0.51 0.49 0.57 0.67 0.41 0.06 0.30 0.69 0.55 0.68 0.88 0.66 0.96 0.65 0.35 0.32 0.23 0.13 0.32 0.58 0.21 0.73 0.97 0.71 0.25 0.33 0.35 1.01 0.28 0.34 0.36 0.33 0.22 0.31 0.84 0.29 0.21 0.33 0.12 0.05 0.08 0.10 0.43 0.12 0.04 0.67 0.74 0.67 0.01 0.47 0.82 0.63 0.60 0.12 0.44 1.06 0.55 1.01 1.81 0.98 0.67 0.79 0.66 0.48 0.49 0.22 0.43 0.79 0.56 0.83 0.59 0.83 0.72 0.67 0.94 0.66 0.36 0.26 0.49 1.27 0.25 1.03 0.85 1.11 0.20 0.66 Percent of Loans Noncurrent** All real estate loans Construction and development Nonfarm nonresidential Multifamily residential real estate Home equity loans Other 1-4 family residential Commercial and industrial loans Loans to individuals Credit card loans Other loans to individuals All other loans and leases (including farm) Total loans and leases 1.61 0.72 0.97 0.25 2.17 2.50 0.90 0.81 1.15 0.53 0.32 1.14 0.70 1.97 0.00 0.00 0.00 0.68 0.37 1.27 1.33 0.36 0.00 1.18 1.78 2.31 1.37 0.18 5.45 2.14 1.28 0.75 0.95 0.26 0.27 1.04 1.01 0.66 0.89 0.43 0.28 0.69 0.87 0.42 0.39 0.43 1.08 0.98 1.32 0.47 0.87 0.22 1.37 2.56 0.77 0.77 1.16 0.74 0.41 1.06 0.97 1.10 0.68 0.55 0.59 1.03 0.86 0.12 0.56 0.11 0.09 0.89 0.29 0.44 0.66 0.35 0.70 0.26 0.47 0.37 0.61 0.36 0.05 0.34 1.22 1.28 1.20 0.21 0.33 1.12 0.70 0.52 1.08 0.49 0.42 1.03 0.94 0.36 0.96 0.46 0.46 1.01 0.88 0.48 0.46 0.48 0.86 0.89 2.45 1.50 1.35 0.49 2.78 3.02 0.99 0.69 1.14 0.50 0.26 1.36 Percent of Loans Charged-Off (net, YTD) All real estate loans Construction and development Nonfarm nonresidential Multifamily residential real estate Home equity loans Other 1-4 family residential Commercial and industrial loans Loans to individuals Credit card loans Other loans to individuals All other loans and leases (including farm) Total loans and leases 0.01 0.02 0.07 0.01 -0.13 -0.01 0.26 1.65 2.92 0.55 0.10 0.34 0.04 0.49 0.00 0.00 0.00 0.03 1.06 2.84 2.91 1.77 0.01 2.66 -0.05 0.00 -0.01 0.00 -0.45 -0.05 0.45 2.28 2.96 0.43 0.05 0.55 0.01 -0.01 0.00 0.00 0.00 0.01 0.03 0.22 0.97 0.13 -0.02 0.01 0.03 0.02 0.09 0.02 -0.04 -0.01 0.23 0.81 3.71 0.56 0.13 0.15 0.00 -0.02 0.02 0.00 -0.04 0.00 0.05 0.44 2.46 0.37 0.04 0.02 0.01 0.05 0.08 -0.01 0.12 0.00 0.01 0.40 1.55 0.39 0.00 0.27 -0.07 -0.12 -0.16 -0.01 0.01 -0.02 -0.18 0.80 0.60 0.81 0.92 0.05 0.01 0.03 0.03 0.00 -0.02 0.01 0.10 0.16 1.33 0.15 0.04 0.04 0.00 0.07 0.03 0.02 -0.23 -0.01 0.19 1.26 2.79 0.56 0.13 0.30 $5,079.2 388.4 1,575.0 481.3 286.1 2,178.1 2,457.4 1,689.9 761.1 928.8 1,601.5 10,828.0 $1.9 0.0 0.0 0.0 0.0 1.9 35.2 328.7 307.4 21.3 0.2 366.1 $551.7 18.3 57.3 82.9 29.2 309.3 356.2 346.0 249.6 96.4 506.8 1,760.8 $100.4 5.8 26.2 3.4 1.5 23.2 25.7 5.5 0.6 5.0 33.8 165.5 $2,968.7 297.8 1,203.1 335.9 162.0 918.4 1,317.9 337.5 25.6 311.9 424.0 5,048.1 $157.7 4.7 13.1 4.1 7.2 127.8 9.7 9.8 0.3 9.5 7.2 184.5 $24.8 0.3 1.3 0.4 0.2 22.6 7.9 72.4 0.3 72.1 4.5 109.7 $10.8 1.0 3.5 0.3 0.3 4.9 2.5 1.4 0.1 1.3 0.9 15.5 $48.5 3.3 10.5 1.4 1.6 28.1 6.9 4.6 0.0 4.6 2.5 62.6 $1,214.6 57.3 260.1 52.8 84.1 741.9 695.3 583.8 177.1 406.7 621.5 3,115.2 4,434.3 885.5 2,357.5 65.5 959.1 121.9 8.1 0.2 7.9 0.0 0.1 0.0 280.5 1.0 95.0 0.0 139.5 0.0 180.8 25.5 68.8 4.6 32.6 49.4 2,947.1 765.5 1,623.1 60.3 431.3 66.9 49.5 12.6 9.7 0.4 26.8 0.0 3.2 1.8 0.4 0.0 1.0 0.0 32.5 12.1 15.0 0.0 5.3 0.0 86.6 20.4 34.5 0.0 28.0 3.8 846.1 46.5 503.0 0.2 294.5 1.8 March 31, 2021 Loans Outstanding (in billions) All real estate loans Construction and development Nonfarm nonresidential Multifamily residential real estate Home equity loans Other 1-4 family residential Commercial and industrial loans Loans to individuals Credit card loans Other loans to individuals All other loans and leases (including farm) Total loans and leases (plus unearned income) Memo: Other Real Estate Owned (in millions) All other real estate owned Construction and development Nonfarm nonresidential Multifamily residential real estate 1-4 family residential Farmland * Asset Concentration Group Definitions (Groups are hierarchical and mutually exclusive): Credit-card Lenders - Institutions whose credit-card loans plus securitized receivables exceed 50 percent of total assets plus securitized receivables. International Banks - Banks with assets greater than $10 billion and more than 25 percent of total assets in foreign offices. Agricultural Banks - Banks whose agricultural production loans plus real estate loans secured by farmland exceed 25 percent of the total loans and leases. Commercial Lenders - Institutions whose commercial and industrial loans, plus real estate construction and development loans, plus loans secured by commercial real estate properties exceed 25 percent of total assets. Mortgage Lenders - Institutions whose residential mortgage loans, plus mortgage-backed securities, exceed 50 percent of total assets. Consumer Lenders - Institutions whose residential mortgage loans, plus credit-card loans, plus other loans to individuals, exceed 50 percent of total assets. Other Specialized < $1 Billion - Institutions with assets less than $1 billion, whose loans and leases are less than 40 percent of total assets. All Other < $1 billion - Institutions with assets less than $1 billion that do not meet any of the definitions above, they have significant lending activity with no identified asset concentrations. All Other > $1 billion - Institutions with assets greater than $1 billion that do not meet any of the definitions above, they have significant lending activity with no identified asset concentrations. ** Noncurrent loan rates represent the percentage of loans in each category that are past due 90 days or more or that are in nonaccrual status. 10 FDIC QUARTERLY QUARTERLY BANKING PROFILE TABLE V-A. Loan Performance, All FDIC-Insured Institutions Asset Size Distribution Geographic Regions* All Insured Institutions Less Than $100 Million $100 Million to $1 Billion $1 Billion to $10 Billion $10 Billion to $250 Billion Percent of Loans 30-89 Days Past Due All loans secured by real estate Construction and development Nonfarm nonresidential Multifamily residential real estate Home equity loans Other 1-4 family residential Commercial and industrial loans Loans to individuals Credit card loans Other loans to individuals All other loans and leases (including farm) Total loans and leases 0.50 0.39 0.27 0.17 0.37 0.77 0.27 0.88 0.87 0.89 0.32 0.48 0.83 0.84 0.59 0.38 0.45 1.02 0.92 1.00 1.09 1.00 0.78 0.85 0.46 0.53 0.32 0.18 0.38 0.60 0.36 1.03 1.27 1.01 0.75 0.48 0.32 0.45 0.26 0.15 0.26 0.43 0.25 0.97 2.13 0.56 0.38 0.35 0.36 0.28 0.22 0.13 0.33 0.57 0.22 0.77 0.89 0.67 0.19 0.38 0.74 0.45 0.35 0.25 0.44 1.03 0.30 0.96 0.79 1.12 0.36 0.59 Percent of Loans Noncurrent** All real estate loans Construction and development Nonfarm nonresidential Multifamily residential real estate Home equity loans Other 1-4 family residential Commercial and industrial loans Loans to individuals Credit card loans Other loans to individuals All other loans and leases (including farm) Total loans and leases 1.61 0.72 0.97 0.25 2.17 2.50 0.90 0.81 1.15 0.53 0.32 1.14 1.17 0.56 1.39 0.91 0.43 1.05 1.08 0.70 0.78 0.70 1.15 1.12 0.79 0.59 0.81 0.30 0.65 0.79 0.58 0.57 1.59 0.50 0.98 0.76 0.83 0.56 0.81 0.25 0.60 1.13 0.80 0.97 2.47 0.45 0.38 0.81 1.90 0.45 0.99 0.22 1.39 3.59 0.84 0.84 1.25 0.51 0.39 1.29 Percent of Loans Charged-Off (net, YTD) All real estate loans Construction and development Nonfarm nonresidential Multifamily residential real estate Home equity loans Other 1-4 family residential Commercial and industrial loans Loans to individuals Credit card loans Other loans to individuals All other loans and leases (including farm) Total loans and leases 0.01 0.02 0.07 0.01 -0.13 -0.01 0.26 1.65 2.92 0.55 0.10 0.34 0.01 -0.01 0.00 0.00 -0.03 0.01 0.07 0.22 3.06 0.20 0.06 0.04 0.00 -0.02 0.00 -0.01 -0.01 0.00 0.06 0.60 3.83 0.38 0.08 0.04 0.01 -0.02 0.03 0.01 -0.01 0.00 0.19 1.67 5.16 0.39 0.08 0.15 March 31, 2021 Greater Than $250 Billion New York Atlanta Chicago Kansas City Dallas San Francisco 0.39 0.43 0.32 0.16 0.32 0.54 0.22 0.76 0.92 0.66 0.14 0.38 0.53 0.45 0.20 0.17 0.42 0.81 0.26 1.26 1.00 1.47 0.18 0.54 0.48 0.35 0.29 0.24 0.36 0.67 0.28 0.60 0.64 0.56 0.43 0.44 0.81 0.45 0.30 0.25 0.48 1.31 0.29 0.85 0.86 0.84 0.49 0.64 0.52 0.36 0.25 0.17 0.36 0.99 0.35 0.60 0.41 0.66 0.22 0.46 0.22 0.28 0.24 0.06 0.23 0.24 0.23 0.90 0.95 0.86 0.25 0.38 1.96 1.48 1.20 0.27 3.38 2.39 1.01 0.78 1.01 0.57 0.26 1.15 1.51 1.27 1.21 0.24 2.09 2.28 0.85 0.86 1.34 0.55 0.20 1.11 1.56 0.54 0.82 0.56 1.60 2.36 0.82 0.96 1.30 0.70 0.18 1.07 1.60 1.09 1.07 0.18 2.67 2.09 0.80 0.48 0.85 0.21 0.38 1.02 1.78 0.51 1.23 0.34 3.51 2.36 1.30 0.85 1.09 0.46 0.42 1.28 2.92 0.32 0.70 0.21 1.02 7.73 0.80 0.69 1.12 0.56 0.29 2.07 0.56 0.48 0.70 0.16 0.92 0.51 0.82 0.92 1.21 0.70 0.39 0.68 0.05 0.04 0.14 0.02 -0.03 0.00 0.27 1.62 2.79 0.61 0.16 0.41 -0.02 0.06 0.02 0.01 -0.26 -0.03 0.29 1.70 2.92 0.53 0.07 0.39 0.05 0.13 0.12 0.03 -0.06 0.00 0.24 1.75 3.23 0.73 0.09 0.35 0.00 -0.01 0.05 0.04 -0.19 0.00 0.21 1.57 2.91 0.47 0.14 0.36 0.00 0.02 0.08 0.00 -0.15 -0.03 0.30 1.35 2.76 0.22 0.06 0.28 0.01 -0.02 0.08 0.03 -0.19 -0.03 0.33 2.27 3.08 0.91 0.07 0.42 0.01 0.01 0.04 -0.02 -0.10 0.00 0.28 0.79 1.78 0.46 0.03 0.13 0.01 -0.04 0.04 -0.01 -0.06 0.00 0.20 1.57 2.78 0.63 0.24 0.43 Loans Outstanding (in billions) All real estate loans Construction and development Nonfarm nonresidential Multifamily residential real estate Home equity loans Other 1-4 family residential Commercial and industrial loans Loans to individuals Credit card loans Other loans to individuals All other loans and leases (including farm) Total loans and leases (plus unearned income) $5,079.2 388.4 1,575.0 481.3 286.1 2,178.1 2,457.4 1,689.9 761.1 928.8 1,601.5 $18.9 1.0 3.9 0.5 0.4 9.3 4.4 1.7 0.0 1.7 3.6 $500.3 45.9 190.0 28.7 14.9 172.2 125.2 26.0 1.6 24.4 39.4 $943.9 93.6 406.8 103.1 34.7 275.4 299.3 76.6 19.9 56.7 73.2 $1,869.5 164.2 641.9 214.0 105.0 728.6 911.7 726.4 329.7 396.8 441.1 $1,746.6 83.7 332.4 135.1 131.1 992.7 1,116.9 859.1 409.9 449.2 1,044.3 $1,065.0 77.3 363.0 166.2 63.1 390.4 439.4 300.8 119.1 181.7 250.6 $913.1 63.2 305.2 45.4 67.5 418.9 560.7 393.9 172.7 221.2 304.5 $1,002.5 64.1 231.5 119.4 68.5 494.8 549.7 333.1 143.1 190.0 422.5 $875.9 54.4 208.7 43.9 44.7 424.8 414.4 278.4 173.6 104.8 397.1 $557.1 83.0 231.6 26.0 18.2 179.4 201.6 64.7 15.5 49.2 73.1 $665.6 46.3 235.0 80.3 23.9 269.9 291.5 319.0 137.2 181.8 153.6 10,828.0 28.5 690.9 1,393.1 3,948.7 4,766.8 2,055.8 2,172.2 2,307.8 1,965.9 896.6 1,429.7 Memo: Other Real Estate Owned (in millions) All other real estate owned Construction and development Nonfarm nonresidential Multifamily residential real estate 1-4 family residential Farmland 4,434.3 885.5 2,357.5 65.5 959.1 121.9 63.6 13.2 21.8 5.1 20.0 3.6 925.7 364.8 323.2 34.5 148.5 54.7 1,410.1 269.3 941.5 17.1 134.7 47.6 976.6 200.1 454.6 8.2 298.4 15.4 1,058.3 38.2 616.5 0.7 357.5 0.6 573.3 99.4 216.5 8.1 249.1 0.1 1,057.4 223.5 605.1 21.8 191.6 15.3 737.6 103.3 341.9 6.2 242.8 18.3 629.5 142.7 302.9 8.6 122.7 32.6 796.1 268.1 364.8 13.3 107.6 42.2 640.5 48.3 526.2 7.4 45.3 13.3 * Regions: New York - Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Puerto Rico, Rhode Island, Vermont, U.S. Virgin Islands Atlanta - Alabama, Florida, Georgia, North Carolina, South Carolina, Virginia, West Virginia Chicago - Illinois, Indiana, Kentucky, Michigan, Ohio, Wisconsin Kansas City - Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota Dallas - Arkansas, Colorado, Louisiana, Mississippi, New Mexico, Oklahoma, Tennessee, Texas San Francisco - Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Pacific Islands, Utah, Washington, Wyoming ** Noncurrent loan rates represent the percentage of loans in each category that are past due 90 days or more or that are in nonaccrual status. FDIC QUARTERLY 11 2021 • Volume 15 • Number 2 TABLE VI-A. Derivatives, All FDIC-Insured Call Report Filers Asset Size Distribution (dollar figures in millions; notional amounts unless otherwise indicated) ALL DERIVATIVE HOLDERS Number of institutions reporting derivatives Total assets of institutions reporting derivatives Total deposits of institutions reporting derivatives Total derivatives 1st Quarter 2021 4th Quarter 2020 3rd Quarter 2020 2nd Quarter 2020 1st Quarter 2020 % Change 20Q12 1Q1 1,387 $20,832,233 17,013,500 191,683,719 1,387 $20,149,152 16,393,695 165,711,590 1,374 $19,490,738 15,707,363 181,124,600 1,381 $19,424,357 15,568,557 181,706,545 1,361 $18,647,664 14,473,395 199,743,579 1.9 11.7 17.6 -4.0 31 $2,241 1,858 284 673 $311,534 263,769 25,988 535 $1,561,281 1,303,801 226,847 135 $6,338,307 5,259,257 4,240,579 13 $12,618,870 10,184,815 187,190,021 Derivative Contracts by Underlying Risk Exposure Interest rate Foreign exchange* Equity Commodity & other (excluding credit derivatives) Credit Total 137,476,936 45,257,498 4,004,712 1,582,254 3,361,030 191,682,430 116,058,227 41,448,704 3,774,715 1,394,504 3,034,285 165,710,435 129,835,389 42,148,550 4,022,629 1,536,154 3,580,623 181,123,345 132,102,551 41,266,839 3,574,339 1,506,889 3,254,590 181,705,208 146,069,414 44,381,157 3,661,579 1,643,731 3,986,479 199,742,360 -5.9 2.0 9.4 -3.7 -15.7 -4.0 283 0 0 0 0 283 25,666 0 20 0 25 25,711 218,317 4,360 26 93 3,037 225,833 2,287,833 1,719,734 54,406 90,773 87,833 4,240,579 134,944,837 43,533,403 3,950,259 1,491,388 3,270,134 187,190,021 Derivative Contracts by Transaction Type Swaps Futures & forwards Purchased options Written options Total 107,718,346 40,934,044 18,603,556 18,371,420 185,627,365 96,423,475 32,350,205 16,098,917 15,891,780 160,764,376 99,580,043 39,822,413 17,889,179 17,706,980 174,998,615 101,734,113 41,018,444 16,881,937 16,682,545 176,317,039 110,598,852 46,803,966 18,151,997 17,959,266 193,514,081 -2.6 -12.5 2.5 2.3 -4.1 2 0 0 1 3 2,162 4,142 268 4,249 10,822 121,376 32,305 15,532 23,201 192,414 2,379,600 1,326,592 201,620 174,841 4,082,653 105,215,206 39,571,004 18,386,136 18,169,128 181,341,473 69,377 13,849 -6,866 3,967 16,748 -18,373 70,648 -11,466 -7,165 -452 14,331 -18,166 73,199 -7,256 -700 -1,087 3,830 -7,167 60,217 -19,636 -1,171 -3,800 -3,347 553 48,270 -16,009 9,837 9,802 -24,127 26,454 43.7 N/M N/M -59.5 N/M N/M 0 0 0 0 0 0 54 0 3 0 0 0 920 11 2 0 13 -13 11,802 1,666 -284 237 -74 -17 56,601 12,172 -6,586 3,730 16,810 -18,343 76,501,371 44,407,789 22,231,036 32,130,016 4,336,231 2,405,347 3,504,313 870,551 124,452 62,456,947 39,201,919 20,844,428 29,434,113 4,404,492 2,402,103 3,287,136 770,821 138,573 76,385,591 39,963,944 20,500,301 29,396,427 4,299,182 2,299,468 3,210,066 882,054 133,921 80,158,815 41,098,879 19,986,413 29,049,567 4,238,687 2,179,498 2,850,740 825,667 128,679 92,838,175 43,088,736 20,987,249 31,570,063 4,127,647 2,152,437 2,959,453 779,791 124,492 -17.6 3.1 5.9 1.8 5.1 11.7 18.4 11.6 0.0 0 2 0 0 0 0 0 0 0 2,698 657 1,336 0 0 0 7 14 0 26,689 42,375 77,542 3,489 403 6 7 5 5 880,039 802,111 465,330 1,567,090 107,834 21,010 25,155 24,056 4,272 75,591,946 43,562,644 21,686,828 30,559,437 4,227,994 2,384,331 3,479,144 846,477 120,175 2,149,899 2,050,971 435,795 1,820,961 2,023,406 215,486 1,926,264 2,249,588 433,136 1,860,285 2,163,848 227,777 2,040,847 2,612,164 449,878 5.3 -21.5 -3.1 0 0 0 0 1 23 54 514 1,503 45,126 46,048 8,721 2,104,719 2,004,408 425,549 25.6 34.0 30.2 31.0 29.9 32.5 31.9 29.8 37.9 29.9 0.0 0.0 0.1 0.1 2.0 1.0 5.2 4.8 42 57.4 Fair Value of Derivative Contracts Interest rate contracts Foreign exchange contracts Equity contracts Commodity & other (excluding credit derivatives) Credit derivatives as guarantor** Credit derivatives as beneficiary** Derivative Contracts by Maturity*** Interest rate contracts < 1 year 1-5 years > 5 years Foreign exchange and gold contracts < 1 year 1-5 years > 5 years Equity contracts < 1 year 1-5 years > 5 years Commodity & other contracts (including credit derivatives, excluding gold contracts) < 1 year 1-5 years > 5 years Risk-Based Capital: Credit Equivalent Amount Total current exposure to tier 1 capital (%) Total potential future exposure to tier 1 capital (%) Total exposure (credit equivalent amount) to tier 1 capital (%) Less Than $100 Million $100 Million to $1 Billion $1 Billion to $10 Billion $10 Billion to $250 Billion Greater Than $250 Billion 59.6 61.2 62.4 61.8 67.8 0.0 0.2 3.1 10.1 99.5 6.8 137.3 130.7 124.8 82.7 -91.8 0.0 4.4 -0.6 -1.1 4.0 189 16,190,214 13,129,162 188 15,890,219 12,851,305 186 15,384,583 12,340,493 186 15,394,454 12,274,431 182 14,841,843 11,424,297 3.8 9.1 14.9 0 0 0 20 9,795 8,355 87 330,981 276,096 71 3,993,264 3,348,098 11 11,856,173 9,496,613 Derivative Contracts by Underlying Risk Exposure Interest rate Foreign exchange Equity Commodity & other Total 133,858,835 42,039,817 3,976,351 1,544,723 181,419,726 112,807,115 39,084,210 3,746,888 1,358,385 156,996,598 126,595,376 39,147,645 3,997,150 1,501,890 171,242,061 129,035,575 38,663,882 3,549,571 1,473,915 172,722,943 143,093,184 41,651,419 3,639,261 1,611,455 189,995,319 -6.5 0.9 9.3 -4.1 -4.5 0 0 0 0 0 541 0 0 0 541 44,600 3,944 3 44 48,591 Trading Revenues: Cash & Derivative Instruments Interest rate** Foreign exchange** Equity** Commodity & other (including credit derivatives)** Total trading revenues** -29 6,343 2,388 1,772 10,474 3,625 18 2,480 191 6,314 2,826 1,942 750 1,380 6,898 4,638 3,841 3,139 2,036 13,653 4,940 2,167 -1,040 612 6,678 N/M 192.7 N/M 189.5 56.8 0 0 0 0 0 0 0 0 0 0 6 3 16 0 25 -35 288 -23 157 386 0 6,053 2,395 1,616 10,063 7.4 21.0 4.6 16.8 4.9 22.0 9.2 300.9 4.2 60.0 0.0 0.0 0.0 0.0 0.7 2.2 1.1 3.3 9.9 27.2 614 19,824,856 16,168,974 623 19,263,989 15,655,539 620 18,644,510 15,009,146 626 18,557,513 14,854,670 616 17,928,826 13,891,758 -0.3 10.6 16.4 2 113 94 148 73,927 61,887 326 1,145,801 953,696 125 5,986,145 4,968,483 13 12,618,870 10,184,815 3,572,695 569,053 28,361 37,531 4,207,639 3,192,426 511,407 27,826 36,119 3,767,778 3,162,408 534,403 25,479 34,264 3,756,553 3,009,014 527,340 24,768 32,974 3,594,097 2,934,180 529,987 22,318 32,277 3,518,762 21.8 7.4 27.1 16.3 19.6 3 0 0 0 3 10,260 0 20 0 10,280 143,456 295 24 48 143,823 828,802 39,156 9,959 3,044 880,962 2,590,173 529,602 18,357 34,439 3,172,571 Credit losses on derivatives**** HELD FOR TRADING Number of institutions reporting derivatives Total assets of institutions reporting derivatives Total deposits of institutions reporting derivatives Share of Revenue Trading revenues to gross revenues (%)** Trading revenues to net operating revenues (%)** HELD FOR PURPOSES OTHER THAN TRADING Number of institutions reporting derivatives Total assets of institutions reporting derivatives Total deposits of institutions reporting derivatives Derivative Contracts by Underlying Risk Exposure Interest rate Foreign exchange Equity Commodity & other Total notional amount 1,459,030 132,354,663 1,610,485 40,425,388 44,447 3,931,902 87,729 1,456,950 3,201,691 178,168,902 All line items are reported on a quarterly basis. N/M - Not Meaningful * Includes spot foreign exchange contracts. All other references to foreign exchange contracts in which notional values or fair values are reported exclude spot foreign exchange contracts. ** Does not include banks filing the FFIEC 051 report form, which was introduced in first quarter 2017. *** Derivative contracts subject to the risk-based capital requirements for derivatives. **** Credit losses on derivatives is applicable to all banks filing the FFIEC 031 report form and banks filing the FFIEC 041 report form that have $300 million or more in total assets, but is not applicaable to banks filing the FFIEC 051 form. 12 FDIC QUARTERLY QUARTERLY BANKING PROFILE TABLE VII-A. Servicing, Securitization, and Asset Sales Activities (All FDIC-Insured Call Report Filers)* Asset Size Distribution (dollar figures in millions) Assets Securitized and Sold with Servicing Retained or with Recourse or Other Seller-Provided Credit Enhancements Number of institutions reporting securitization activities Outstanding Principal Balance by Asset Type 1-4 family residential loans Home equity loans Credit card receivables Auto loans Other consumer loans Commercial and industrial loans All other loans, leases, and other assets Total securitized and sold Maximum Credit Exposure by Asset Type 1-4 family residential loans Home equity loans Credit card receivables Auto loans Other consumer loans Commercial and industrial loans All other loans, leases, and other assets Total credit exposure Total unused liquidity commitments provided to institution’s own securitizations Securitized Loans, Leases, and Other Assets 30-89 Days Past Due (%) 1-4 family residential loans Home equity loans Credit card receivables Auto loans Other consumer loans Commercial and industrial loans All other loans, leases, and other assets Total loans, leases, and other assets Securitized Loans, Leases, and Other Assets 90 Days or More Past Due (%) 1-4 family residential loans Home equity loans Credit card receivables Auto loans Other consumer loans Commercial and industrial loans All other loans, leases, and other assets Total loans, leases, and other assets Securitized Loans, Leases, and Other Assets Charged-off (net, YTD, annualized, %) 1-4 family residential loans Home equity loans Credit card receivables Auto loans Other consumer loans Commercial and industrial loans All other loans, leases, and other assets Total loans, leases, and other assets Seller’s Interests in Institution's Own Securitizations – Carried as Loans Home equity loans Credit card receivables Commercial and industrial loans Seller’s Interests in Institution's Own Securitizations – Carried as Securities Home equity loans Credit card receivables Commercial and industrial loans Assets Sold with Recourse and Not Securitized Number of institutions reporting asset sales Outstanding Principal Balance by Asset Type 1-4 family residential loans All other loans, leases, and other assets Total sold and not securitized 1st Quarter 2021 4th Quarter 2020 3rd Quarter 2020 2nd Quarter 2020 1st Quarter 2020 % Change 20Q121Q1 Less Than $100 Million $100 Million to $1 Billion $1 Billion to $10 Billion $10 Billion to $250 Billion Greater Than $250 Billion 59 57 58 61 63 -6.3 0 6 10 35 8 358,230 7 0 392 1,469 0 91,085 451,183 382,125 8 0 289 1,569 0 87,334 471,325 406,116 8 0 579 1,669 0 88,993 497,365 449,854 9 0 980 1,512 0 90,064 542,419 452,586 9 0 1,196 1,587 0 88,439 543,817 -20.8 -22.2 0.0 -67.2 -7.4 0.0 3.0 -17.0 0 0 0 0 0 0 0 0 5,331 0 0 0 0 0 0 5,331 9,828 0 0 0 0 0 7,769 17,597 101,589 7 0 392 773 0 5,478 108,239 241,483 0 0 0 696 0 77,838 320,017 1,057 0 0 26 0 0 2,274 3,357 76 1,210 0 0 26 0 0 2,029 3,265 71 1,403 0 0 38 0 0 2,010 3,451 71 1,522 0 0 48 0 0 2,205 3,775 32 1,726 0 0 53 0 0 1,645 3,424 29 -38.8 0.0 0.0 -50.9 0.0 0.0 38.2 -2.0 162.1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 51 0 0 0 0 0 63 114 0 582 0 0 26 0 0 118 726 0 424 0 0 0 0 0 2,094 2,518 76 2.0 6.3 0.0 1.9 2.9 0.0 0.5 1.8 2.7 5.3 0.0 4.2 3.1 0.0 0.6 2.5 3.0 7.2 0.0 3.1 2.3 0.0 1.5 3.1 5.9 8.3 0.0 2.6 3.0 0.0 4.7 6.5 3.7 19.7 0.0 4.5 3.7 0.0 0.1 3.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.5 0.0 0.0 0.0 0.0 0.0 0.2 0.0 1.6 6.3 0.0 1.9 1.4 0.0 1.1 1.5 2.2 0.0 0.0 0.0 4.6 0.0 0.5 1.8 2.7 24.5 0.0 0.2 2.4 0.0 1.8 2.3 3.0 28.9 0.0 0.6 2.4 0.0 2.4 2.5 2.9 27.8 0.0 0.8 2.2 0.0 2.9 2.8 4.6 28.9 0.0 0.9 3.2 0.0 0.4 4.3 1.0 29.3 0.0 0.8 3.6 0.0 0.3 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.8 0.0 0.0 0.0 0.0 0.0 1.6 0.0 4.0 24.5 0.0 0.2 0.9 0.0 0.2 3.0 2.3 0.0 0.0 0.0 4.1 0.0 2.0 2.2 0.0 1.8 0.0 0.1 0.1 0.0 0.1 0.0 0.1 11.9 0.0 3.6 1.0 0.0 0.2 0.1 0.1 10.2 0.0 2.0 0.8 0.0 0.2 0.1 0.1 8.4 0.0 1.1 0.4 0.0 0.1 0.1 0.0 6.9 0.0 0.5 0.1 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.8 0.0 0.1 0.1 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.2 0.0 0.1 0.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.0 0.0 0.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.0 0.0 0.0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 340 343 347 345 339 0.3 3 111 151 66 9 36,198 135,492 171,690 35,430 131,293 166,723 31,869 128,103 159,972 28,990 126,493 155,483 27,752 123,427 151,179 30.4 9.8 13.6 13 0 13 5,859 12 5,870 17,236 103 17,339 11,685 36,852 48,537 1,405 98,526 99,931 Maximum Credit Exposure by Asset Type 1-4 family residential loans All other loans, leases, and other assets Total credit exposure 13,228 39,242 52,470 13,630 37,880 51,510 12,870 36,997 49,867 10,753 36,423 47,176 9,675 35,313 44,989 36.7 11.1 16.6 1 0 1 678 12 690 6,080 21 6,100 5,778 11,656 17,434 691 27,554 28,245 Support for Securitization Facilities Sponsored by Other Institutions Number of institutions reporting securitization facilities sponsored by others Total credit exposure Total unused liquidity commitments 38 23,478 415 37 23,986 418 37 24,893 412 35 26,480 413 36 22,894 208 5.6 2.6 99.5 1 0 0 10 0 0 14 0 0 8 1,649 295 5 21,829 120 5,624,097 5,781,786 5,804,674 5,912,001 6,185,782 -9.1 2,676 153,507 386,795 1,240,448 3,840,671 18,417 19,694 17,209 17,348 18,170 1.4 0 0 0 0 18,417 56,072 3,436 106 3.5 56,904 1,030 77 3.6 59,373 1,364 92 3.7 59,835 -246 39 3.8 56,530 -1,757 37 3.6 -0.8 -295.6 186.5 0 8 0 0.0 0 274 6 0.2 0 425 7 0.4 1,195 1,145 5 2.3 54,877 1,584 88 5.4 Other Assets serviced for others** Asset-backed commercial paper conduits Credit exposure to conduits sponsored by institutions and others Unused liquidity commitments to conduits sponsored by institutions and others Net servicing income (for the quarter) Net securitization income (for the quarter) Total credit exposure to Tier 1 capital (%)*** * Does not include banks filing the FFIEC 051 report form, which was introduced in first quarter 2017. ** The amount of financial assets serviced for others, other than closed-end 1-4 family residential mortgages, is reported when these assets are greater than $10 million. *** Total credit exposure includes the sum of the three line items titled “Total credit exposure” reported above. FDIC QUARTERLY 13 QUARTERLY BANKING PROFILE COMMUNITY BANK PERFORMANCE Community banks are identified based on criteria defined in the FDIC’s 2020 Community Banking Study. When comparing community bank performance across quarters, prior-quarter dollar amounts are based on community banks designated as such in the current quarter, adjusted for mergers. In contrast, prior-quarter asset quality ratios are based on community banks designated during the previous quarter. Community Banks Reported Strong Quarterly Net Income Growth Due to Higher Noninterest Income and Lower Provision Expense Net Interest Margin Contracted to a Record Low Loan and Lease Volume Increased 10.8 Percent Year Over Year, Primarily Because of Commercial and Industrial Loan Growth Asset Quality Remained Stable Community Banks Reported Strong Quarterly Net Income Growth Year Over Year Due to Higher Noninterest Income and Lower Provision Expense Community banks reported year-over-year quarterly net income growth of $3.7 billion (77.5 percent) in first quarter 2021, despite a narrower net interest margin (NIM). Noninterest income of $6.6 billion increased $2 billion (45 percent) from first quarter 2020 primarily because of net gains on loan sales (up $1.3 billion, or 126.4 percent). Provision expense (provisions) decreased $1.4 billion (78.4 percent) from first quarter 2020 but remained positive at $390.1 million. In comparison, noncommunity banks had provision expense of negative $14.9 billion. Nearly three-quarters of the 4,531 FDIC–insured community banks (74 percent) reported higher net income from the year-ago quarter. The pretax return on assets ratio increased 56 basis points from the year-ago quarter to 1.58 percent as net income growth outpaced the growth in average assets. Net Interest Margin Narrowed Year Over Year The quarterly NIM narrowed 28 basis points from the year-ago quarter to 3.26 percent despite an increase in net interest income of $1.8 billion (10.1 percent). Earning asset growth (up $425.1 billion, or 20.6 percent) outpaced net interest income growth. The decline in average yields on earning assets outpaced the decline in average funding costs. The average yield on earning assets fell 76 basis points to 3.64 percent, and the average funding cost fell 48 basis points to 0.37 percent. Chart 1 Chart 2 Contributors to the Year-Over-Year Change in Income FDIC-Insured Community Banks $ Billions 4.0 Positive Factor $3.68 $1.81 -$1.42 $2.04 $1.13 Negative Factor $0.54 $0.99 Net Interest Margin Percent 4.00 3.0 3.75 2.0 3.50 1.0 Community Banks (3.26) Industry (2.56) 3.25 0.0 3.00 -1.0 -2.0 +77% +10% Net Income Net Interest Income Source: FDIC. -78% +45% +8% Loan Loss Noninterest Noninterest Provisions Income Expense -276% +121% Realized Gains on Securities Income Taxes 2.75 2.50 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: FDIC. FDIC QUARTERLY 15 2021 • Volume 15 • Number 2 Noninterest Income Increased From First Quarter 2020 Noninterest income increased $2 billion from a year ago (45 percent), driven by an increase in gains on loan sales (up $1.3 billion, or 126.4 percent). The increase in net interest income and noninterest income contributed to growth in quarterly net operating revenue, which rose $3.9 billion (up 17.1 percent) from the year-ago quarter. Noninterest Expense Increased From the Year-Ago Quarter An increase in salary and benefit expense of $838.1 million (9.6 percent) drove the growth in noninterest expense (up $1.1 billion, or 7.6 percent) year over year. Average assets per employee increased 18.5 percent to $6.8 million from the year-ago quarter. Noncurrent Balances Remained Stable Year Over Year, and the Noncurrent Rate Declined Noncurrent loan balances remained relatively stable from a year ago, increasing $19.3 million (0.2 percent). The increase in nonfarm nonresidential (NFNR) noncurrent loan balances (up $650.1 million, or 20.5 percent) slightly outpaced the decline in noncurrent farm and consumer loan balances. Despite the slight increase in noncurrent balances, the noncurrent rate for total loans declined 8 basis points from the year-ago quarter to 0.73 percent on strong year-over-year loan growth. Community banks reported a $512 million (3.9 percent) decline in noncurrent balances across most major loan portfolios in first quarter 2021. A decrease in 1–4 family noncurrent balances, down $222.2 million (6 percent), drove the overall decline. Nearly 70 percent of all community banks reported a reduction in noncurrent balances since the prior quarter. The coverage ratio (allowance for loan and lease losses as a percentage of loans that are 90 days or more past due or in nonaccrual status) increased 30 percentage points to 180 percent year over year, a 14-year high. Community Banks Reported a Broad-Based Decline in Net Charge-Off Volume Declines in net charge-off volume across loan portfolios contributed to a reduction in the net charge-off rate for total loans. The net charge-off rate for community banks declined 7 basis points from the year-ago quarter to 0.04 percent, a record low. The net charge-off rate for consumer loans declined the most among major loan categories (down 41 basis points to 0.56 percent). Total Assets Increased From the Previous Quarter Total assets increased $108.7 billion (4.3 percent) from the previous quarter driven by increases in cash and securities. Cash and balances due from depository institutions at community banks grew $38.4 billion (14.1 percent) quarter over quarter. Securities grew $44.8 billion (10.1 percent) quarter over quarter, supported by an influx of deposits. Cash and securities now represent 30.2 percent of total assets, the highest level in seven years. Chart 3 Chart 4 Noncurrent Loan Rates for FDIC-Insured Community Banks Change in Loan Balances and Unused Commitments FDIC-Insured Community Banks Change 1Q 2021 vs. 1Q 2020 Change 1Q 2021 vs. 4Q 2020 $ Billions 70 60 58.4 C&I Loans Home Equity Farm Loans 12 40 10 30 20 0 16 C&D Loans Nonfarm Nonresidential RE 1–4 Family RE 14 50 10 7.3 Share of Loan Portfolio Noncurrent Percent 24.7 18.1 1.7 6.7 -0.2 -1.1 -10 Nonfarm Commercial Nonresidential & Industrial RE Source: FDIC. 5.2 8.5 1.1 8 4.1 -4.4 -2.7 1–4 Family Construction & Agricultural Commercial RE Commercial Residential Development Production & Construction & Industrial RE Loan Balances 16 FDIC QUARTERLY Unused Commitments 6 4 2 0 2008 2009 2010 Source: FDIC. 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 QUARTERLY BANKING PROFILE Loan and Lease Volume Grew During Both the Past Year and Quarter Loan and lease balances grew $167.3 billion (10.8 percent) between first quarter 2020 and first quarter 2021. Growth in commercial and industrial loans (C&I) (up $124.2 billion, or 58.4 percent) accounted for nearly three-quarters of the year-over-year increase, reflecting Paycheck Protection Program (PPP) loan growth. Growth in NFNR loans (up $34.1 billion, or 7.3 percent) also contributed to total loan growth. Farm loans (down $5.5 billion, or 4.4 percent) and 1–4 family loans (down $4.9 billion, or 1.1 percent) declined year over year. Community banks reported an increase in loan volume (1.4 percent) between fourth quarter 2020 and first quarter 2021. The increase in C&I loan balances (up $21.2 billion, or 6.7 percent) was driven by a $24.4 billion increase in PPP loan balances. More than twothirds of community banks (69.8 percent) reported an increase in C&I loans in first quarter 2021 from fourth quarter 2020. Growth in NFNR loans (up $8.4 billion, or 1.7 percent), multifamily loans (up $2.4 billion, or 2.2 percent), and construction and development loans (up $1.3 billion, or 1.1 percent) offset declines in 1–4 family loans (down $5.6 billion, or 1.3 percent) and farm loans (down $3.3 billion, or 2.7 percent). An increase in commercial real estate loan commitments (up $8.3 billion, or 8.5 percent) drove the quarter-over- quarter growth in unfunded loan volume. Growth in Deposits of More Than $250,000 Drove the Annual Increase in Total Deposits Deposits at community banks increased $429.7 billion (23.7 percent) compared with the year-ago quarter. Nearly all community banks (98 percent) reported an increase in deposit volume during the year. Growth in deposits of more than $250,000 (up $283.9 billion, or 38.8 percent) drove the annual increase. Brokered deposit volume declined $4.6 billion (7.6 percent) from the year-ago quarter. Average funding costs fell 48 basis points to 0.37 percent, a record low for community banks. Community banks also reported strong deposit growth from fourth quarter 2020 (up $119.8 billion, or 5.6 percent). Growth was widespread: 92 percent of banks reported an increase in deposit volume in first quarter 2021. Capital Levels Remained Strong Equity capital grew $1.8 billion (0.7 percent) during the quarter, driven by an increase in retained earnings (up $1.9 billion, or 54.6 percent). However, the leverage capital ratio declined 5 basis points to 10.27 percent as growth in average assets outpaced tier 1 capital formation. The average tier 1 risk-based capital ratio among noncommunity bank leverage ratio (CBLR) filers was 14.62 percent in first quarter 2021, up 17 basis points from the prior quarter. The average CBLR for the 1,845 banks that elected to use the CBLR framework was 11.15 percent. Two New Community Banks Opened in First Quarter 2021 The number of community banks declined to 4,531, down 29 from the previous quarter.1 Two new community banks opened, five banks transitioned from community to noncommunity banks, two banks self-liquidated, and twenty-four community banks merged during the quarter. Author: James K. Presley-Nelson Senior Financial Analyst Division of Insurance and Research 1 The number of community bank reporters excludes two banks: one that did not file on time and one that sold most of its assets to a credit union but whose charter remains active. FDIC QUARTERLY 17 2021 • Volume 15 • Number 2 TABLE I-B. Selected Indicators, FDIC-Insured Community Banks Return on assets (%) Return on equity (%) Core capital (leverage) ratio (%) Noncurrent assets plus other real estate owned to assets (%) Net charge-offs to loans (%) Asset growth rate (%) Net interest margin (%) Net operating income growth (%) Number of institutions reporting Percentage of unprofitable institutions (%) 2021* 2020* 2020 2019 2018 2017 2016 1.30 12.18 10.27 0.54 0.04 17.54 3.26 63.75 4,531 3.99 0.87 7.44 11.13 0.68 0.12 -0.20 3.55 -22.00 4,681 6.90 1.09 9.73 10.32 0.59 0.12 14.16 3.39 0.12 4,560 4.47 1.20 10.25 11.15 0.65 0.13 -1.17 3.66 -4.04 4,750 3.98 1.19 10.58 11.09 0.70 0.13 2.22 3.72 28.01 4,980 3.63 0.96 8.65 10.80 0.78 0.16 1.17 3.62 0.21 5,228 5.72 0.99 8.81 10.69 0.94 0.16 2.97 3.57 2.42 5,462 4.67 * Through March 31, ratios annualized where appropriate. Asset growth rates are for 12 months ending March 31. TABLE II-B. Aggregate Condition and Income Data, FDIC-Insured Community Banks 1st Quarter 2021 4th Quarter 2020 1st Quarter 2020 %Change 20Q1-21Q1 4,531 392,198 4,560 392,849 4,681 395,453 -3.2 -0.8 $2,647,439 1,227,731 382,617 501,266 116,533 41,020 336,851 65,048 1,881 44,689 47,866 1,355 1,720,831 22,702 1,698,129 488,564 1,710 18,141 440,895 $2,547,147 1,225,675 388,518 494,370 115,731 42,306 316,632 65,271 2,102 47,500 49,143 1,047 1,703,174 22,526 1,680,648 444,985 1,859 18,009 401,647 $2,252,299 1,209,967 391,145 479,581 114,128 45,767 216,465 65,305 1,990 50,582 39,174 538 1,580,955 19,242 1,561,713 382,664 2,385 17,691 287,846 17.5 1.5 -2.2 4.5 2.1 -10.4 55.6 -0.4 -5.5 -11.7 22.2 151.6 8.8 18.0 8.7 27.7 -28.3 2.5 53.2 Total liabilities and capital Deposits Domestic office deposits Foreign office deposits Brokered deposits Estimated insured deposits Other borrowed funds Subordinated debt All other liabilities Total equity capital (includes minority interests) Bank equity capital 2,647,439 2,240,098 2,237,800 2,298 56,560 1,548,363 105,236 343 23,967 277,795 277,671 2,547,147 2,126,482 2,124,081 2,401 61,445 1,478,449 118,198 352 24,657 277,459 277,339 2,252,298 1,842,769 1,840,678 2,092 61,877 1,340,232 124,399 338 22,621 262,170 262,079 17.5 21.6 21.6 9.8 -8.6 15.5 -15.4 1.5 5.9 6.0 5.9 Loans and leases 30-89 days past due Noncurrent loans and leases Restructured loans and leases Mortgage-backed securities Earning assets FHLB Advances Unused loan commitments Trust assets Assets securitized and sold Notional amount of derivatives 6,731 12,610 7,191 223,343 2,484,458 63,853 372,222 300,529 23,129 163,013 7,544 13,188 5,596 201,819 2,381,875 73,210 349,718 349,448 23,237 182,369 11,495 12,845 5,209 185,070 2,095,332 100,081 316,331 241,401 18,916 149,235 -41.4 -1.8 38.1 20.7 18.6 -36.2 17.7 24.5 22.3 9.2 (dollar figures in millions) Number of institutions reporting Total employees (full-time equivalent) CONDITION DATA Total assets Loans secured by real estate 1-4 Family residential mortgages Nonfarm nonresidential Construction and development Home equity lines Commercial & industrial loans Loans to individuals Credit cards Farm loans Other loans & leases Less: Unearned income Total loans & leases Less: Reserve for losses* Net loans and leases Securities** Other real estate owned Goodwill and other intangibles All other assets INCOME DATA Total interest income Total interest expense Net interest income Provision for credit losses*** Total noninterest income Total noninterest expense Securities gains (losses) Applicable income taxes Extraordinary gains, net**** Total net income (includes minority interests) Bank net income Net charge-offs Cash dividends Retained earnings Net operating income Full Year 2020 Full Year 2019 %Change 1st Quarter 2021 1st Quarter 2020 %Change 20Q1-21 Q1 $88,714 13,434 75,279 7,049 24,333 62,598 1,086 5,097 1 25,957 25,903 2,016 12,073 13,830 25,023 $92,458 18,897 73,561 2,910 18,899 59,581 783 5,096 127 25,783 25,772 2,021 13,326 12,445 24,993 -4.0 -28.9 2.3 142.3 28.8 5.1 38.7 0.0 N/M 0.7 0.5 -0.3 -9.4 11.1 0.1 $22,050 2,262 19,788 390 6,580 16,079 345 1,814 0 8,430 8,417 183 3,104 5,313 8,139 $22,757 4,398 18,359 1,826 4,626 15,292 -178 843 1 4,846 4,843 459 3,156 1,686 4,971 -3.1 -48.6 7.8 -78.6 42.2 5.1 -294.1 115.1 N/M 73.9 73.8 -60.1 -1.6 215.1 63.7 * For institutions that have adopted ASU 2016-13, this item represents the allowance for credit losses on loans and leases held for investment and allocated transfer risk. ** For institutions that have adopted ASU 2016-13, securities are reported net of allowances for credit losses. *** For institutions that have adopted ASU 2016-13, this item represents provisions for credit losses on a consolidated basis; for institutions that have not adopted ASU 2016-13, this item represents the provision for loan and lease losses. **** See Notes to Users for explanation. 18 FDIC QUARTERLY N/M - Not Meaningful QUARTERLY BANKING PROFILE TABLE II-B. Aggregate Condition and Income Data, FDIC-Insured Community Banks Prior Periods Adjusted for Mergers 1st Quarter 2021 4th Quarter 2020 1st Quarter 2020 %Change 20Q1-21Q1 4,531 392,198 4,529 391,021 4,525 388,439 0.1 1.0 $2,647,439 1,227,731 382,617 501,266 116,533 41,020 336,851 65,048 1,881 44,689 47,866 1,355 1,720,831 22,702 1,698,129 488,564 1,710 18,141 440,895 $2,538,696 1,221,694 386,994 492,841 115,246 42,194 315,631 65,061 1,963 47,403 49,093 1,037 1,697,845 22,472 1,675,373 443,760 1,854 17,931 399,777 $2,213,374 1,184,700 383,435 467,193 110,787 45,125 212,616 64,325 2,028 49,762 42,622 522 1,553,503 19,027 1,534,476 376,387 2,348 17,305 282,858 19.6 3.6 -0.2 7.3 5.2 -9.1 58.4 1.1 -7.3 -10.2 12.3 159.5 10.8 19.3 10.7 29.8 -27.2 4.8 55.9 Total liabilities and capital Deposits Domestic office deposits Foreign office deposits Brokered deposits Estimated insured deposits Other borrowed funds Subordinated debt All other liabilities Total equity capital (includes minority interests) Bank equity capital 2,647,439 2,240,098 2,237,800 2,298 56,560 1,548,363 105,236 343 23,967 277,795 277,671 2,538,695 2,120,322 2,117,922 2,401 60,653 1,474,256 117,754 352 24,277 275,990 275,870 2,213,374 1,810,372 1,808,280 2,092 61,192 1,319,868 122,677 338 22,308 257,678 257,588 19.6 23.7 23.8 9.8 -7.6 17.3 -14.2 1.5 7.4 7.8 7.8 Loans and leases 30-89 days past due Noncurrent loans and leases Restructured loans and leases Mortgage-backed securities Earning assets FHLB Advances Unused loan commitments Trust assets Assets securitized and sold Notional amount of derivatives 6,731 12,610 7,191 223,343 2,484,458 63,853 372,222 300,529 23,129 163,013 7,505 13,122 5,575 200,932 2,374,406 73,085 348,750 348,691 23,237 181,970 11,373 12,591 5,300 180,610 2,059,413 98,509 311,761 231,844 19,148 146,922 -40.8 0.2 35.7 23.7 20.6 -35.2 19.4 29.6 20.8 11.0 (dollar figures in millions) Number of institutions reporting Total employees (full-time equivalent) CONDITION DATA Total assets Loans secured by real estate 1-4 Family residential mortgages Nonfarm nonresidential Construction and development Home equity lines Commercial & industrial loans Loans to individuals Credit cards Farm loans Other loans & leases Less: Unearned income Total loans & leases Less: Reserve for losses* Net loans and leases Securities** Other real estate owned Goodwill and other intangibles All other assets INCOME DATA Total interest income Total interest expense Net interest income Provision for credit losses*** Total noninterest income Total noninterest expense Securities gains (losses) Applicable income taxes Extraordinary gains, net**** Total net income (includes minority interests) Bank net income Net charge-offs Cash dividends Retained earnings Net operating income Full Year 2020 Full Year 2019 %Change 1st Quarter 2021 1st Quarter 2020 %Change 20Q1-21 Q1 $88,357 13,368 74,988 7,012 24,233 62,335 1,085 5,076 1 25,885 25,831 2,007 12,049 13,783 24,953 $89,598 18,270 71,328 2,797 18,083 57,611 756 4,903 150 25,007 24,991 1,988 13,004 11,987 24,216 -1.4 -26.8 5.1 150.7 34.0 8.2 N/M 3.5 N/M 3.5 3.4 0.9 -7.3 15.0 3.0 $22,050 2,262 19,788 390 6,580 16,079 345 1,814 0 8,430 8,417 183 3,104 5,313 8,139 $22,288 4,309 17,979 1,806 4,538 14,947 -196 821 1 4,747 4,742 435 3,128 1,614 4,886 -1.1 -47.5 10.1 -78.4 45.0 7.6 N/M 120.8 N/M 77.6 77.5 -57.9 -0.8 229.2 66.6 * For institutions that have adopted ASU 2016-13, this item represents the allowance for credit losses on loans and leases held for investment and allocated transfer risk. ** For institutions that have adopted ASU 2016-13, securities are reported net of allowances for credit losses. *** For institutions that have adopted ASU 2016-13, this item represents provisions for credit losses on a consolidated basis; for institutions that have not adopted ASU 2016-13, this item represents the provision for loan and lease losses. **** See Notes to Users for explanation. N/M - Not Meaningful FDIC QUARTERLY 19 2021 • Volume 15 • Number 2 TABLE III-B. Aggregate Condition and Income Data by Geographic Region, FDIC-Insured Community Banks First Quarter 2021 (dollar figures in millions) Geographic Regions* All Community Banks New York Atlanta Chicago Kansas City Dallas San Francisco 4,531 392,198 499 79,805 514 42,883 993 82,143 1,231 71,112 1,013 82,315 281 33,940 $2,647,439 1,227,731 382,617 501,266 116,533 41,020 336,851 65,048 1,881 44,689 47,866 1,355 1,720,831 22,702 1,698,129 488,564 1,710 18,141 440,895 $670,206 358,428 131,591 137,010 26,135 12,193 82,555 17,518 394 543 13,992 252 472,783 5,652 467,131 104,692 274 5,196 92,913 $282,584 129,726 37,827 60,761 14,820 5,578 35,748 6,086 98 1,197 2,947 221 175,483 2,296 173,187 53,075 290 1,309 54,722 $487,932 217,186 66,074 85,292 17,894 8,994 61,942 12,138 202 7,138 11,387 147 309,645 4,078 305,567 97,203 328 3,615 81,219 $452,989 191,994 55,317 67,877 17,662 4,545 56,644 11,281 617 25,680 7,130 172 292,557 4,180 288,377 86,903 342 2,793 74,573 $486,810 212,134 66,398 90,207 29,443 4,380 59,259 12,250 191 7,615 7,330 286 298,302 4,015 294,287 98,275 395 2,895 90,958 $266,919 118,265 25,409 60,118 10,578 5,330 40,701 5,775 378 2,516 5,081 276 172,061 2,481 169,580 48,415 81 2,332 46,511 Total liabilities and capital Deposits Domestic office deposits Foreign office deposits Brokered deposits Estimated insured deposits Other borrowed funds Subordinated debt All other liabilities Total equity capital (includes minority interests) Bank equity capital 2,647,439 2,240,098 2,237,800 2,298 56,560 1,548,363 105,236 343 23,967 277,795 277,671 670,206 556,019 555,408 611 22,866 381,131 34,334 240 8,506 71,107 71,086 282,584 242,114 242,104 10 3,660 162,087 9,545 7 2,212 28,706 28,701 487,932 411,286 411,286 0 8,868 302,841 21,244 34 3,889 51,478 51,402 452,989 385,229 385,229 0 9,757 283,912 17,316 11 3,125 47,307 47,306 486,810 418,726 418,726 0 7,144 284,015 13,182 40 3,526 51,335 51,314 266,919 226,724 225,047 1,676 4,265 134,377 9,614 11 2,708 27,862 27,861 Loans and leases 30-89 days past due Noncurrent loans and leases Restructured loans and leases Mortgage-backed securities Earning assets FHLB Advances Unused loan commitments Trust assets Assets securitized and sold Notional amount of derivatives 6,731 12,610 7,191 223,343 2,484,458 63,853 372,222 300,529 23,129 163,013 1,655 3,921 1,742 57,993 630,856 21,753 98,188 67,333 8,927 62,036 713 1,099 502 24,585 264,238 5,547 33,242 9,148 112 12,176 998 2,236 2,161 40,402 457,063 14,037 68,462 62,165 4,828 28,978 1,247 1,950 838 33,811 426,102 11,201 71,767 107,164 4,170 32,582 1,660 2,522 1,563 38,516 455,316 7,034 59,343 35,093 4,865 16,366 459 882 385 28,036 250,884 4,281 41,221 19,626 227 10,875 $22,050 2,262 19,788 390 6,580 16,079 345 1,814 0 8,430 8,417 183 3,104 5,313 8,139 $5,367 648 4,719 29 1,256 3,794 196 555 0 1,792 1,791 79 650 1,141 1,636 $2,323 214 2,110 41 618 1,740 31 181 0 796 793 8 200 593 771 $3,968 408 3,560 83 1,728 3,127 52 383 0 1,747 1,744 16 757 987 1,699 $3,941 433 3,508 102 1,212 2,770 30 244 0 1,634 1,634 31 660 974 1,607 $4,276 412 3,864 118 1,196 3,089 30 224 0 1,658 1,652 30 546 1,107 1,630 $2,175 147 2,028 17 570 1,559 7 226 0 803 803 19 291 512 796 Number of institutions reporting Total employees (full-time equivalent) CONDITION DATA Total assets Loans secured by real estate 1-4 Family residential mortgages Nonfarm nonresidential Construction and development Home equity lines Commercial & industrial loans Loans to individuals Credit cards Farm loans Other loans & leases Less: Unearned income Total loans & leases Less: Reserve for losses** Net loans and leases Securities*** Other real estate owned Goodwill and other intangibles All other assets INCOME DATA Total interest income Total interest expense Net interest income Provision for credit losses**** Total noninterest income Total noninterest expense Securities gains (losses) Applicable income taxes Extraordinary gains, net***** Total net income (includes minority interests) Bank net income Net charge-offs Cash dividends Retained earnings Net operating income * See Table V-A for explanation. ** For institutions that have adopted ASU 2016-13, this item represents the allowance for credit losses on loans and leases held for investment and allocated transfer risk. *** For institutions that have adopted ASU 2016-13, securities are reported net of allowances for credit losses. **** For institutions that have adopted ASU 2016-13, this item represents provisions for credit losses on a consolidated basis; for institutions that have not adopted ASU 2016-13, this item represents the provision for loan and lease losses. ***** See Notes to Users for explanation. 20 FDIC QUARTERLY QUARTERLY BANKING PROFILE Table IV-B. First Quarter 2021, FDIC-Insured Community Banks All Community Banks Performance ratios (annualized, %) Yield on earning assets Cost of funding earning assets Net interest margin Noninterest income to assets Noninterest expense to assets Loan and lease loss provision to assets Net operating income to assets Pretax return on assets Return on assets Return on equity Net charge-offs to loans and leases Loan and lease loss provision to net charge-offs Efficiency ratio Net interest income to operating revenue % of unprofitable institutions % of institutions with earnings gains 1st Quarter 2021 3.64 0.37 3.26 1.02 2.48 0.06 1.26 1.58 1.30 12.18 0.04 213.32 60.63 75.05 3.99 73.89 4th Quarter 2020 3.78 0.45 3.32 1.11 2.67 0.19 1.12 1.41 1.18 10.79 0.15 192.36 62.92 73.66 7.81 56.64 First Quarter 2021, Geographic Regions* New York 3.48 0.42 3.06 0.77 2.31 0.02 1.00 1.43 1.09 10.17 0.07 36.25 63.16 78.98 5.61 79.16 Atlanta 3.62 0.33 3.29 0.90 2.53 0.06 1.12 1.42 1.15 11.09 0.02 515.10 63.28 77.34 6.81 74.32 Chicago 3.54 0.36 3.18 1.44 2.61 0.07 1.42 1.78 1.46 13.59 0.02 507.59 58.76 67.31 4.83 74.02 Kansas City 3.79 0.42 3.37 1.09 2.50 0.09 1.45 1.69 1.47 13.86 0.04 331.82 58.26 74.32 2.03 74.65 Dallas 3.85 0.37 3.48 1.01 2.60 0.10 1.37 1.58 1.39 12.94 0.04 399.89 60.80 76.37 3.16 68.31 San Francisco 3.56 0.24 3.32 0.88 2.40 0.03 1.22 1.58 1.23 11.57 0.05 91.29 59.79 78.07 4.63 80.07 Dallas 4.24 0.58 3.66 0.97 2.78 0.28 1.17 1.37 1.21 10.76 0.16 263.01 63.24 77.80 4.03 49.61 San Francisco 3.95 0.43 3.52 0.82 2.52 0.34 0.99 1.28 1.01 8.90 0.13 376.38 60.94 80.06 7.42 54.06 Table V-B. Full Year 2020, FDIC-Insured Community Banks All Community Banks Performance ratios (%) Yield on earning assets Cost of funding earning assets Net interest margin Noninterest income to assets Noninterest expense to assets Loan and lease loss provision to assets Net operating income to assets Pretax return on assets Return on assets Return on equity Net charge-offs to loans and leases Loan and lease loss provision to net charge-offs Efficiency ratio Net interest income to operating revenue % of unprofitable institutions % of institutions with earnings gains Full Year 2020 4.00 0.61 3.39 1.02 2.63 0.30 1.05 1.30 1.09 9.73 0.12 349.69 62.32 75.57 4.47 54.01 Full Year 2019 4.61 0.94 3.66 0.88 2.76 0.13 1.16 1.43 1.20 10.25 0.13 143.95 64.05 79.56 3.98 63.68 Full Year 2020, Geographic Regions* New York 3.82 0.70 3.12 0.78 2.42 0.33 0.75 1.00 0.79 7.08 0.11 408.94 64.82 79.00 6.75 48.21 Atlanta 4.04 0.56 3.48 0.94 2.75 0.33 0.90 1.15 0.94 8.51 0.10 502.99 65.23 77.41 7.32 48.75 Chicago 3.83 0.57 3.26 1.45 2.72 0.26 1.25 1.55 1.28 11.37 0.10 373.40 59.92 67.67 4.01 60.52 Kansas City 4.19 0.66 3.54 1.14 2.69 0.26 1.30 1.54 1.34 12.02 0.14 278.71 59.97 74.33 2.42 56.95 * See Table V-A for explanation. FDIC QUARTERLY 21 2021 • Volume 15 • Number 2 Table VI-B. Loan Performance, FDIC-Insured Community Banks Geographic Regions* March 31, 2021 All Community Banks New York Atlanta Chicago Kansas City Dallas San Francisco Percent of Loans 30-89 Days Past Due All loans secured by real estate Construction and development Nonfarm nonresidential Multifamily residential real estate Home equity loans Other 1-4 family residential Commercial and industrial loans Loans to individuals Credit card loans Other loans to individuals All other loans and leases (including farm) Total loans and leases 0.38 0.41 0.29 0.19 0.30 0.52 0.28 0.93 1.36 0.92 0.52 0.39 0.36 0.32 0.36 0.25 0.33 0.41 0.21 1.00 1.67 0.98 0.12 0.35 0.41 0.30 0.26 0.19 0.32 0.74 0.32 0.89 0.79 0.90 0.32 0.41 0.36 0.30 0.27 0.16 0.26 0.55 0.18 0.42 0.63 0.42 0.31 0.32 0.39 0.49 0.25 0.14 0.27 0.44 0.28 0.60 1.82 0.53 0.82 0.43 0.49 0.53 0.31 0.23 0.40 0.72 0.50 1.81 1.10 1.82 0.62 0.56 0.27 0.49 0.22 0.02 0.24 0.35 0.19 0.66 0.94 0.64 0.36 0.27 Percent of Loans Noncurrent All loans secured by real estate Construction and development Nonfarm nonresidential Multifamily residential real estate Home equity loans Other 1-4 family residential Commercial and industrial loans Loans to individuals Credit card loans Other loans to individuals All other loans and leases (including farm) Total loans and leases 0.78 0.55 0.76 0.30 0.59 0.91 0.61 0.54 0.98 0.53 0.68 0.73 0.91 0.81 0.94 0.34 0.66 1.11 0.71 0.41 1.99 0.38 0.09 0.83 0.67 0.49 0.57 0.39 0.45 0.89 0.49 0.46 0.34 0.47 0.52 0.63 0.80 0.52 0.91 0.24 0.49 0.84 0.61 0.29 0.34 0.29 0.49 0.72 0.67 0.46 0.69 0.33 0.31 0.48 0.52 0.36 0.94 0.32 1.02 0.67 0.85 0.46 0.80 0.25 0.42 1.04 0.78 1.27 0.61 1.28 0.67 0.84 0.52 0.46 0.39 0.20 1.14 0.63 0.44 0.36 0.68 0.34 0.86 0.51 Percent of Loans Charged-Off (net, YTD) All loans secured by real estate Construction and development Nonfarm nonresidential Multifamily residential real estate Home equity loans Other 1-4 family residential Commercial and industrial loans Loans to individuals Credit card loans Other loans to individuals All other loans and leases (including farm) Total loans and leases 0.01 -0.02 0.02 0.01 -0.01 0.00 0.06 0.56 4.27 0.44 0.08 0.04 0.02 0.01 0.04 0.01 0.00 0.01 0.12 0.77 3.14 0.71 0.04 0.07 -0.02 -0.09 0.00 -0.01 -0.03 -0.01 0.05 0.51 0.49 0.51 0.14 0.02 0.01 0.01 0.03 0.00 -0.02 0.00 0.03 0.16 1.33 0.14 0.03 0.02 0.00 -0.03 0.01 0.04 -0.03 0.00 0.04 0.62 8.70 0.14 0.08 0.04 0.01 0.01 0.01 -0.01 0.02 0.00 0.05 0.53 1.57 0.51 0.05 0.04 -0.01 -0.07 0.00 0.00 -0.01 0.00 0.07 0.74 2.25 0.63 0.23 0.05 Loans Outstanding (in billions) All loans secured by real estate Construction and development Nonfarm nonresidential Multifamily residential real estate Home equity loans Other 1-4 family residential Commercial and industrial loans Loans to individuals Credit card loans Other loans to individuals All other loans and leases (including farm) Total loans and leases $1,227.7 116.5 501.3 110.9 41.0 382.6 336.9 65.0 1.9 63.2 92.6 1,722.2 $358.4 26.1 137.0 49.3 12.2 131.6 82.6 17.5 0.4 17.1 14.5 473.0 $129.7 14.8 60.8 6.4 5.6 37.8 35.7 6.1 0.1 6.0 4.1 175.7 $217.2 17.9 85.3 21.6 9.0 66.1 61.9 12.1 0.2 11.9 18.5 309.8 $192.0 17.7 67.9 12.7 4.5 55.3 56.6 11.3 0.6 10.7 32.8 292.7 $212.1 29.4 90.2 8.2 4.4 66.4 59.3 12.2 0.2 12.1 14.9 298.6 $118.3 10.6 60.1 12.8 5.3 25.4 40.7 5.8 0.4 5.4 7.6 172.3 Memo: Unfunded Commitments (in millions) Total Unfunded Commitments Construction and development: 1-4 family residential Construction and development: CRE and other Commercial and industrial 372,222 32,292 70,987 122,653 98,188 5,967 20,740 32,617 33,242 4,735 7,626 9,429 68,462 4,134 11,279 26,374 71,767 5,009 10,982 21,998 59,343 9,545 13,875 18,164 41,221 2,901 6,484 14,071 * See Table V-A for explanation. Note: Noncurrent loan rates represent the percentage of loans in each category that are past due 90 days or more or that are in nonaccrual status. 22 FDIC QUARTERLY QUARTERLY BANKING PROFILE INSURANCE FUND INDICATORS Deposit Insurance Fund Increases by $1.5 Billion Insured Deposits Grow by 4.4 Percent in the First Quarter DIF Reserve Ratio Declines 4 Basis Points to 1.25 Percent During the first quarter, the Deposit Insurance Fund (DIF) balance increased by $1.5 billion to $119.4 billion. Assessment income of $1.9 billion, interest earned on investments of $284 million, and negative provisions for insurance losses of $57 million were the largest sources of the increase. Operating expenses of $454 million and unrealized losses on available-for-sale securities of $285 million partially offset the increase in the fund balance. No insured institutions failed in the first quarter. The deposit insurance assessment base—average consolidated total assets minus average tangible equity—increased by 2.2 percent in the first quarter and by 16.6 percent over 12 months.12 Total estimated insured deposits increased by 4.4 percent in the first quarter and by 16.4 percent ($1.3 trillion) year over year. The strong quarterly growth in insured deposits more than offset the quarterly increase in the DIF; as a result, the DIF reserve ratio declined 4 basis points to 1.25 percent at March 31, 2021. The March 31, 2021, reserve ratio was 13 basis points lower than the previous year; the extreme 12-month decline in the reserve ratio was entirely the result of extraordinary insured deposit growth. The Dodd-Frank Act, enacted on July 21, 2010, contained several provisions to strengthen the DIF. Among other things, it: (1) raised the minimum reserve ratio for the DIF to 1.35 percent (from the former minimum of 1.15 percent); (2) required that the reserve ratio reach 1.35 percent by September 30, 2020. Once the reserve ratio reaches 1.35 percent, the September 30, 2020, deadline in the Dodd-Frank Act will have been met and will no longer apply. If the reserve ratio later falls below 1.35 percent, even if that occurs before September 30, 2020, the FDIC will have a minimum of eight years to return the reserve ratio to 1.35 percent, reducing the likelihood of a large increase in assessment rates. The reserve ratio exceeded the 1.35 percent minimum imposed by the Dodd-Frank Act on September 30, 2018, when the reserve ratio was 1.36 percent. The reserve ratio continued to exceed the 1.35 percent minimum for all subsequent quarters until June 30, 2020, when, due to extraordinary insured deposit growth, the reserve ratio dropped 8 basis points to 1.30 percent. Since the reserve ratio fell below its statutorily required minimum of 1.35 percent on June 30, 2020, the FDIC Board adopted a new Fund Restoration Plan in September 2020. Author: Kevin Brown Senior Financial Analyst Division of Insurance and Research 1 There are additional adjustments to the assessment base for banker’s banks and custodial banks. for estimated insured deposits and the assessment base include insured branches of foreign banks, in addition to insured commercial banks and savings institutions. 2 Figures FDIC QUARTERLY 23 2021 • Volume 15 • Number 2 Table I-C. Insurance Fund Balances and Selected Indicators Deposit Insurance Fund* (dollar figures in millions) 1st Quarter 2021 4th Quarter 2020 3rd Quarter 2020 2nd Quarter 2020 1st Quarter 2020 4th Quarter 2019 3rd Quarter 2019 2nd Quarter 2019 1st Quarter 2019 4th Quarter 2018 3rd Quarter 2018 2nd Quarter 2018 1st Quarter 2018 Beginning Fund Balance $117,897 $116,434 $114,651 $113,206 $110,347 $108,940 $107,446 $104,870 $102,609 $100,204 $97,588 $95,072 $92,747 1,862 1,884 2,047 1,790 1,372 1,272 1,111 1,187 1,369 1,351 2,728 2,598 2,850 284 330 392 454 507 531 544 535 507 481 433 381 338 0 454 0 470 0 451 0 465 0 460 0 460 0 443 0 459 0 434 0 453 0 434 0 445 0 433 -57 -48 -74 -47 12 -88 -192 -610 -396 -236 -121 -141 -65 1 9 5 2 2 21 4 9 2 2 2 3 1 -285 1,465 -338 1,463 -284 1,783 -383 1,445 1,450 2,859 -45 1,407 86 1,494 694 2,576 421 2,261 788 2,405 -234 2,616 -162 2,516 -496 2,325 119,362 117,897 116,434 114,651 113,206 110,347 108,940 107,446 104,870 102,609 100,204 97,588 95,072 5.44 6.84 6.88 6.71 7.95 7.54 8.72 10.10 10.31 10.63 10.72 11.42 11.95 1.25 1.29 1.30 1.30 1.38 1.41 1.41 1.40 1.36 1.36 1.36 1.33 1.30 9,518,588 9,119,789 8,925,969 8,835,355 8,178,036 7,824,633 7,740,925 7,691,767 7,695,885 7,522,441 7,375,867 7,353,996 7,333,159 16.39 16.55 15.31 14.87 6.27 4.02 4.95 4.59 4.95 5.14 3.90 4.35 3.59 12,788,773 12,725,363 12,659,406 12,367,954 12,280,904 12,305,817 Changes in Fund Balance: Assessments earned Interest earned on investment securities Realized gain on sale of investments Operating expenses Provision for insurance losses All other income, net of expenses Unrealized gain/(loss) on available-for-sale securities** Total fund balance change Ending Fund Balance Percent change from four quarters earlier Reserve Ratio (%) Estimated Insured Deposits Percent change from four quarters earlier Domestic Deposits Percent change from four quarters earlier 16,980,214 16,339,030 Assessment Base*** Percent change from four quarters earlier 19,214,847 18,805,738 18,464,902 18,153,332 16,483,625 16,156,678 15,904,512 15,684,071 15,561,859 15,452,229 15,229,530 15,113,666 15,068,512 18.33 Number of Institutions Reporting 15,714,977 15,562,010 14,350,253 13,262,206 13,020,253 23.20 20.70 21.68 12.77 4.76 5.27 4.14 3.41 3/18 6/18 1.36 3.83 3.79 16.40 16.10 15.74 5.92 4.56 4.43 3.77 3.27 3.01 2.67 2.79 3.06 4,987 5,011 5,042 5,075 5,125 5,186 5,267 5,312 5,371 5,415 5,486 5,551 5,615 Deposit Insurance Fund Balance and Insured Deposits ($ Millions) Percent of Insured Deposits 1.33 3.36 16.57 DIF Reserve Ratios 1.30 4.37 1.36 9/18 12/18 1.36 3/19 1.40 6/19 1.41 1.41 1.38 9/19 12/19 3/20 1.30 6/20 1.30 1.29 9/20 12/20 DIF Balance 1.25 3/18 6/18 9/18 12/18 3/19 6/19 9/19 12/19 3/20 6/20 9/20 12/20 3/21 3/21 $95,072 97,588 100,204 102,609 104,870 107,446 108,940 110,347 113,206 114,651 116,434 117,897 119,362 DIF-Insured Deposits $7,333,159 7,353,996 7,375,867 7,522,441 7,695,885 7,691,767 7,740,925 7,824,633 8,178,036 8,835,355 8,925,969 9,119,789 9,518,588 Table II-C. Problem Institutions and Failed Institutions (dollar figures in millions) 2021**** 2020**** Problem Institutions Number of institutions Total assets 2020 2019 55 $54,182 54 $44,519 56 $55,830 51 $46,190 60 $48,481 95 $13,939 123 $27,624 183 $46,780 Failed Institutions Number of institutions Total assets***** 0 $0 1 $101 4 $455 4 $209 0 $0 8 $5,082 5 $277 8 $6,706 * Quarterly financial statement results are unaudited. ** Includes unrealized postretirement benefit gain (loss). *** Average consolidated total assets minus tangible equity, with adjustments for banker’s banks and custodial banks. **** Through March 31. ***** Total assets are based on final Call Reports submitted by failed institutions. 24 FDIC QUARTERLY 2018 2017 2016 2015 QUARTERLY BANKING PROFILE Table III-C. Estimated FDIC-Insured Deposits by Type of Institution (dollar figures in millions) March 31, 2021 Commercial Banks and Savings Institutions FDIC-Insured Commercial Banks FDIC-Supervised OCC-Supervised Federal Reserve-Supervised FDIC-Insured Savings Institutions OCC-Supervised FDIC-Supervised Federal Reserve-Supervised Total Commercial Banks and Savings Institutions Other FDIC-Insured Institutions U.S. Branches of Foreign Banks Total FDIC-Insured Institutions Number of Institutions Total Assets Domestic Deposits* Est. Insured Deposits 4,357 2,899 767 691 $21,128,887 3,609,231 14,250,210 3,269,447 $15,738,798 2,990,121 10,301,542 2,447,135 $8,547,896 1,831,637 5,541,589 1,174,669 621 275 310 36 1,435,313 625,178 395,339 414,795 1,196,890 498,729 313,210 384,951 934,289 412,123 238,718 283,447 4,978 22,564,200 16,935,688 9,482,185 9 96,181 44,526 36,403 4,987 22,660,381 16,980,214 9,518,588 * Excludes $1.5 trillion in foreign office deposits, which are not FDIC insured. Table IV-C. Distribution of Institutions and Assessment Base by Assessment Rate Range Quarter Ending December 31, 2020 (dollar figures in billions) Annual Rate in Basis Points* Number of Institutions Percent of Total Institutions Amount of Assessment Base Percent of Total Assessment Base 19.96 1.50 - 3.00 2,888 57.63 $3,753.3 3.01 - 6.00 1,436 28.66 12,543.9 66.70 6.01 - 10.00 564 11.26 2,337.9 12.43 10.01 - 15.00 53 1.06 143.8 0.76 15.01 - 20.00 69 1.38 26.6 0.14 20.01 - 25.00 1 0.02 0.2 0.00 > 25.00 0 0.00 0.0 0.0 * Beginning in the second quarter of 2011, the assessment base was changed to average consolidated total assets minus tangible equity, as required by the Dodd-Frank Act. FDIC QUARTERLY 25 2021 • Volume 15 • Number 2 Notes to Users This publication contains financial data and other information for depository institutions insured by the Federal Deposit Insurance Corporation (FDIC). These notes are an integral part of this publication and provide information regarding the comparability of source data and reporting differences over time. Tables I-A through VIII-A. The information presented in Tables I-A through VIII-A of the FDIC Quarterly Banking Profile is aggregated for all FDIC-insured Call Report filers, both commercial banks and savings institutions. Some tables are arrayed by groups of FDIC-insured institutions based on predominant types of asset concentration, while other tables aggregate institutions by asset size and geographic region. Quarterly and full-year data are provided for selected indicators, including aggregate condition and income data, performance ratios, condition ratios, and structural changes, as well as past due, noncurrent, and charge-off information for loans outstanding and other assets. Tables I-B through VI-B. and reached 87 in 2016. The maximum level of deposits for any one office is $1.25 billion in deposits in 1985 and reached $6.97 billion in deposits in 2016. The remaining geographic limitations are also based on maximums for the number of states (fixed at 3) and large metropolitan areas (fixed at 2) in which the organization maintains offices. Branch office data are based on the most recent data from the annual June 30 Summary of Deposits Survey that are available at the time of publication. Finally, the definition establishes an asset-size limit, also adjusted upward quarterly and below which the limits on banking activities and geographic scope are waived. The asset-size limit is $250 million in 1985 and reached $1.39 billion in 2016. This final step acknowledges the fact that most of those small banks that are not excluded as specialty banks meet the requirements for banking activities and geographic limits in any event. Summary of FDIC Research Definition of Community Banking Organizations Community banks are designated at the level of the banking organization. The information presented in Tables I-B through VI-B is aggregated for all FDIC-insured commercial banks and savings institutions meeting the criteria for community banks that were developed for the FDIC’s Community Banking Study, published in December, 2012: https://www.fdic.gov/resources/community-banking/cbi-study.html. (All charters under designated holding companies are considered community banking charters.) The determination of which insured institutions are considered community banks is based on five steps. — Foreign Assets ≥ 10% of total assets The first step in defining a community bank is to aggregate all charter-level data reported under each holding company into a single banking organization. This aggregation applies both to balance-sheet measures and the number and location of banking offices. Under the FDIC definition, if the banking organization is designated as a community bank, every charter reporting under that organization is also considered a community bank when working with data at the charter level. The second step is to exclude any banking organization where more than 50 percent of total assets are held in certain specialty banking charters, including: credit card specialists, consumer nonbank banks, industrial loan companies, trust companies, bankers’ banks, and banks holding 10 percent or more of total assets in foreign offices. Once the specialty organizations are removed, the third step involves including organizations that engage in basic banking activities as measured by the total loans-to-assets ratio (greater than 33 percent) and the ratio of core deposits to assets (greater than 50 percent). Core deposits are defined as non-brokered deposits in domestic offices. Analysis of the underlying data shows that these thresholds establish meaningful levels of basic lending and deposit gathering and still allow for a degree of diversity in how individual banks construct their balance sheets. The fourth step includes organizations that operate within a limited geographic scope. This limitation of scope is used as a proxy measure for a bank’s relationship approach to banking. Banks that operate within a limited market area have more ease in managing relationships at a personal level. Under this step, four criteria are applied to each banking organization. They include both a minimum and maximum number of total banking offices, a maximum level of deposits for any one office, and location-based criteria. The limits on the number of and deposits per office are adjusted upward quarterly. For banking offices, banks must have more than one office, and the maximum number of offices is 40 in 1985 26 FDIC QUARTERLY Exclude: Any organization with: — No loans or no core deposits — More than 50% of assets in certain specialty banks, including: • credit card specialists • consumer nonbank banks1 • industrial loan companies • trust companies • bankers’ banks Include: All remaining banking organizations with: — Total assets < indexed size threshold 2 — Total assets ≥ indexed size threshold, where: • Loan to assets > 33% • Core deposits to assets > 50% • More than 1 office but no more than the indexed maximum number of offices.3 • Number of large MSAs with offices ≤ 2 • Number of states with offices ≤ 3 • No single office with deposits > indexed maximum branch deposit size.4 Tables I-C through IV-C. A separate set of tables (Tables I-C through IV-C) provides comparative quarterly data related to the Deposit Insurance Fund (DIF), problem institutions, failed institutions, estimated FDIC-insured deposits, as well as assessment rate information. Depository insti- 1 Consumer nonbank banks are financial institutions with limited charters that can make commercial loans or take deposits, but not both. 2 Asset size threshold indexed to equal $250 million in 1985 and $1.39 billion in 2016. 3 Maximum 4 Maximum number of offices indexed to equal 40 in 1985 and 87 in 2016. branch deposit size indexed to equal $1.25 billion in 1985 and $6.97 billion in 2016. QUARTERLY BANKING PROFILE tutions that are not insured by the FDIC through the DIF are not included in the FDIC Quarterly Banking Profile. U.S. branches of institutions headquartered in foreign countries and non-deposit trust companies are not included unless otherwise indicated. Efforts are made to obtain financial reports for all active institutions. However, in some cases, final financial reports are not available for institutions that have closed or converted their charters. DATA SOURCES The financial information appearing in this publication is obtained primarily from the Federal Financial Institutions Examination Council (FFIEC) Consolidated Reports of Condition and Income (Call Reports) and the OTS Thrift Financial Reports (TFR) submitted by all FDIC-insured depository institutions. (TFR filers began filing Call Reports effective with the quarter ending March 31, 2012.) This information is stored on and retrieved from the FDIC’s Research Information System (RIS) database. COMPUTATION METHODOLOGY Parent institutions are required to file consolidated reports, while their subsidiary financial institutions are still required to file separate reports. Data from subsidiary institution reports are included in the Quarterly Banking Profile tables, which can lead to double-counting. No adjustments are made for any double-counting of subsidiary data. Additionally, c ertain adjustments are made to the OTS Thrift Financial Reports to provide closer conformance with the reporting and accounting requirements of the FFIEC Call Reports. (TFR f ilers began filing Call Reports effective with the quarter ending March 31, 2012.) All condition and performance ratios represent weighted averages, which is the sum of the individual numerator values divided by the sum of individual denominator values. All asset and liability figures used in calculating performance ratios represent average amounts for the period (beginning-of-period amount plus endof-period amount plus any interim periods, divided by the total number of periods). For “pooling-of-interest” mergers, the assets of the acquired institution(s) are included in average assets, since the year-to-date income includes the results of all merged institutions. No adjustments are made for “purchase accounting” mergers. Growth rates represent the percentage change over a 12-month period in totals for institutions in the base period to totals for institutions in the current period. For the community bank subgroup, growth rates will reflect changes over time in the number and identities of institutions designated as community banks, as well as changes in the assets and liabilities, and income and expenses of group members. Unless indicated otherwise, growth rates are not adjusted for mergers or other changes in the composition of the community bank subgroup. When community bank growth rates are adjusted for mergers, prior period balances used in the calculations represent totals for the current group of community bank reporters, plus prior period amounts for any institutions that were subsequently merged into current community banks. All data are collected and presented based on the location of each reporting institution’s main office. Reported data may include assets and liabilities located outside of the reporting institution’s home state. In addition, institutions may relocate across state lines or change their charters, resulting in an inter-regional or inter-industry migration; institutions can move their home offices between regions, savings institutions can convert to commercial banks, or commercial banks may convert to savings institutions. ACCOUNTING CHANGES Financial accounting pronouncements by the Financial Accounting Standards Board (FASB) can result in changes in an individual bank’s accounting policies and in the Call Reports they submit. Such accounting changes can affect the aggregate amounts presented in the QBP for the current period and the period-to-period comparability of such financial data. The current quarter’s Financial Institution Letter (FIL) and related Call Report supplemental instructions can provide additional explanation to the QBP reader beyond any material accounting changes discussed in the QBP analysis. https://www.fdic.gov/news/financial-institution-letters/2021/ fil21025.html https://www.fdic.gov/regulations/resources/call/call.html Further information on changes in financial statement presentation, income recognition and disclosure is available from the FASB. http://www.fasb.org/jsp/FASB/Page/ LandingPage&cid=1175805317350. DEFINITIONS (in alphabetical order) All other assets – total cash, balances due from depository insti- tutions, premises, fixed assets, direct investments in real estate, investment in unconsolidated subsidiaries, customers’ liability on acceptances outstanding, assets held in trading accounts, federal funds sold, securities purchased with agreements to resell, fair market value of derivatives, prepaid deposit insurance assessments, and other assets. All other liabilities – bank’s liability on acceptances, limited-life preferred stock, allowance for estimated off-balance-sheet credit losses, fair market value of derivatives, and other liabilities. Assessment base – effective April 1, 2011, the deposit insurance assessment base changed to “average consolidated total assets minus average tangible equity” with an additional adjustment to the assessment base for banker’s banks and custodial banks, as permitted under Dodd-Frank. Previously the assessment base was “assessable deposits” and consisted of deposits in banks’ domestic offices with certain adjustments. Assessment rate schedule – Initial base assessment rates for small institutions are based on a combination of financial ratios and CAMELS component ratings. Initial rates for large institutions— generally those with at least $10 billion in assets—are also based on CAMELS component ratings and certain financial measures combined into two scorecards—one for most large institutions and another for the remaining very large institutions that are structurally and operationally complex or that pose unique challenges and risks in case of failure (highly complex institutions). The FDIC may take additional information into account to make a limited adjustment to a large institution’s scorecard results, which are used to determine a large institution’s initial base assessment rate. While risk categories for small institutions (except new institutions) were eliminated effective July 1, 2016, initial rates for small institutions are subject to minimums and maximums based on an institution’s CAMELS composite rating. (Risk categories for large institutions were eliminated in 2011.) The current assessment rate schedule became effective July 1, 2016. Under the current schedule, initial base assessment rates range from 3 to 30 basis points. An institution’s total base assessment rate FDIC QUARTERLY 27 2021 • Volume 15 • Number 2 may differ from its initial rate due to three possible adjustments: (1) Unsecured Debt Adjustment: An institution’s rate may decrease by up to 5 basis points for unsecured debt. The unsecured debt adjustment cannot exceed the lesser of 5 basis points or 50 percent of an institution’s initial base assessment rate (IBAR). Thus, for example, an institution with an IBAR of 3 basis points would have a maximum unsecured debt adjustment of 1.5 basis points and could not have a total base assessment rate lower than 1.5 basis points. (2) Depository Institution Debt Adjustment: For institutions that hold long-term unsecured debt issued by another insured depository institution, a 50 basis point charge is applied to the amount of such debt held in excess of 3 percent of an institution’s Tier 1 capital. (3) Brokered Deposit Adjustment: Rates for large institutions that are not well capitalized or do not have a composite CAMELS rating of 1 or 2 may increase (not to exceed 10 basis points) if their brokered deposits exceed 10 percent of domestic deposits. The assessment rate schedule effective July 1, 2016, is shown in the following table: Construction and development loans – includes loans for all roperty types under construction, as well as loans for land acquisip tion and development. Core capital – common equity capital plus noncumulative perpet- ual preferred stock plus minority interest in consolidated subsidiaries, less goodwill and other ineligible intangible assets. The amount of eligible intangibles (including servicing rights) included in core capital is limited in accordance with supervisory capital regulations. Cost of funding earning assets – total interest expense paid on Total Base Assessment Rates* Established Small Banks 1 or 2 3 4 or 5 Large and Highly Complex Institutions** Initial Base Assessment Rate 3 to 16 6 to 30 16 to 30 3 to 30 Unsecured Debt Adjustment -5 to 0 -5 to 0 -5 to 0 -5 to 0 Brokered Deposit Adjustment N/A N/A N/A 0 to 10 Total Base Assessment Rate 1.5 to 16 3 to 30 11 to 30 1.5 to 40 CAMELS Composite * All amounts for all categories are in basis points annually. Total base rates that are not the minimum or maximum rate will vary between these rates. Total base assessment rates do not include the depository institution debt adjustment. ** Effective July 1, 2016, large institutions are also subject to temporary assessment surcharges in order to raise the reserve ratio from 1.15 percent to 1.35 percent. The surcharges amount to 4.5 basis points of a large institution’s assessment base (after making certain adjustments). Each institution is assigned a risk-based rate for a quarterly assessment period near the end of the quarter following the assessment period. Payment is generally due on the 30th day of the last month of the quarter following the assessment period. Supervisory rating changes are effective for assessment purposes as of the examination transmittal date. Assets securitized and sold – total outstanding principal bal- ance of assets securitized and sold with servicing retained or other seller-provided credit enhancements. Capital Purchase Program (CPP) – as announced in October 2008 under the TARP, the Treasury Department purchase of noncumulative perpetual preferred stock and related warrants that is treated as Tier 1 capital for regulatory capital purposes is included in “Total equity capital.” Such warrants to purchase common stock or non cumulative preferred stock issued by publicly-traded banks are reflected as well in “Surplus.” Warrants to purchase common stock or noncumulative preferred stock of not-publicly-traded bank stock are classified in a bank’s balance sheet as “Other liabilities.” Common equity Tier 1 capital ratio – ratio of common equity Tier 1 capital to risk-weighted assets. Common equity Tier 1 capital includes common stock instruments and related surplus, retained earnings, accumulated other comprehensive income (AOCI), and 28 FDIC QUARTERLY limited amounts of common equity Tier 1 minority interest, minus applicable regulatory adjustments and deductions. Items that are fully deducted from common equity Tier 1 capital include goodwill, other intangible assets (excluding mortgage servicing assets) and certain deferred tax assets; items that are subject to limits in common equity Tier 1 capital include mortgage servicing assets, eligible deferred tax assets, and certain significant investments. Beginning March 2020, this ratio does not include institutions that have a Community Bank Leverage Ratio election in effect at the report date. deposits and other borrowed money as a percentage of average earning assets. Credit enhancements – techniques whereby a company attempts to reduce the credit risk of its obligations. Credit enhancement may be provided by a third party (external credit enhancement) or by the originator (internal credit enhancement), and more than one type of enhancement may be associated with a given issuance. Deposit Insurance Fund (DIF) – the Bank (BIF) and Savings Association (SAIF) Insurance Funds were merged in 2006 by the Federal Deposit Insurance Reform Act to form the DIF. Derivatives notional amount – the notional, or contractual, amounts of derivatives represent the level of involvement in the types of derivatives transactions and are not a quantification of market risk or credit risk. Notional amounts represent the amounts used to calculate contractual cash flows to be exchanged. Derivatives credit equivalent amount – the fair value of the derivative plus an additional amount for potential future c redit exposure based on the notional amount, the remaining maturity and type of the contract. Derivatives transaction types: Futures and forward contracts – contracts in which the buyer agrees to purchase and the seller agrees to sell, at a specified future date, a specific quantity of an underlying variable or index at a specified price or yield. These contracts exist for a variety of variables or indices, (traditional agricultural or physical commodities, as well as currencies and interest rates). Futures contracts are standardized and are traded on organized exchanges which set limits on counterparty credit exposure. Forward contracts do not have standardized terms and are traded over the counter. Option contracts – contracts in which the buyer acquires the right to buy from or sell to another party some specified amount of an underlying variable or index at a stated price (strike price) during a period or on a specified future date, in return for compensation (such as a fee or premium). The seller is obligated to purchase or sell the variable or index at the discretion of the buyer of the contract. Swaps – obligations between two parties to exchange a series of cash flows at periodic intervals (settlement dates), for a QUARTERLY BANKING PROFILE pecified period. The cash flows of a swap are either fixed, or s determined for each settlement date by multiplying the quantity (notional principal) of the underlying variable or index by specified reference rates or prices. Except for currency swaps, the notional principal is used to calculate each payment but is not exchanged. Derivatives underlying risk exposure – the potential exposure characterized by the level of banks’ concentration in particular underlying instruments, in general. Exposure can result from market risk, credit risk, and operational risk, as well as, interest rate risk. Domestic deposits to total assets – total domestic office deposits as a percent of total assets on a consolidated basis. Earning assets – all loans and other investments that earn interest or dividend income. Efficiency ratio – Noninterest expense less amortization of intan- gible assets as a percent of net interest income plus noninterest income. This ratio measures the proportion of net operating revenues that are absorbed by overhead expenses, so that a lower value indicates greater efficiency. Estimated insured deposits – in general, insured deposits are total domestic deposits minus estimated uninsured deposits. Beginning March 31, 2008, for institutions that file Call Reports, insured deposits are total assessable deposits minus estimated uninsured deposits. Beginning September 30, 2009, insured deposits include deposits in accounts of $100,000 to $250,000 that are covered by a temporary increase in the FDIC’s standard maximum deposit insurance amount (SMDIA). The Dodd-Frank Wall Street Reform and Consumer Protection Act enacted on July 21, 2010, made permanent the standard maximum deposit insurance amount (SMDIA) of $250,000. Also, the Dodd-Frank Act amended the Federal Deposit Insurance Act to include noninterestbearing transaction accounts as a new temporary deposit insurance account category. All funds held in noninterest-bearing transaction accounts were fully insured, without limit, from December 31, 2010, through December 31, 2012. Failed/assisted institutions – an institution fails when regulators take control of the institution, placing the assets and liabilities into a bridge bank, conservatorship, receivership, or another healthy institution. This action may require the FDIC to provide funds to cover losses. An institution is defined as “assisted” when the institution remains open and receives assistance in order to continue operating. Fair Value – the valuation of various assets and liabilities on the alance sheet—including trading assets and liabilities, availableb for-sale securities, loans held for sale, assets and l iabilities accounted for under the fair value option, and foreclosed assets—involves the use of fair values. During periods of market stress, the fair values of some financial instruments and nonfinancial assets may decline. FHLB advances – all borrowings by FDIC-insured institutions from the Federal Home Loan Bank System (FHLB), as reported by Call Report filers, and by TFR filers prior to March 31, 2012. Goodwill and other intangibles – intangible assets include ervicing rights, purchased credit card relationships, and other s identifiable intangible assets. Goodwill is the excess of the purchase price over the fair market value of the net assets acquired, less subsequent impairment adjustments. Other intangible assets are recorded at fair value, less subsequent quarterly amortization and impairment adjustments. Loans secured by real estate – includes home equity loans, junior liens secured by 1-4 family residential properties, and all other loans secured by real estate. Loans to individuals – includes outstanding credit card balances and other secured and unsecured consumer loans. Long-term assets (5+ years) – loans and debt securities with remaining maturities or repricing intervals of over five years. Maximum credit exposure – the maximum contractual credit exposure remaining under recourse arrangements and other sellerprovided credit enhancements provided by the reporting bank to securitizations. Mortgage-backed securities – certificates of participation in pools of residential mortgages and collateralized mortgage obligations issued or guaranteed by government-sponsored or private enter prises. Also, see “Securities,” below. Net charge-offs – total loans and leases charged off (removed from balance sheet because of uncollectability), less amounts recovered on loans and leases previously charged off. Net interest margin – the difference between interest and divi- dends earned on interest-bearing assets and interest paid to depositors and other creditors, expressed as a percentage of average earning assets. No adjustments are made for interest income that is tax exempt. Net loans to total assets – loans and lease financing receivables, net of unearned income, allowance and reserves, as a percent of total assets on a consolidated basis. Net operating income – income excluding discretionary transactions such as gains (or losses) on the sale of investment securities and extraordinary items. Income taxes subtracted from operating income have been adjusted to exclude the portion applicable to securities gains (or losses). Noncurrent assets – the sum of loans, leases, debt securities, and other assets that are 90 days or more past due, or in nonaccrual status. Noncurrent loans & leases – the sum of loans and leases 90 days or more past due, and loans and leases in nonaccrual status. Number of institutions reporting – the number of institutions that actually filed a financial report. New reporters – insured institutions filing quarterly financial reports for the first time. Other borrowed funds – federal funds purchased, securities sold with agreements to repurchase, demand notes issued to the U.S. Treasury, FHLB advances, other borrowed money, mortgage indebtedness, obligations under capitalized leases and trading liabilities, less revaluation losses on assets held in trading accounts. Other real estate owned – primarily foreclosed property. Direct and indirect investments in real estate ventures are excluded. The amount is reflected net of valuation allowances. For institutions that filed a Thrift Financial Report (TFR), the v aluation allowance subtracted also includes allowances for other repossessed assets. Also, for TFR filers the components of other real estate owned are reported gross of valuation allowances. (TFR filers began filing Call Reports effective with the quarter ending March 31, 2012.) Percent of institutions with earnings gains – the percent of institutions that increased their net income (or decreased their losses) compared to the same period a year earlier. FDIC QUARTERLY 29 2021 • Volume 15 • Number 2 “Problem” institutions – federal regulators assign a composite rating to each financial institution, based upon an evaluation of financial and operational criteria. The rating is based on a scale of 1 to 5 in ascending order of supervisory concern. “Problem” institutions are those institutions with financial, operational, or managerial weaknesses that threaten their continued financial viability. Depending upon the degree of risk and supervisory concern, they are rated either a “4” or “5.” The number and assets of “problem” institutions are based on FDIC composite ratings. Prior to March 31, 2008, for institutions whose primary federal regulator was the OTS, the OTS composite rating was used. Recourse – an arrangement in which a bank retains, in form or in substance, any credit risk directly or indirectly associated with an asset it has sold (in accordance with generally accepted accounting principles) that exceeds a pro rata share of the bank’s claim on the asset. If a bank has no claim on an asset it has sold, then the retention of any credit risk is recourse. Reserves for losses – the allowance for loan and lease losses on a consolidated basis. Restructured loans and leases – loan and lease financing receivables with terms restructured from the original contract. Excludes restructured loans and leases that are not in compliance with the modified terms. Retained earnings – net income less cash dividends on common and preferred stock for the reporting period. Return on assets – bank net income (including gains or losses on securities and extraordinary items) as a percentage of average total (consolidated) assets. The basic yardstick of bank profitability. Return on equity – bank net income (including gains or losses on securities and extraordinary items) as a percentage of average total equity capital. Risk-weighted assets – assets adjusted for risk-based capital definitions which include on-balance-sheet as well as off-balancesheet items multiplied by risk-weights that range from zero to 200 percent. A conversion factor is used to assign a balance sheet equivalent amount for selected off-balance-sheet accounts. Securities – excludes securities held in trading accounts. Banks’ securities portfolios consist of securities designated as “held-tomaturity” (reported at amortized cost (book value)), securities designated as “available-for-sale” (reported at fair (market) value), and equity s ecurities with readily determinable fair values not held for trading. Securities gains (losses) – realized gains (losses) on held-to- maturity and available-for-sale securities, before adjustments for income taxes. Thrift Financial Report (TFR) filers also include gains (losses) on the sales of assets held for sale. (TFR filers began filing Call Reports effective with the quarter ending March 31, 2012.) Seller’s interest in institution’s own securitizations – the reporting bank’s ownership interest in loans and other assets that have been securitized, except an interest that is a form of recourse or other seller-provided credit enhancement. Seller’s interests differ from the securities issued to investors by the securitization structure. The principal amount of a seller’s interest is generally equal to the total principal amount of the pool of assets included in the securitization structure less the principal amount of those 30 FDIC QUARTERLY assets attributable to investors, i.e., in the form of securities issued to investors. Small Business Lending Fund – The Small Business Lending Fund (SBLF) was enacted into law in September 2010 as part of the Small Business Jobs Act of 2010 to encourage lending to small businesses by providing capital to qualified community institutions with assets of less than $10 billion. The SBLF Program is administered by the U.S. Treasury Department (https:// home.treasury.gov/policy-issues/small-business-programs/ small-business-lending-fund). Under the SBLF Program, the Treasury Department purchased noncumulative perpetual preferred stock from qualifying depository institutions and holding companies (other than Subchapter S and mutual institutions). When this stock has been issued by a depository institution, it is reported as “Perpetual preferred stock and related surplus.” For regulatory capital purposes, this noncumulative perpetual preferred stock qualifies as a component of Tier 1 capital. Qualifying Subchapter S corporations and mutual institutions issue unsecured subordinated debentures to the Treasury Department through the SBLF. Depository institutions that issued these debentures report them as “Subordinated notes and debentures.” For regulatory capital purposes, the debentures are eligible for inclusion in an institution’s Tier 2 capital in accordance with their primary federal regulator’s capital standards. To participate in the SBLF Program, an institution with outstanding securities issued to the Treasury Department under the Capital Purchase Program (CPP) was required to refinance or repay in full the CPP securities at the time of the SBLF funding. Any outstanding warrants that an institution issued to the Treasury Department under the CPP remain outstanding after the refinancing of the CPP stock through the SBLF Program unless the institution chooses to repurchase them. Subchapter S corporation – a Subchapter S corporation is treated as a pass-through entity, similar to a partnership, for federal income tax purposes. It is generally not subject to any federal income taxes at the corporate level. This can have the effect of reducing institutions’ reported taxes and increasing their after-tax earnings. Trust assets – market value, or other reasonably available value of fiduciary and related assets, to include marketable securities, and other financial and physical assets. Common physical assets held in fiduciary accounts include real estate, equipment, collectibles, and household goods. Such fiduciary assets are not included in the assets of the financial institution. Unearned income and contra accounts – unearned income for Call Report filers only. Unused loan commitments – includes credit card lines, home equity lines, commitments to make loans for construction, loans secured by commercial real estate, and unused commitments to originate or purchase loans. (Excluded are commitments after June 2003 for originated mortgage loans held for sale, which are accounted for as derivatives on the balance sheet.) Yield on earning assets – total interest, dividend, and fee income earned on loans and investments as a percentage of average earning assets. THE HISTORIC RELATIONSHIP BETWEEN BANK NET INTEREST MARGINS AND SHORT-TERM INTEREST RATES Overview The Effect of Short-Term Interest Rates on NIM Is Theoretically Ambiguous and Influenced by Many Banking and Economic Conditions Developments since the Great Recession generally support the idea that protracted periods of low interest rates tend to compress net interest margin (NIM) at FDIC-insured institutions (banks). NIM decreased during the period of historically low interest rates after that recession, increased during the upward interest rate cycle (rate cycle) between 2015 and 2019, and decreased again as interest rates fell toward zero with the onset of the COVID‑19 pandemic. While recent rate movements have been associated with a change in NIM, the direction of the relationship can differ across banks depending on a variety of factors. This article explores the historical relationship between interest rates and NIM at banks, discusses how NIM responded to interest rate changes in previous rate cycles, and then considers which types of banks may have a NIM that is more sensitive to changes in the effective federal funds rate (federal funds rate). The analysis shows that in most rate cycles since the 1980s, the NIM of typical community banks (median NIM) has moved in the same direction as changes in the federal funds rate, but that this relationship has been much less pronounced for banks with high concentrations of long-term assets. It is often assumed that higher short-term market interest rates result in higher net interest income, which translates into higher NIM and greater profitability in the banking industry more generally.1 This reasoning led to broader concerns about bank profitability when a prolonged period of low interest rates began in 2008.2 But the directional effect of rising short-term market interest rates on NIM is theoretically ambiguous because a bank’s cost of funds may increase either faster or slower than its yield on earning assets. When interest rates rise, banks may have to pay higher interest rates on some portion of their deposits or other liabilities to attract or keep funding; some portion of the bank’s assets, meanwhile, will continue to yield their contractual interest rates and therefore not reprice upward. Many factors can influence the comparative changes in bank asset yields and funding costs. In addition to the maturity distribution and repricing distribution of bank assets, which figure heavily in this article’s analysis, the contractual and effective maturities of liabilities play an important role. Certain banks may have a high number of longer-term loans with a floating rate that reprice quickly as short-term interest rates increase, such as credit cards, other types of consumer loans, and commercial loans. Even longer-term assets without a What Is Net Interest Margin? Net interest margin (NIM) is a key profitability ratio that measures the difference between the interest income generated by bank lending and investment and the interest expense incurred from bank borrowing activities, normalized by average earning assets. The ratio is comparable over time and across banks of different sizes. This measure is so popular that banks report it, bank examiners assess it for individual banks, and the FDIC calculates it for the industry every quarter in the Quarterly Banking Profile. For a vast majority of banks, net interest income is the primary source of income, and for such banks NIM is a primary component of profitability. Several components of the Reports of Condition and Income (Call Reports) feed into the yield on earning assets: income on loans, leases, balances due from depository institutions, securities, trading assets, federal funds sold, and other interest income. Similarly, several components of the Call Report feed into the cost of funds: expense on deposits, federal funds purchased, trading liabilities, subordinated notes, and other interest expense. 1 For academic discussion on the subject see: Diana Hancock, “Bank Profitability, Interest Rates, and Monetary Policy,” Journal of Money, Credit, and Banking 17, no. 2 (May 1985), or Paul A. Samuelson, “The Effect of Interest Rate Increases on the Banking System,” American Economic Review 35, no. 1 (March 1945). For discussion in the popular press, see: John Carney, “When the Fed Lifts Off, This Is What to Watch at Banks,” Wall Street Journal, September 29, 2015, and Avi Salzman, “Banks Will Benefit From Rising Rates. Other Sectors, Not So Much,” Barron’s, October 12, 2018. 2 The interest rate is just one factor that affects bank profitability. For a discussion of some of the other determinants of bank profitability, see Jared Fronk, “Core Profitability of Community Banks: 1985-2015,” FDIC Quarterly 10, no. 4 (November 2016). FDIC QUARTERLY 31 2021 • Volume 15 • Number 2 floating rate can reprice during times of lower interest rates, in particular 30-year residential mortgage loans which can be prepaid without penalty to get a lower interest rate for the borrower. The same is true of the composition of their deposits. For example, some banks may be able to delay increasing their deposit interest rates when market interest rates increase and reduce deposit interest rates relatively promptly when market interest rates decrease. All of these factors, unique to each specific bank’s portfolio of loans and deposits, will have an effect on NIM over the course of a rate cycle. Broad economic factors can affect NIM as well. For instance, in a time of economic contraction (out of which stem some of the rate cycles in this analysis) the Federal Reserve may lower the federal funds rate. Simultaneously, many banks may report an increase in nonaccrual loans, which would likely hurt their NIM in a way that is not predictable by maturity structure, but by loan quality. Similarly, economic expansions influence NIM in unique ways. Often, upward rate environments are caused by good economic times, when banks tend to lend more, and the resulting increase in the composition of loans relative to investments tends to increase asset yields. At the same time, expanding lending requires increasing bank funding. This could require increasing the cost of funding to attract new deposits or using other more expensive funding sources. These potentially countervailing effects add to the ambiguity of whether NIM increases or decreases when interest rates rise. Finally, effects of interest rates on NIM reflect not just changes to the federal funds rate but changes in interest rates across the yield curve. Thus, for example, the yield a bank will earn on a new mortgage loan depends on the prevailing interest rates on mortgages, not on the federal funds rate. Changes in NIM will vary by bank depending on the composition of assets and liabilities by yield, cost, and maturity, and on the specific changes in the yield curve. Because it is not immediately clear how rising interest rates will affect NIM, previous research examined the actual effects over time. Two studies found that NIM moves in the opposite direction as the federal funds rate, in contrast to conventional wisdom. Staff studies from the Federal Reserve Bank of St. Louis and the Federal Reserve Bank of Richmond published in 2016 found that over shorter periods the banking industry’s weighted average NIM often moves in the opposite direction of interest rates.3 The studies computed the weighted average NIM of all FDIC-insured banks and the weighted average cost of funds and yield on assets and concluded that NIM typically increased during falling rate cycles and decreased during rising rate cycles. The studies posited that the results are driven by the sensitivity of funding costs to changes in interest rates. Previous work has also considered the historically low interest rates that prevailed in the decade after the onset of the Great Recession in 2008.4 Over that period, interest rates, including the federal funds rate, and bank funding costs were historically low. But NIM was low as well. A contributing factor to low NIM during this period was the extended length of the historically low rates; maturing assets were replaced by new assets with lower interest rates. This steadily drove the yield on earning assets lower. As this research was conducted before liftoff from the zero lower bound in 2015, it bears revisiting now that an additional interest rate cycle has completed. Considering that the theoretical predictions of how interest rates affect NIM are unclear, this article explores the topic in all rate cycles since 1984 by examining the change in the median bank NIM during rising and falling rate cycles. It looks at this change for the median community bank and the median noncommunity bank over each rate cycle, and for banks with relatively short-term asset portfolios and with relatively long-term asset portfolios. For simplicity, the analysis of interest rates focuses solely on changes in the federal funds rate. Importantly, the analysis focuses on median changes in NIM rather 3 David Wheelock, “Are Banks More Profitable When Interest Rates Are High or Low?” Federal Reserve Bank of St. Louis Economy Blog, May 16, 2016; and Huberto M. Ennis, Helen Fessenden, and John R. Walter, “Do Net Interest Margins and Interest Rates Move Together?” Federal Reserve Bank of Richmond Economic Brief no. 16-05, May 2016. 4 Francisco B. Covas, Marcelo Rezende, and Cindy M. Vojtech, “Why Are Net Interest Margins of Large Banks So Compressed?” FEDS Notes, Federal Reserve Board of Governors, October 5, 2015. 32 FDIC QUARTERLY THE HISTORIC RELATIONSHIP BETWEEN BANK NET INTEREST MARGINS AND SHORT-TERM INTEREST RATES than weighted average changes. The NIM changes reported in this article are thus more reflective of typical small banks than of the large banks that dominate weighted average calculations. In line with conventional wisdom, the analysis demonstrates that at the median—in other words, for the typical community bank—NIM has tended to increase when short-term interest rates increase, and decrease when short-term interest rates decrease. The analysis also confirms the importance of the maturity distribution of bank assets in determining how NIM responds to interest-rate changes, including how differences in asset maturities help explain differences in NIM between the responses of community banks versus the responses of noncommunity banks. The analysis thus sheds some light on the broader discussion of bank profitability and may help banks understand the challenging interest rate environment. The Spread Between the Both the NIM of the median bank and the distribution of NIM for the entire industry have Banks With the Highest trended down during each rate cycle since the 1980s. Chart 1 shows the NIM for the 5th and and Lowest NIM Has Been 95th percentile of banks at the beginning and end of each rate cycle; while the distribution Relatively Stable Since the has decreased slowly over time, it does not display any major jumps. The spread between Early 1990s NIM at the 25th and 75th percentile, illustrated by the boxes, appears more stable over time, a trend comparable to the trend for NIM of the median bank. This suggests that examining trends based on the median NIM instead of the average NIM is also a good method for capturing industry trends. This approach also adds to the understanding of trends affecting the vast majority of small banks, as much previous analysis has been based on the i ndustry-weighted average NIM, which is influenced by the largest banks.5 Chart 1 The Median Bank Net Interest Margin Has Trended Down but the Distribution Has Been Stable Percent 8 Increasing Rate Cycle Median NIM 7.25 7 6.36 6 6.06 6.62 6.36 6.23 6.51 5.78 6.23 5.58 5.44 5.94 Decreasing Rate Cycle 5th and 95th Percentile 5.71 4.99 5 4.96 5.04 5.07 2.46 2.66 2.64 5.12 4 3 3.00 2 1.53 1 0 1.76 2.93 2.82 2.71 2.69 2.50 2.58 2.52 2.48 1.74 2.13 2.25 0.80 3Q1984 4Q1992 3Q2000 2Q2007 2Q2019 Source: FDIC. Note: Each box and whisker displays the distribution of net interest margin in the first and last quarter of each rate cycle in the analysis. In two instances, a rate cycle end date coincides with the next cycle start date, resulting in 18 distinct start or end quarters. Box denotes the range from 25th to 75th percentiles. NIM Has Varied With Interest Rates Over Time, but Both Have Trended Downward Since the 1980s, interest rates have declined notably and bank NIM has trended downward. The median quarterly NIM for both community and noncommunity banks and the federal funds rate since 1984 are displayed in Chart 2.6 The Federal Reserve adjusts the federal funds rate in response to real economic conditions as part of conducting monetary policy, but the rate still displays a clear downward trend over time. The corresponding decline in NIM has been even more pronounced for noncommunity banks than for community banks, 5 As of first quarter 2021, FDIC-insured banks had a median asset size of $294.4 million. FDIC-insured community banks had a median asset size of $266.2 million and noncommunity banks had a median asset size of $3.8 billion. 6 This article analyzes quarterly net interest margins using the calculation that the Quarterly Banking Profile uses: annualized quarterly net interest income, interest income minus interest expense, divided by two-period average earning assets. For simplicity, when discussing the banking industry NIM, the article is referring to the median industry quarterly NIM. Likewise, when discussing community and noncommunity bank NIM, the article is referring to the median community and noncommunity bank quarterly NIM. Community banks are identified using criteria in Appendix A of the FDIC Community Banking Study, December 2020, https://www.fdic.gov/resources/community-banking/ report/2020/2020-cbi-study-full.pdf. FDIC QUARTERLY 33 2021 • Volume 15 • Number 2 which may have occurred for a variety of reasons. Noncommunity banks often have more sources of noninterest income, which mitigates the adverse impact of this trend for these banks. This overall downward trend in industry NIM has caused recent concerns about profitability challenges for community banks, and how community banks may be responding by changing asset and liability structures or by adopting other strategies to maintain NIM that could pose additional risk. Chart 2 The Effective Federal Funds Rate and Median Bank Net Interest Margin Have Trended Downward Over Time Median Net Interest Margin Percent 5.0 Community Banks (Left Axis) Noncommunity Banks (Left Axis) Effective Federal Funds Rate (Right Axis) Effective Federal Funds Rate Percent 12 4.5 10 4.0 3.5 8 3.0 2.5 6 2.0 4 1.5 1.0 2 0.5 0.0 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2021 0 Sources: Federal Reserve Economic Database and FDIC. Note: Data through first quarter 2021. Chart 2 shows that while interest rates and NIM both have generally drifted downward over time, the relationship between them is less clear. In some periods, NIM continued to decline during an upward rate cycle. This makes sense in light of the above discussion about how a change in interest rates may not necessarily result in a corresponding change in NIM. Decomposing median NIM into two components, the median yield on earning assets and median cost of funds, tells a similar story. The trends of both components for both community banks and noncommunity banks move in a similar pattern over time. One key difference is that the percentage point declines in the yield on earning assets and in the cost of funds have been more pronounced than the overall decline in median NIM. But since both components have trended downward roughly the same level, this change is netted out of median NIM to create the decline shown in Chart 2. The rest of this study breaks the historical changes in the federal funds rate—the gold line in Chart 2—into upward and downward rate cycles. In determining the exact cycle starts and endpoints in this analysis, downward cycles are dated from the peak of a rate cycle to the beginning of the trough and do not include flat periods of interest rates, similar to work conducted by the Federal Reserve Bank of Richmond.7 Upward rate cycles are dated from the end of the trough to the peak.8 7 Ennis 8 To et al. May 2016. limit our analysis to the immediate effects of the upward or downward adjustment in interest rates, some months in which interest rates were held constant—typically following downward cycles—are excluded from analysis. We determined five separate upward rate cycles for analysis: first quarter 1987 to second quarter 1989, fourth quarter 1993 to second quarter 1995, first quarter 1999 to 3rd quarter 2000, first quarter 2004 to third quarter 2006, and fourth quarter 2015 to first quarter 2019. We determined five separate downward rate cycles for analysis: third quarter 1984 to third quarter 1986, second quarter 1989 to fourth quarter 1992, third quarter 2000 to fourth quarter 2003, second quarter 2007 to first quarter 2009, and second quarter 2019 to second quarter 2020. 34 FDIC QUARTERLY THE HISTORIC RELATIONSHIP BETWEEN BANK NET INTEREST MARGINS AND SHORT-TERM INTEREST RATES Median NIM for the Banking Interest rates and median NIM have generally moved in the same direction in both downIndustry as a Whole Has ward and upward rate cycles since the 1980s (Table 1). In nearly every upward rate cycle, Generally Increased in median NIM expanded between 12 and 22 basis points, with one exception in the early Upward Rate Cycles and 1990s. Similarly, in all but one downward rate cycle, NIM contracted between 22 and Decreased in Downward 32 basis points. The average length of downward and upward rate cycles was the same (ten Rate Cycles quarters). During downward rate cycles, however, the magnitude of the reductions in both NIM and the federal funds rate tended to exceed the increases in NIM and the federal funds rate that occurred in the upward rate cycles. One striking finding is that the change in NIM was fairly consistent in size throughout rate cycles, even though the total change in the federal funds rate was much smaller in later cycles. Table 1 Change in Median Industry Net Interest Margin Over Upward and Downward Rate Cycles 1Q 1987 to 4Q 1993 to 1Q 1999 to Upward Rate Cycles (Percentage Points) 2Q 1989 2Q 1995 3Q 2000 Change in Effective Federal Funds Rate Change in Median Yield on Earning Assets Cost of Funds Net Interest Margin Downward Rate Cycles (Percentage Points) Change in Effective Federal Funds Rate Change in Median Yield on Earning Assets Cost of Funds Net Interest Margin 1Q 2004 to 3Q 2006 4Q 2015 to 1Q 2019 3.51 3.03 1.79 4.24 2.04 –0.19 –0.40 0.22 0.74 0.75 –0.01 0.70 0.55 0.15 2.71 2.58 0.13 0.16 0.05 0.12 3Q 1984 to 3Q 1986 2Q 1989 to 4Q 1992 3Q 2000 to 4Q 2003 2Q 2007 to 1Q 2009 2Q 2019 to 2Q 2020 –5.18 –6.69 –5.52 –5.07 –0.85 –3.08 –2.86 –1.71 –2.07 –3.07 –2.81 –0.77 –0.45 –0.44 –0.20 –0.22 0.36 –0.25 –0.32 –0.25 Sources: Federal Reserve Economic Database and FDIC. Note: Change measured in percentage points. For the first and last quarter of each cycle, the bank with the median NIM is found, and the corresponding yield on earning assets and cost of funds for that bank are selected. Then the change is calculated. This Relationship Holds for Both Community and Noncommunity Banks Generally, upward rate cycles have corresponded with an expansion of NIM for both community and noncommunity banks. Table 2 shows changes for the median bank between the starting quarter and ending quarter of each rate cycle.9 Community banks reported an increase or no change in NIM in each of the five upward rate cycles, consistent with the conventional wisdom that increasing interest rates increase NIM. In each of these five periods, both the yield on earning assets and cost of funds increased, but the yield on earning assets increased more, resulting in the increase in NIM. Noncommunity banks reported a similar trend, with NIM increasing in four out of five upward rate cycles. Like community banks, in each of these upward rate cycles both their yield on earning assets and their cost of funds increased, most often resulting in NIM expansion. These results demonstrate that banks may be able to exert market power as interest rates begin to rise to hold their cost of funds down at the beginning of upward cycles, as was observed in the most recent upward cycle, again affecting NIM. 9 For the first and last quarter of each cycle, the bank with the median NIM is found, and the corresponding yield on earning assets and cost of funds for that bank is selected. Then the change is calculated. FDIC QUARTERLY 35 2021 • Volume 15 • Number 2 Table 2 Change in Median Community and Noncommunity Bank Net Interest Margin Over Upward Rate Cycles 1Q 1987 to 4Q 1993 to 1Q 1999 to 1Q 2004 to Upward Rate Cycles (Percentage Points) 2Q 1989 2Q 1995 3Q 2000 3Q 2006 Change in Effective Federal Funds Rate Change in Median Noncommunity Bank Yield on Earning Assets Cost of Funds Net Interest Margin Community Bank Yield on Earning Assets Cost of Funds Net Interest Margin 4Q 2015 to 1Q 2019 3.51 3.03 1.79 4.24 2.04 1.25 0.74 0.51 0.26 0.32 –0.07 0.75 0.66 0.09 1.41 1.26 0.15 0.71 0.45 0.25 1.97 1.80 0.88 0.88 0.20 0.04 1.47 1.34 0.97 0.86 0.17 0.00 0.15 0.13 0.11 Sources: Federal Reserve Economic Database and FDIC. Note: Change measured in percentage points. For the first and last quarter of each cycle, the bank with the median NIM in each group is found, and the corresponding yield on earning assets and cost of funds for that bank are selected. Then the change is calculated. Table 3 Conversely, downward rate cycles most often resulted in a compression of median NIM for both community and noncommunity banks. Table 3 shows that during four out of the five downward rate cycles between 1984 and 2020, community banks reported a decline in median NIM. While both the yield on earning assets and cost of funds fell during each cycle, the yield on earning assets almost always fell by more, and as a result median NIM declined in all downward cycles except that between second quarter 1989 and fourth quarter 1992. Noncommunity banks reported a decrease in median NIM in the same four out of five downward rate cycles. Like community banks, in each downward rate cycle both the yield on earning assets and cost of funds fell for noncommunity banks, but the yield on earning assets almost always fell by more. The two most recent downward cycles have encountered the zero lower bound, resulting in liabilities being unable to reprice as low as they otherwise would in a typical downward cycle, thereby further compressing NIM. Even so, because interest rates have started from relatively lower rates, the percentage change in the federal funds rate is in line with the percentage changes in previous downward cycles. Table 3 shows that the effects on NIM in downward cycles that reach the zero lower bound are similar to previous downward cycles. Change in Median Community and Noncommunity Bank Net Interest Margin Over Downward Rate Cycles 3Q 1984 to 2Q 1989 to 3Q 2000 to 2Q 2007 to Downward Rate Cycles (Percentage Points) 3Q 1986 4Q 1992 4Q 2003 1Q 2009 Change in Effective Federal Funds Rate Change in Median Noncommunity Bank Yield on Earning Assets Cost of Funds Net Interest Margin Community Bank Yield on Earning Assets Cost of Funds Net Interest Margin 2Q 2019 to 2Q 2020 –5.18 –6.69 –5.52 –5.07 –0.85 –3.14 –2.55 –0.59 –2.20 –2.48 0.28 –2.96 –2.52 –0.43 –2.34 –1.87 –0.47 –1.02 –0.66 –0.36 –0.94 –0.79 –3.20 –3.58 –2.81 –2.58 –0.95 –0.65 –0.26 –0.04 –0.15 0.37 –0.23 –0.30 –0.23 Sources: Federal Reserve Economic Database and FDIC. Note: Change measured in percentage points. For the first and last quarter of each cycle, the bank with the median NIM in each group is found, and the corresponding yield on earning assets and cost of funds for that bank are selected. Then the change is calculated. 36 FDIC QUARTERLY THE HISTORIC RELATIONSHIP BETWEEN BANK NET INTEREST MARGINS AND SHORT-TERM INTEREST RATES The change in community bank median NIM was almost always smaller in magnitude than While Community and that of noncommunity banks regardless of interest rate direction. For instance, in the most Noncommunity Banks recent downward rate cycle from second quarter 2019 to second quarter 2020, noncomReported the Same munity banks reported a 36 basis point decline in median NIM, while community banks Directional Change in reported a decline of only 23 basis points (Table 3). Similarly, in the most recent upward Median NIM in Nearly Every rate cycle from fourth quarter 2015 to first quarter 2019, noncommunity banks reported Rate Cycle, the Magnitude a 25 basis point increase in median NIM, while community banks reported an increase of of Change Was Different 11 basis points (Table 2). Community banks reported a smaller absolute change in median NIM than noncommunity banks in eight out of ten rate cycles. The difference was especially pronounced during downward rate cycles: the reduction in median NIM was markedly greater for noncommunity banks than for community banks in four of the five downward cycles (Table 2). It is worth noting that in downward rate cycles, while both community and noncommunity banks reported declining yields and costs, noncommunity bank yields and costs responded with a substantially greater basis point decline in three of the five cycles. Interestingly, during upward rate cycles, community banks tended to report a larger change in both components, but the components changed more proportionally, resulting in median community bank NIMs that have been more insulated from changes in interest rates in both directions. Dividing the data into community and noncommunity banks allows a better understanding of the differing experiences of many of the banks that the FDIC supervises and insures. As discussed below, the differing responses of community and noncommunity bank NIM to changes in interest rates are likely driven to an important extent by the differing asset maturity structures of the two types of banks. The Maturity and Repricing The maturity structures of bank balance sheets—the relative volumes, maturities, and Structure of Bank Assets rates of assets and liabilities—naturally play a central role in determining how NIM will Is an Important Factor in respond to a change in prevailing interest rates. Regulators and banking institutions How NIM Responds to themselves dedicate much time to understanding these relationships at individual banks Rate Changes through asset-liability management and complex interest rate risk models. Given the difficulties associated with analyzing the effective maturity of deposits, however, the analysis in this paper focuses on how asset maturities have affected the response of NIM to changes in market interest rates. Long-term assets are defined in this analysis as assets that mature or reprice in three years or more. Banks with a higher share of long-term assets to total assets should report smaller NIM compression than their counterparts during downward rate cycles, as they reprice their deposits and lower their cost of funds, but have a larger proportion of assets that do not immediately reprice downward, propping up their yield on earning assets. Conversely, those banks should report less NIM expansion during upward rate cycles, as they will reprice their deposits upward (albeit as slowly as possible) and increase their cost of funds, but have a larger proportion of assets that do not reprice upward in their favor, suppressing their yield on earning assets. In response to these pressures, banks may seek higher returns by taking on more credit risk or issuing longer maturities, which often increases their income at the expense of additional risk to improve their margins. While either taking on more credit risk or increasing maturities can increase net interest income, changing the structure of their balance sheet may affect how their NIM responds to interest rate changes. Table 4 breaks down the industry into quartiles of the proportion of long-term assets to total assets at the beginning of each rate cycle. Banks with the highest share of long-term assets to total assets (those in the fourth quartile) nearly always reported the least NIM expansion during upward rate cycles and the least NIM compression during downward rate FDIC QUARTERLY 37 2021 • Volume 15 • Number 2 cycles.10 In fact, in the upward rate cycle between first quarter 2004 and third quarter 2006, banks with the highest proportion of long-term assets actually reported a decline in NIM. Similarly, during the downward rate cycle between second quarter 2007 and first quarter 2009, those banks in the highest quartile reported NIM expansion. The only rate cycle in which the change in NIM was not strongly related to the proportion of long-term assets to total assets was the most-recent downward rate cycle of second quarter 2019 to second quarter 2020. In that cycle, banks with the highest share of long-term assets reported a slightly larger decline in NIM than those in the third quartile. There are many reasons this may have occurred, since many factors other than a bank’s share of long-term assets influence NIM. It could be that the banks in the fourth quartile saw larger prepayment volumes than other banks. In this analysis, the designation of a bank’s quartile was held fixed as of the quarter before the rate cycle. Therefore, a bank in the highest quartile would remain in that quartile despite prepayment activity shortening its maturity profile. As a result, if banks in the highest quartile of long-term assets to total assets experienced the most prepayment activity, they may have seen yield on earning assets fall faster than would be expected given their relatively longer maturities at the beginning of the period. Many banks in the fourth quartile held a comparatively high share of mortgage loans and are more likely to be classified as mortgage specialists, and therefore may have experienced a relatively high share of the refinancing activity that occurred as mortgage rates fell. The percentage of single-family mortgage originations that were refinancings doubled from 34 percent to 68 percent over the course of the most-recent downward rate cycle, and such an increase in refinancing activity could affect the composition of their balance sheet and hence NIM. Table 4 Change in Median Net Interest Margin Over Upward and Downward Rate Cycles by Share of Long-Term Assets 1Q 1999 to 1Q 2004 to 4Q 2015 to Upward Rate Cycles (Percentage Points) 3Q 2000 3Q 2006 1Q 2019 Change in Effective Federal Funds Rate Change in Median NIM by Share of Long-Term Assets First Quartile Second Quartile Third Quartile Fourth Quartile Downward Rate Cycles (Percentage Points) Change in Effective Federal Funds Rate Change in Median NIM by Share of Long-Term Assets First Quartile Second Quartile Third Quartile Fourth Quartile 1.79 4.24 2.04 0.36 0.19 0.11 0.04 0.50 0.21 0.05 –0.18 0.20 0.11 0.09 0.04 3Q 2000 to 4Q 2003 2Q 2007 to 1Q 2009 2Q 2019 to 2Q 2020 –5.52 –5.07 –0.21 –0.58 –0.29 –0.21 –0.80 –0.40 –0.22 –0.36 –0.27 –0.22 –0.09 0.09 –0.24 Sources: Federal Reserve Economic Database and FDIC. Note: Change measured in percentage points. Maturity is determined by the proportion of assets with a remaining maturity or next repricing frequency of three years or more (“long-term assets”) to total assets. Maturity buckets are calculated based on industry quartiles in the quarter before each cycle. Each bank is placed into a maturity bucket based on the proportion of long-term assets as of the quarter prior to each cycle. Each bank’s bucket is held constant throughout the cycle. For the first and last quarter of each cycle, the median NIM of each bucket is found and the change is calculated. Reports of Condition and Income (Call Report) filers began reporting asset maturity breakdowns in 1997. Thrifts are excluded from this analysis because they did not begin reporting maturity and repricing data until their adoption of the Call Report in first quarter 2011. 10 Maturity buckets are calculated based on industry quartiles in the quarter before each cycle. Each bank is placed into a maturity bucket based on its proportion of long-term assets as of the quarter before each cycle. Each bank’s bucket is held constant throughout the cycle. For the first and last quarter of each cycle, the median NIM of banks in each bucket is found and the change between those two NIMs is calculated. Therefore, “banks” in this portion of the analysis are defined by the bank with the median NIM within a quartile of long-term assets to total assets. Reports of Condition and Income (Call Reports) first included asset maturity breakdowns in 1997. Thrifts are excluded from this analysis, as they did not begin reporting maturity and repricing data until their adoption of the Call Report in first quarter 2011. 38 FDIC QUARTERLY THE HISTORIC RELATIONSHIP BETWEEN BANK NET INTEREST MARGINS AND SHORT-TERM INTEREST RATES Community and Noncommunity Banks Have Increased Their Share of Long-Term Assets Since the Great Recession While community and noncommunity banks use different business models and strategies that influence how NIM will change when interest rates change, one trend apparent for both types of banks in recent years is an increase in the share of long-term assets to total assets. Community banks traditionally hold a higher share of long-term assets to total assets, but both community banks and noncommunity banks have increased their shares in the aftermath of the Great Recession (Chart 3). As of first quarter 2021, community banks reported that 49 percent of their total assets repriced in three or more years, while noncommunity banks reported that 43 percent of their total assets repriced in three or more years. Chart 3 The Ratio of Long-Term Assets to Total Assets Has Increased Since 2008 Long-Term Assets to Total Assets Percent Community Banks Noncommunity Banks 50 45 40 35 30 25 20 15 10 5 0 2001 2006 2011 Source: FDIC. Note: Data through first quarter 2021. Median by group. Thrifts are excluded from the data. 2016 2021 The effect long-term asset holdings has on NIM becomes clearer when examining banks grouped into quartiles based on their share of long-term assets to total assets. Both community and noncommunity banks in the fourth quartile of long-term assets to total assets reported the least NIM expansion during each upward rate cycle (Table 5). During downward rate cycles, the results were slightly mixed: community banks in the fourth quartile consistently reported the least NIM contraction, while noncommunity banks in either the third or fourth quartile reported the least NIM contraction. The Effect of Heightened Long-Term Assets to Total Assets Shares Can Be Seen in Recent Rate Cycles During the low-for-long interest rate environment of 2008 to 2015, many banks pursued a strategy of investing in longer-maturity assets in an attempt to bolster their yield on earning assets. This drove the share of long-term assets to total assets at community and noncommunity banks to the highest levels in available data. While this strategy helped bolster NIM at these banks when rates were low, it hurt them during the upward rate cycle that followed. As seen in Table 5, the relative interest-rate insensitivity of their assets was met with increasing costs of funding, and community banks and noncommunity banks with the highest share of long-term assets to total assets reported the least NIM expansion (3 basis points) as a result. During the downward rate cycle of second quarter 2019 to second quarter 2020, however, banks with the highest share of long-term assets reported slightly less NIM compression than other banks, though the relationship was not as strong. Community banks in the highest quartile of long-term assets to total assets reported a decline in NIM that was 12 basis points less than in community banks in the lowest quartile of long-term assets, and a decline similar to that of community banks in the middle two quartiles. Noncommunity banks in the highest quartile of long-term assets to total assets reported a decline in NIM that was 27 basis points less than in noncommunity banks in the lowest quartile of long-term assets. FDIC QUARTERLY 39 2021 • Volume 15 • Number 2 Table 5 Change in Median Community and Noncommunity Bank Net Interest Margin Over Upward and Downward Rate Cycles by Share of Long-Term Assets 1Q 1999 to 1Q 2004 to 4Q 2015 to Upward Rate Cycles (Percentage Points) 3Q 2000 3Q 2006 1Q 2019 Change in Effective Federal Funds Rate Change in Median NIM by Share of Long-Term Assets Noncommunity Banks First Quartile Second Quartile Third Quartile Fourth Quartile Community Banks First Quartile Second Quartile Third Quartile Fourth Quartile Downward Rate Cycles (Percentage Points) Change in Effective Federal Funds Rate Change in Median NIM by Share of Long-Term Assets Noncommunity Banks First Quartile Second Quartile Third Quartile Fourth Quartile Community Banks First Quartile Second Quartile Third Quartile Fourth Quartile 1.79 4.24 2.04 0.38 0.23 0.04 –0.11 0.55 0.20 0.04 –0.17 0.46 0.13 0.15 0.07 0.36 0.18 0.12 0.05 0.50 0.23 0.05 –0.17 0.19 0.12 0.08 0.03 3Q 2000 to 4Q 2003 2Q 2007 to 1Q 2009 2Q 2019 to 2Q 2020 –5.52 –5.07 –0.21 –1.16 –0.38 –0.19 –0.23 –1.18 –0.45 –0.44 0.20 –0.55 –0.39 –0.12 –0.28 –0.54 –0.29 –0.21 –0.08 –0.78 –0.39 –0.19 0.08 –0.35 –0.24 –0.24 –0.23 Sources: Federal Reserve Economic Database and FDIC. Note: Change measured in percentage points. Maturity is determined by the proportion of assets with a remaining maturity or next repricing frequency of three years or more (“long-term assets”) to total assets. Maturity buckets are calculated based on industry quartiles in the quarter before each cycle. Each bank is placed into a maturity bucket based on the proportion of long-term assets as of the quarter prior to each cycle. Each bank’s bucket is held constant throughout the cycle. For the first and last quarter of each cycle, the median NIM of each bucket is found and the change is calculated. Report of Condition and Income (Call Report) filers began reporting asset maturity breakdowns in 1997. Thrifts are excluded from this analysis because they did not begin reporting maturity and repricing data until their adoption of the Call Report in first quarter 2011. 40 FDIC QUARTERLY THE HISTORIC RELATIONSHIP BETWEEN BANK NET INTEREST MARGINS AND SHORT-TERM INTEREST RATES Since the End of the Most Recent Downward Rate Cycle, Industry NIM Has Fallen to a Record Low The Federal Reserve lowered the target federal funds rate three times in the second half of 2019 and two more times in March 2020, bringing the lower bound of the target rate to zero. While the effective rate ended its downward cycle in second quarter 2020, which is the end of the downward rate cycle in this analysis, this low interest rate and other impacts of the COVID-19 pandemic have had a severe adverse impact on NIMs in the months since. Fiscal and monetary stimulus to combat the economic impact of the pandemic resulted in bank balance sheets flooded with deposits. The banking industry reported annual deposit growth of $3.3 trillion (22.6 percent) in 2020. However, with weak loan demand and tightening credit standards, banks placed much of that liquidity into low-yielding cash and balances due from depository institutions (up 91.2 percent year over year) instead of into higher-yielding loans, whose 3.3 percent growth was driven in large part by low-yielding Paycheck Protection Program loans.11 The combined effect of balance sheet composition changes and lower prevailing market rates resulted in third quarter 2020 in the largest year-over-year basis point decline in NIM and the lowest level of industry NIM on record, where it remained in first quarter 2021. Summary The directional response of NIM to changes in prevailing interest rates is theoretically ambiguous. Analyzing the changes in median NIM for the industry, community banks, and noncommunity banks over upward and downward rate cycles since the early 1980s clarifies the potential effects of short-term interest rate changes on NIM. In line with conventional wisdom, at the median, NIM has tended to increase when short-term interest rates increase and decline when short-term interest rates decline. While many factors influence NIM, one that is particularly important is the maturity structure of bank assets. Those banks with a relatively high proportion of long-term assets to total assets report greater insulation from changes in short-term interest rates. This means that their NIM falls less during downward rate cycles but rises less during upward rate cycles. This positive relationship between short-term interest rates and NIM and the effect of maturity structure on this relationship generally hold true over time for both community and noncommunity banks. Authors: Angela Hinton Senior Financial Analyst Division of Insurance and Research Chester Polson Senior Financial Economist Division of Insurance and Research 11 Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices, October 2020, https://www. federalreserve.gov/data/sloos/sloos-202010.htm. For more information on the Paycheck Protection Program see: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program#:~:text= The%20Paycheck%20Protection%20Program%20is,an%20interest%20rate%20of%201%25. FDIC QUARTERLY 41 RESIDENTIAL LENDING DURING THE PANDEMIC Overview In 2020, a global health crisis caused a deep recession in the United States. Despite the economic downturn, housing market fundamentals have remained resilient and banks were well positioned to support growth in the mortgage market. The housing market benefited from historically low interest rates and fiscal support to businesses and consumers, which helped borrowers stay current on their mortgages and supported new home sales. Mortgage lenders continued to extend mortgages even as they tightened underw riting standards to protect against increased default risk from adverse economic and financial conditions during the pandemic. Mortgage credit quality deteriorated but has since improved. The outlook for mortgage credit and the housing market depends on the outlook for interest rates and economic conditions. Higher interest rates may slow the mortgage market and demand for mortgage loans. Programs that have aided homeowners, such as forbearance and government stimulus, are scheduled to expire in 2021, increasing the risk for deterioration in credit quality of mortgages, higher mortgage delinquencies, and reduced credit availability.1 FDIC-insured institutions (banks) held $2.5 trillion in residential mortgage loans as of first quarter 2021, of which $2.1 trillion were first-lien mortgages. Banks held an additional $3.3 trillion in mortgage-backed securities. Banks also serviced $2.9 trillion of mortgage loans originated by other institutions. These volumes, while less than during the financial crisis of 2008 and 2009, suggest that banks continue to have meaningful exposure to the housing market. This article discusses residential lending and underwriting trends in the mortgage market, in light of the changed environment presented by the pandemic, and bank residential lending activity during this time. Economic Backdrop The housing market remained resilient during the pandemic as many other sectors of the economy were distressed. The housing credit cycle was in a long benign and mature stage in 2019 before transitioning to a stressed one in 2020 as economic conditions deteriorated. Despite weak economic fundamentals in 2020, housing credit was helped by a strong recovery in the housing market. Home sales strengthened in 2020 and were above their pre-pandemic levels as of first quarter 2021, even as the labor market and other areas of the economy had slower recoveries (Chart 1). Home prices resumed their upward trend after a short pause in the spring of 2020, when pandemic restrictions began, due to low interest rates and the low inventory of homes for sale (Chart 2). Stay-at-home restrictions and remote work opportunities intensified homebuyers’ interest in larger or different living space and drove demand for home purchases. In December 2020, home prices were 11.5 percent higher than the year before, a year-over-year increase that outpaced the robust gains recorded during the 2000s housing boom. While the recent housing market resembles the housing boom from 2004 to 2005 with low interest rates, the growth in home prices during the previous boom was also driven by loose credit and widespread speculation. Such factors did not fuel the 2020 home price gains, as discussed in the next section. 1 Board of Governors of the Federal Reserve System Federal Open Market Committee, “Summary of Economic Projections,” March 17, 2021, https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20210317.htm. FDIC QUARTERLY 43 2021 • Volume 15 • Number 2 Chart 1 Residential Construction and Home Sales Recovered Quickly From Initial Pandemic Shocks Total Nonfarm Employment Total Existing Home Sales Housing Starts Indexed Level 140 120 100 80 60 40 20 0 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Sources: Bureau of Labor Statistics, National Association of Realtors, and Census Bureau (Haver Analytics). Note: Data are indexed to a level of 100 at February 2020. Data as of March 2021. Chart 2 Home Price Appreciation Accelerated in 2020 in Contrast to Previous Recessions Home Price Index Year-over-year percent change 15 10 5 0 -5 -10 -15 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 Source: S&P CoreLogic Case-Shiller (Haver Analytics). Note: The home price index is indexed to a level of 100 at January 2000. Data as of February 2021. Shaded areas indicate recessions. In contrast to the housing market’s resilience, the rest of the economy was in distress throughout the year, as the economy contracted 3.5 percent in 2020 with a steep decline during the first half of the year and the unemployment rate reached a post-World War II high of 14.8 percent. These factors introduced credit risk to banks for the mortgages they held. Still, amid this backdrop, banking conditions remained sound. Underwriting Trends Underwriting standards tightened in 2020 in response to weaker economic fundamentals. Despite the relative strength in the housing market, the economic deterioration and uncertain outlook in 2020 led mortgage lenders to tighten standards to ensure a borrower’s ability to repay. Lenders implemented stricter employment verification and asset and income documentation and reduced the age of required documents before closing, sometimes requiring employment confirmation on the day of closing.2 Nevertheless, mortgage lending was robust throughout 2020 on strong demand for new homes and refinancing existing 2 Federal Home Loan Mortgage Corporation, “Selling Guidance Related to COVID-19,” Bulletin 2020-8, March 31, 2020, https://guide.freddiemac.com/app/guide/bulletin/2020-8; Inside Mortgage Finance, “Underwriting Tightened in View of Market Uncertainty,” April 3, 2020; and HousingWire, “Mortgage Lenders Are Tightening Standards as Coronavirus Crisis Worsens,” April 3, 2020, https://www.housingwire.com/articles/ mortgage-lenders-are-tightening-standards-as-coronavirus-crisis-worsens/. 44 FDIC QUARTERLY RESIDENTIAL LENDING DURING THE PANDEMIC mortgages to lower interest rates. The volume of new first-lien mortgage originations, primarily refinancings, reached a record high in nominal terms of $4.04 trillion in 2020.3 Of this amount, banks originated $869 billion loans or 21.5 percent. While the level of mortgage originations in 2020 outpaced the previous record of $3.73 trillion in 2003, also during a refinance boom, it was below previous peaks when measured per household and adjusted for inflation. The composition of the mortgage market has changed in the intervening years. In 2005–2006, private label securitizations comprised about a 40 percent share of origination volume, while securitizations by the government sponsored enterprises (the GSEs, with specific underwriting criteria) and the Federal Housing Administration and Veterans Administration (FHA/VA, or the agencies) had an estimated 33 percent share, and the share of bank portfolio loans was about 25 percent. By 2020, GSE and agency securitizations had a dominant 77.6 percent share of the mortgage originations market, the bank portfolio share had declined to 21.5 percent, and private label securitizations had all but disappeared to a 0.9 percent share.4 As the industry tightened standards, banks also focused on more prudent residential lending by tightening underwriting standards in response to uncertainty about the economy. The Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices reported sharply tighter credit standards on new mortgage originations after the onset of the pandemic (Chart 3).5 By second quarter 2020, a net share of 61 percent of surveyed banks reported tightened standards on residential loans, up sharply from 9.2 percent that reported tightened standards in first quarter 2020. Banks left standards largely unchanged in fourth quarter, as a net share of just 0.3 percent of banks tightened standards for residential real estate loans. By first quarter 2021, according to the survey, banks reported they had started to ease lending standards. The initial spike in bank reports of tighter standards reflected the pandemic’s immediate impact on the economy and employment. Banks halted tightening as support programs were quickly implemented. In contrast, during the financial crisis, banks tightened underwriting standards for the new mortgage loans they made, but did so seemingly in steps over a period of several years as the crisis worsened. While banks tightened standards on mortgages they held, they continued to extend conforming mortgage loans that were sold to the GSEs, adhering to underwriting standards set by the GSEs. Chart 3 Bank Underwriting Standards Tightened After the Initial Pandemic Shock Net Share of Banks Tightening Credit Standards on Residential Mortgage Loans Percent 100 80 60 40 20 0 -20 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Source: Federal Reserve Board (Haver Mortgage Series/Haver Analytics). Note: Above zero indicates more banks tightened; below zero indicates more banks eased. Data as of April 2021 3 Urban Institute, “Housing Finance at a Glance: A Monthly Chartbook,” April 2021:8, https://www.urban.org/research/ publication/housing-finance-glance-monthly-chartbook-april-2021/view/full_report. 4 Ibid. 5 Board of Governors of the Federal Reserve System, “Senior Loan Officer Opinion Survey on Bank Lending Practices,” January 2021, https://www.federalreserve.gov/data/sloos/sloos-202101.htm. FDIC QUARTERLY 45 2021 • Volume 15 • Number 2 Mortgage lending for both banks and nonbanks was concentrated among borrowers with excellent credit. Of all home mortgages originated in first quarter 2021, 73 percent went to borrowers with a credit score above 760 (Chart 4).6 This share was even higher than the 71.9 percent pandemic peak reached in third quarter 2020 and was a record high for the period since 2003. Borrowers with credit scores under 620 accounted for just 1.4 percent of originations in first quarter 2021, a record low and well under the 15.2 percent reported in first quarter 2007, just before the financial crisis. Chart 4 Loan Originations Are Increasing to Borrowers With Stellar Credit Mortgage Originations by Credit Score Percent share < 620 100 620-659 660-719 720-759 760+ 80 60 40 20 0 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 Source: Federal Reserve Board of New York Quarterly Report on Household Debt and Credit (Haver Analytics). Note: Data as of first quarter 2021. Banks historically maintain stricter mortgage credit standards than do nonbanks. After the financial crisis and through the start of the pandemic, median FICO scores for bank originators remained in the 740 to 755 range and median FICO scores for nonbank originators remained in the 710 to 730 range. In spring 2020, median credit scores for both bank and nonbank originators began to increase and the difference began to narrow. By April 2021, the bank originator median FICO score was 772 and the nonbank originator median FICO score followed closely at 758. Some of the increase in FICO scores is attributed to increased refinance activity, which is skewed toward higher FICO scores, according to the Urban Institute (UI).7 Mortgage Credit Availability The supply of mortgage credit has tightened, while large banks’ mortgage lending presence has declined. As lenders tightened documentation standards and were less likely to originate new mortgages, overall mortgage credit supply tightened beginning in March 2020. Mortgage credit availability declined sharply during the early months of the pandemic, according to the Mortgage Bankers Association Mortgage Credit Availability Index (MCAI), a summary measure that combines several factors related to borrower eligibility and underwriting criteria. The index level was near 180 during most of 2019 and early 2020.8 By September, the index was 118.6, the lowest level since April 2014. Mortgage credit availability has edged up since then, but remained low in March 2021 at 125.4, 18 percent lower than one year earlier. The UI’s Housing Credit Availability Index (HCAI) showed a similar reduction in credit availability as the pandemic triggered a tightening of credit. The HCAI, which measures the probability of default of first-lien owner-occupied home purchases as a reflection of lender approaches to issuing credit, declined from 5.3 percent in first quarter 2020 to just under 6 Federal Reserve Bank of New York, “Quarterly Report on Household Debt and Credit (Q1 2021),” https://www.newyorkfed.org/microeconomics/hhdc.html. 7 Urban 8 The 46 FDIC QUARTERLY Institute, April 2021. MCAI is indexed to a level of 100 at first quarter 2012. RESIDENTIAL LENDING DURING THE PANDEMIC 5.0 percent in third quarter 2020, the lowest figure since the inception of the index in first quarter 1999.9 In fourth quarter, the index edged up to 5.1 percent. A lower HCAI signals lenders’ greater intolerance for default risk, which manifests as tighter lending standards and greater difficulty for borrowers to get a loan. Even if the current index level were to double, it would still fall well below the pre-financial crisis standard of 12.5 percent from 2001 to 2003, when there was greater borrower and product risk.10 At the same time that the MCAI and HCAI indexes indicate tighter mortgage credit availability overall, the pace of residential lending by banks slowed appreciably during the pandemic. The volume of 1–4 family residential lending in the banking industry was up only slightly between fourth quarter 2019 and fourth quarter 2020 and was down between third quarter 2020 and fourth quarter 2020. It was down for fourth quarter 2020 and the year among community banks. More broadly, there is some evidence of a reduction in residential mortgage lending activity since the 2008–2009 crisis among a subset of community banks with relatively smaller residential mortgage programs, and more evidence of a reduction by larger noncommunity banks.11 Among large lenders, nonbanks now originate a majority of residential loans, accounting for 68.1 percent of mortgage originations by the top 100 lenders in 2020, up from 58.9 percent in 2019.12 Mortgage Credit Performance Mortgage credit performance has recovered somewhat from sharp declines at the start of the pandemic, but high rates of delinquent loans point to lingering financial distress for many borrowers. The rapid onset of the pandemic and the immediate toll on employment and the economy caused national mortgage delinquency rates to rise sharply in 2020 (Chart 5). Prior to 2020, delinquency rates had steadily declined since the financial crisis to 3.77 percent in fourth quarter 2019, just before the pandemic, according to the Mortgage Bankers Association National Delinquency Survey. The survey covers loans representing about 88 percent of all first-lien residential mortgage loans outstanding nationwide, including mortgages held by both banks and the GSEs. The fourth quarter 2019 rate was the lowest level of national delinquency in the survey’s almost 50 years of reporting and was also well below the 4.41 percent delinquency rate in first quarter 2006, near the peak of the pre-crisis housing boom. Mortgage delinquencies rose in early 2020, reflecting pandemic-related financial distress faced by borrowers. The total past-due rate reached its highest level since 2011. Soon thereafter, however, mortgage delinquency rates started to decline almost as quickly, as federal support in the form of stimulus payments, enhanced unemployment compensation benefits, and forbearance and moratorium measures provided temporary relief. The national delinquency rate for all mortgage loans decreased from its recent peak of 8.22 percent in second quarter 2020 to 6.38 percent in first quarter 2021. A decrease in 30-day and 60-day delinquencies drove the decline. The 90+ day delinquency rate receded slightly in fourth quarter but then increased again in first quarter 2021, reflecting the more entrenched distress of those with longer-term delinquencies. The swift improvement in delinquency rates contrasts with the experience during the financial crisis. The slow rollout of assistance to borrowers left many distressed homeowners vulnerable to foreclosures, which were severe and exacerbated the housing market distress during that crisis. The total past-due rate breached 5 percent in second quarter 2007 after hovering for decades in the 4 percent to 5 percent range. The delinquency rate doubled by 2010 and did not fall below 5 percent until five years later. 9 Urban Institute, Housing Credit Availability Index, Q4 2020, May 7, 2021, https://www.urban.org/policy-centers/ housing-finance-policy-center/projects/housing-credit-availability-index. 10 Ibid. 11 Kayla Shoemaker, “Trends in Mortgage Origination and Servicing: Nonbanks in the Post-Crisis Period,” FDIC Quarterly 13 no. 4 (2019), https://www.fdic.gov/bank/analytical/quarterly/2019-vol13-4/fdic-v13n4-3q2019-article3.pdf; Kathryn Fritzdixon, “Bank and Nonbank Lending Over the Past 70 Years,” FDIC Quarterly 13 no. 4 (2019), https://www.fdic.gov/ bank/analytical/quarterly/2019-vol13-4/fdic-v13n4-3q2019-article1.pdf; and FDIC Community Banking Study (2020), Chapter 5, https://www.fdic.gov/resources/community-banking/report/2020/2020-cbi-study-full.pdf. 12 John Bancroft, “Nonbanks Hit New Mortgage Lending Milestone in 4Q20,” Inside Mortgage Finance, March 11, 2021. FDIC QUARTERLY 47 2021 • Volume 15 • Number 2 Chart 5 Delinquencies Spiked During the Pandemic Residential Mortgage Loans Percent delinquent or in forbearance 30-59 Days Past Due 60-89 Days Past Due 18 90+ Days Past Due 16 Total Past Due 14 In Forbearance 12 FHA/VA Seriously Delinquent 10 8 6 4 2 0 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Source: Mortgage Bankers Association (Haver Analytics). Note: FHA/VA is Federal Housing Administration and Veterans Administration. Data as of first quarter 2021. While most mortgage delinquency rates began to decline during 2020, seriously delinquent FHA and VA loans were at record highs in fourth quarter 2020, almost 12 percentage points higher than a year earlier, before the pandemic.13 Although the rate edged down in first quarter 2021, the near record-high delinquency rate indicates the continuing distress of these borrowers, who are disproportionately either first-time buyers or borrowers with lower credit scores and lower down payments and who may already be financially stretched.14 Ginnie Mae securitizes over 90 percent of FHA and VA loan originations. Although banks comprise only about 6 percent of Ginnie Mae originations, delinquent Ginnie Mae securitized loans have an impact on bank credit measures, as discussed below in the section on bank credit conditions.15 Many homeowners who were facing financial strain have been able to avoid delinquency by requesting mortgage forbearance, while others entered forbearance in anticipation of potential financial strain but continued to make payments. Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, mortgage servicers or lenders must provide a forbearance plan to any homeowner with a federally backed mortgage that requests one. Borrowers with loans not backed by the federal government (i.e., non-agency mortgages) are not included under the CARES Act. Forbearance programs may be available on these loans but are not required, although financial regulators have encouraged financial institutions to work with borrowers. Of the borrowers who exited forbearance from June 1, 2020, through March 14, 2021, 27.1 percent had continued to make their monthly payments during their forbearance period. However, a large share of borrowers is exiting forbearance and remaining delinquent, without becoming current on missed payments or without having a loss mitigation plan in place. In March 2021, these borrowers represented almost 23 percent of borrowers in forbearance, more than double the percentage in the financial crisis.16 Banks not only have exposure to the housing market through direct mortgage lending, but also face exposure through the mortgages they service. The credit performance trends in the overall mortgage industry suggest that bank mortgage servicers may be vulnerable to missed payments in the future by borrowers of federally backed mortgages who, after exiting forbearance for federally backed mortgages, are unable to make timely payments on 13 Seriously delinquent loans include those that are 90 days or more past due and those that are in foreclosure. 14 Shoemaker, 15 Urban 2019: 51-69. Institute, April 2021. 16 Mortgage Bankers Association, “Share of Monthly Forbearance Exits by Reason,” presentation at National Association of Business Economists Policy Conference, March 23, 2021. 48 FDIC QUARTERLY RESIDENTIAL LENDING DURING THE PANDEMIC their loans. In addition, banks may be vulnerable to borrowers of bank mortgage loans who remain financially squeezed after support from enhanced employment benefits or stimulus checks end. Both scenarios raise the possibility of future stress on bank portfolios. Bank Credit Performance Asset quality of bank loans began deteriorating in mid-2020. While conditions improved by year-end 2020, the outlook is uncertain. As total mortgage delinquencies increased, bank residential portfolios deteriorated. In 2020, banks increased allowances for loan and lease losses to help absorb estimated credit losses. Residential mortgage allowances for mortgage credit losses increased from $9.8 billion in fourth quarter 2019 to $18.9 billion in second quarter 2020. Noncurrent balances in the residential loan portfolio increased $10 billion (22 percent) from second quarter to third quarter 2020.17 Although this was by far the largest quarterly increase since the financial crisis, the volume gain was well below the crisis-high $27 billion quarterly increase in fourth quarter 2009. The noncurrent loan balance reached a pandemic peak of $55.7 billion in third quarter 2020, and then declined to $55.2 billion in fourth quarter 2020 and $53.6 billion in first quarter 2021. The noncurrent loan balance is higher than in recent years, but noncurrent loan balances after the financial crisis were more than three times larger. Noncurrent loan rates exhibit a similar pattern. After declining for eight years, the 1–4 family mortgage noncurrent loan rate increased from 1.77 percent in fourth quarter 2019 to 2.54 percent in fourth quarter 2020. While it remained high at 2.50 percent in first quarter 2021, it was well below the financial crisis high of 10.81 percent reported in first quarter 2010. Mortgage delinquency rates for the market overall followed a similar pattern (Chart 5). Banks reported lower mortgage delinquency rates than the overall mortgage market because bank delinquencies do not count loans in forbearance. The large increase in bank noncurrent loan balances during 2020 was due not only to deterioration in credit quality, but also to increased rebooking of Ginnie Mae loans primarily among the industry’s largest banks, those with at least $100 billion in total assets (Chart 6). When a Ginnie Mae loan becomes delinquent for 90 days or is in forbearance, the loan is typically brought back on a bank’s books. While Ginnie Mae loans are guaranteed by the U.S. government, banks remain responsible for maintaining timely payments to investors in servicing these loans. The rebooking of loans is not new, and the share of rebooked loans among bank total noncurrent 1–4 family mortgage loans reached more than 50 percent in the aftermath of the financial crisis. However, Ginnie Mae rebookings had been on a downward trend for seven years before the pandemic and reached a low of 45 percent of bank total noncurrent 1–4 family mortgage loans in first quarter 2020. By second quarter 2020, rebooked Ginnie Mae loans had climbed to 47 percent of noncurrent 1–4 family mortgage loans. By first quarter 2021, some borrowers exited forbearance or resumed loan payments, and as a result, the volume of rebooked noncurrent Ginnie Mae loans declined to 40 percent of noncurrent 1–4 family mortgage loans. Rebooked Ginnie Mae loans made up the bulk of residential mortgage noncurrent volume during 2020. Excluding rebooked Ginnie Mae loans, the noncurrent rate for bank 1–4 family mortgage loans increased during 2020, from 0.9 percent in fourth quarter 2019 to 1.5 percent in fourth quarter 2020 and remained at 1.5 percent in first quarter 2021. These figures are well below the first quarter banking industry noncurrent rate of 2.50 percent that includes rebooked Ginnie Mae loans, but does not include mortgage loans in forbearance. The inherent forbearance risk and the elevated serious delinquency rate of Ginnie Mae loans introduce credit quality concerns as the pandemic-induced financial stress for borrowers persists. 17 Noncurrent balance is the sum of 1–4 family residential loans secured by 1–4 family residential properties that are 90 days or more past due and 1–4 family residential loans secured by 1–4 family residential properties that are in nonaccrual status. Noncurrent is a narrower category than delinquency and can refer to loans whose installments are past due by 30 to 90 days or more. Total delinquency refers to all loans that are 30+ days past due. FDIC QUARTERLY 49 2021 • Volume 15 • Number 2 Chart 6 Rebooked Loans Drove the Recent Increase in Bank Noncurrent Loan Balances Components of Residential Noncurrent Loan Balance $ Billions 200 180 160 140 120 100 80 60 40 20 0 Noncurrent Other Loans Rebooked: GNMA Loans Rebooked: Excluding GNMA Loans 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: FDIC. Note: GNMA is Government National Mortgage Association, also known as Ginnie Mae. “Rebooked: Excluding GNMA Loans” are loans other than GNMA that also have a government guaranty. Data as of first quarter 2021. The decline of most delinquency rates from the peak in second quarter 2020 reflects temporary relief provided by pandemic-support measures. Banks’ noncurrent rate for 1–4 family loans remained high, however, driven by the large share of loans that are 90 days or more past due that reflect missed payments earlier in the pandemic. Unprecedented support during the pandemic-induced economic crisis from stimulus and protective measures helped many homeowners and borrowers to avoid delinquency or loss of their homes. Federal support in the form of forbearance helped homeowners of federally backed mortgages, held by GSEs, while other forms of support to consumers such as unemployment insurance and stimulus checks helped borrowers of mortgages held by banks. Several federal programs that helped struggling consumers were extended or expanded as the recession progressed in 2020. Most recently, the Federal Housing Finance Agency halted foreclosures and evictions through June 30, 2021, and extended forbearance and payment deferrals for up to 18 months.18 In March, Congress passed the American Rescue Plan Act of 2021 to provide an additional $1.9 trillion of fiscal stimulus, including direct payments to households, extended unemployment benefits, and more funding for businesses and for the U.S. Small Business Administration Paycheck Protection Program (PPP). Despite improvements and extensions of support, credit quality concerns remain. Eventually, the fiscal support that has been available to borrowers will end. As many borrowers continue to face challenges from lingering economic weakness, their diminished income and weakened financial situations may put debt repayments at risk. Bank Residential Mortgage Lending While the outlook is uncertain, banks continue to make residential loans. Despite the stresses associated with the pandemic, the banking system continued to extend credit. Unlike in 2008, when a financial crisis resulted in an economic crisis and the banking system entered a long period of balance sheet repair, the banking system was much stronger in 2020 and better able to withstand economic distress. Banks have been in a position to help support the economy by extending credit and by working with distressed borrowers. Community banks in particular have maintained strength in residential lending. Community banks have declined in number over the years, from over 8,000 before 2005 to 4,531 in first quarter 2021, but they have maintained a consistent and supportive presence in residential lending. Residential real estate loans held by community banks have averaged 26 percent of total loans and leases for more than a decade (Chart 7). This contrasts with 18 Federal Housing Finance Agency, “FHFA Extends COVID-19 Forbearance Period and Foreclosure and REO Eviction Moratoriums,” news release, February 25, 2021, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-ExtendsCOVID-19-Forbearance-Period-and-Foreclosure-and-REO-Eviction-Moratoriums.aspx. 50 FDIC QUARTERLY RESIDENTIAL LENDING DURING THE PANDEMIC noncommunity banks, whose residential loans as a share of their total loans and leases has declined by about a third from 30.8 percent in 2005 to 19.7 percent in first quarter 2021. Further, a higher percentage of community banks specialize in 1–4 family residential mortgage lending than noncommunity banks.19 In first quarter 2021, 14.1 percent of community banks specialized in residential mortgage lending, well above the 8.1 percent share of residential mortgage specialists among noncommunity banks.20 The spread between the percentage of community banks and noncommunity banks that are residential mortgage lending specialists has widened since the financial crisis. As indicated in Chart 7, the percentage of noncommunity bank mortgage specialists has declined steadily, while community bank mortgage specialists comprised a steady 20 percent share of community banks for most of the period since 2003. Chart 7 Community Banks Maintain a More Consistent and Larger Presence in Residential Lending Noncommunity Banks (Left Axis) Residential Mortgage Specialists Percent of banks Community Banks (Left Axis) Community Bank Residential Mortgage Specialists (Right Axis) 35 Noncommunity Bank Residential Mortgage Specialists (Right Axis) Residential Loans Percent of total loans and leases 35 30 30 25 25 20 20 15 15 10 10 5 5 0 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 0 Source: FDIC. Note: Data as of first quarter 2021. Conclusion The housing market has rebounded from deep and immediate declines at the start of the pandemic and has weathered the pandemic-driven economic distress so far. The combined effects of policy actions, fiscal stimulus, and foreclosure and eviction moratoria eased the financial stress of households and borrowers. Despite these support measures, uncertainty about the economy led to tightening of mortgage credit and underwriting standards, as lenders sought to reduce credit risk from new mortgages. Although national mortgage delinquency rate increases have subsided somewhat and banks have built loan loss reserves, mortgage credit quality concerns remain, reflecting the still-high unemployment and the near record-high levels of seriously delinquent FHA and VA loans, particularly among borrowers in vulnerable industries or who are already financially pressed. Overall, banks have been resilient through the recent period of economic distress and have been able to support the mortgage market. However, the housing market outlook, while improving, continues to be sensitive to economic developments and remains uncertain. Author: Cynthia Angell Senior Financial Economist Division of Insurance and Research 19 The 2020 FDIC Community Banking Study defines a residential mortgage specialist as a bank that holds residential mortgage loans greater than 30 percent of total assets. See https://www.fdic.gov/resources/community-banking/ report/2020/2020-cbi-study-full.pdf. 20 In 2020, community bank lending in the Paycheck Protection Program outpaced new 1–4 family loan growth. As a result, the share of banks that meet the threshold to be considered a residential mortgage lending specialist declined. FDIC QUARTERLY 51
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