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FDIC Quarterly Quarterly Banking Profile: Third Quarter 2015 Financial Performance and Management Structure of Small, Closely Held Banks 2015, Volume 9, Number 4 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 Martin J. Gruenberg Director, Division of Insurance and Research Diane Ellis Executive Editor Richard A. Brown Managing Editors Matthew Green Jack Reidhill Philip A. Shively Editors Clayton Boyce Peggi Gill Frank Solomon Kathy Zeidler Publication Manager Lynne Montgomery Media Inquiries (202) 898-6993 FDIC Quarterly 2015, Volume 9, Number 4 Quarterly Banking Profile: Third Quarter 2015 FDIC-insured institutions reported aggregate net income of $40.4 billion in the third quarter of 2015, up $1.9 billion (5.1 percent) from a year earlier. The increase in earnings was mainly attributable to a $3.2 billion decline in noninterest expenses, as itemized litigation expenses at large banks were $2.7 billion lower than a year ago. Of the 6,270 insured institutions reporting third quarter financial results, more than half (58.9 percent) reported year-over-year growth in quarterly earnings. The proportion of banks that were unprofitable during the third quarter fell to 5 percent, down from 6.6 percent a year earlier and the lowest since the first quarter of 2005. See page 1. Community Bank Performance Community banks—which represent 93 percent of insured institutions—reported net income of $5.2 billion in the third quarter, up $363.4 million (7.5 percent) from one year earlier. The increase was driven by higher net interest income and noninterest income, and lower provision expense. The 12-month growth rate in loan balances at community banks was 8.5 percent, almost twice the rate of noncommunity banks. Asset quality indicators continued to improve, and community banks accounted for 44 percent of small loans to businesses. See page 15. Insurance Fund Indicators Insured deposits increased by 1.1 percent in the third quarter of 2015. The DIF reserve ratio rose to 1.09 percent on September 30, 2015, up from 1.06 percent at June 30, 2015, and 0.88 percent at September 30, 2014. One FDIC-insured institution failed during the quarter. See page 23. Featured Article: Financial Performance and Management Structure of Small, Closely Held Banks Closely held banks may face operational challenges in raising external capital and recruiting future managers, especially in rural areas. At the same time, closely held banks may have certain operational advantages, including the ability to focus on long-term goals and to minimize principal-agent problems that may arise from the separation of ownership and operational control. This paper compares the performance of closely and widely held banks as identified in a survey of FDIC bank examiners and finds that closely held banks do not appear, on net, to be underperforming widely held banks in recent years. Closely held banks where the day-to-day manager is a member of the ownership group seem to outperform banks with a hired manager. The survey of bank examiners in three FDIC supervisory Regions was used to identify the ownership and management structure of more than 1,350 community banks. The survey results suggest that almost 75 percent of community banks in these Regions can be regarded as closely held, typically on the basis of family or community ties. See page 38. 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. Quarterly Banking Profile Third Quarter 2015 INSURED INSTITUTION PERFORMANCE ■ Quarterly Income of $40.4 Billion Is 5 Percent Higher Than the Year-Ago Quarter ■ Lower Noninterest Expenses Are Key to Higher Industry Earnings ■ Industry Revenue Is Largely Unchanged From the Year Before ■ 12-Month Loan Growth Rate Rises to 5.9 Percent Earnings Rise, Profitability Remains Flat Revenues Increase at Most Banks Reductions in expenses for litigation reserves outweighed weakness in net operating revenue at large banks as third quarter net income for FDIC-insured institutions totaled $40.4 billion. This represents an increase of $1.9 billion (5.1 percent) from the $38.4 billion reported in third quarter 2014. Well over half of all banks, or 58.9 percent, reported higher quarterly earnings than the year-ago quarter. The proportion of banks that were unprofitable fell to 5 percent, compared with 6.6 percent in third quarter 2014. The average return on assets was essentially unchanged at 1.02 percent, versus 1.01 percent the year before. Net operating revenue—the sum of net interest income and total noninterest income—was only $488 million (0.3 percent) higher than in third quarter 2014. Net interest income was $1.8 billion (1.7 percent) above the year-ago level, while noninterest income was $1.3 billion (2 percent) lower. The year-over-year decline in quarterly noninterest income reflects lower income from asset servicing, reduced gains from loan sales, and lower trading income. These weaknesses were most evident among the largest banks. Three of the four largest banks reported year-over-year declines in net operating revenue totaling $3.3 billion (6.3 percent). However, for the industry as a whole, more than two out of every three institutions (68.8 percent) reported increased net operating revenue, and the median growth rate was 3.6 percent. Chart 1 Chart 2 Unprofitable Institutions and Institutions With Increased Earnings Quarterly Net Income Billions of Dollars $50 All FDIC-Insured Institutions $40 $30 28.7 28.5 20.9 17.4 $20 $10 Percentage of Institutions With Year-Over-Year Quarterly Income Growth 60 25.3 50 40 30 -1.7 -6.1 -12.6 -$20 23.8 21.4 70 2.1 $0 -$10 Percentage of All FDIC-Insured Institutions 80 43.0 40.3 40.4 39.8 40.1 39.8 38.4 38.2 37.5 36.5 36.1 37.3 35.2 34.8 34.5 34.4 Securities and Other Gains/Losses, Net 20 Net Operating Income 10 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 2009 2010 2011 2012 2013 2014 2015 0 Source: FDIC. FDIC Quarterly Percentage of Institutions With Quarterly Losses 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: FDIC. 1 2015, Volume 9, No. 4 Expenses Improve at Large Banks Loan Losses Decline Further Total noninterest expense was $3.2 billion (2.9 percent) less than third quarter 2014, although fewer than one in three banks (31.4 percent) reported reduced expenses. Itemized litigation expenses at a few large banks were $2.7 billion lower, and charges for goodwill impairment declined by $578 million (45.4 percent). Expenses for salaries and employee benefits fell by $199 million (0.4 percent), as insured institutions reported 10,178 fewer employees than in the year-ago quarter. Loan losses were lower than third quarter 2014. Net charge-offs (NCOs) totaled $8.7 billion in the third quarter, down $569 million (6.2 percent) compared with the year earlier. This is the 21st consecutive quarter in which NCOs have registered a year-over-year decline. The quarterly NCO rate fell to 0.4 percent from 0.45 percent in third quarter 2014. This is the lowest quarterly NCO rate for the industry since third quarter 2006. NCOs were lower in most major loan categories. One exception was loans to commercial and industrial (C&I) borrowers, where NCOs increased by $231 million (25.3 percent). Margins Remain Near Historic Low The industry posted an average net interest margin (NIM) of 3.08 percent, below the 3.15 percent average in third quarter 2014. However, this is the second quarter in a row that the industry NIM has been above the 30-year low of 3.02 percent reached in first quarter 2015. Noncurrent Balances Improve Across Most Loan Categories The amount of loans that were noncurrent (90 days or more past due or in nonaccrual status) fell for the 22nd quarter in a row. Between the end of June and the end of September, noncurrent loan balances declined by $5.5 billion (3.8 percent). However, noncurrent C&I loans increased for a third consecutive quarter, rising by $1.5 billion (13.8 percent). The average noncurrent loan rate declined from 1.69 percent to 1.61 percent during the quarter, and is now at the lowest level since year-end 2007. Loss Provisions Continue to Trend Up For a fifth consecutive quarter, loan-loss provisions were higher than a year ago. Banks set aside $8.5 billion in the third quarter to cover loan losses, which was $1.3 billion (17.9 percent) more than in third quarter 2014. Slightly more than one-third of all banks, or 34.3 percent, reported year-over-year increases in loss provisions. Chart 3 Chart 4 Noncurrent Loan Rate and Quarterly Net Charge-Off Rate Quarterly Net Operating Revenue Billions of Dollars $200 All FDIC-Insured Institutions $180 5 $160 $140 $120 3 $80 $40 Noncurrent Loan Rate 4 Quarterly Noninterest Income $100 $60 All FDIC-Insured Institutions Percent 6 2 Quarterly Net Interest Income 1 $20 Quarterly Net Charge-Off Rate 0 2006 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: FDIC. FDIC Quarterly 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: FDIC. 2 2015, Volume 9, No. 4 Quarterly Banking Profile $4.8 billion. Banks declared $25.6 billion in dividends in the quarter, only $44 million (0.2 percent) more than in third quarter 2014. At the end of the quarter, 98.8 percent of all insured institutions, representing 99.9 percent of total industry assets, met or exceeded the highest capital requirements as defined for Prompt Corrective Action purposes. Banks Increase Reserves for Commercial Loans Banks reduced their loan-loss reserves for the 21st consecutive quarter, as NCOs of $8.7 billion exceeded the $8.5 billion in provisions that banks added to reserves. Aggregate loan-loss reserves declined by $1.1 billion (0.9 percent) during the three months ended September 30. The industry’s ratio of reserves to total loans and leases declined from 1.4 percent to 1.37 percent. This is the lowest level for this ratio since the end of 2007. The coverage ratio of reserves to noncurrent loans rose for a 12th consecutive quarter, from 82.7 percent at the end of June to 85.2 percent at the end of September, as the decline in noncurrent loan balances outweighed the reduction in reserves. Institutions with more than $1 billion in assets, which report disaggregated reserves, increased their reserves for non-real estate commercial loans by $989 million (3.4 percent), even as they reduced their total reserves by $819 million (0.8 percent). Commercial Real Estate Loans Lead Asset Growth Total assets increased by only $46.5 billion (0.3 percent) during the quarter as banks reduced their inventories of cash and balances due from depository institutions by $56.4 billion (3.1 percent). Loans and leases increased by $95.3 billion (1.1 percent), led by nonfarm nonresidential real estate loans (up $23.8 billion, 2 percent), multifamily residential real estate loans (up $13.9 billion, 4.4 percent), credit card balances (up $13.6 billion, 1.9 percent), auto loans (up $10.8 billion, 2.7 percent), and real estate construction and development loans (up $10.3 billion, 4 percent). Loans to small businesses and farms rose by $1.6 billion (0.2 percent). Banks increased their investment securities by $25.9 billion (0.8 percent), with most of the growth consisting of an increase in mortgage-backed securities (up $31.2 billion, 1.7 percent). Retained Earnings Bolster Equity Growth Total equity capital increased by $21.5 billion (1.2 percent) in the third quarter, as retained earnings contributed $14.7 billion to capital growth. Accumulated other comprehensive income increased by Chart 5 Chart 6 Quarterly Change in Loan Balances Capital Ratios All FDIC-Insured Institutions Percent 18 237 203 $250 16 $200 $150 14 196 221* 189 178 146 134 108 $100 12 66 $50 43 61 67 28 $0 10 6 -7-14 -63 -$100 Total Risk-Based Capital Ratio 118 102 91 74 70 65 24 -6 -$50 8 -107 -116 -109 -133 -140 -$150 185 149 95 38 51 53 -37 -126 Tier 1 Risk-Based Capital Ratio 2008 2009 2010 2011 -$250 Core Capital (Leverage) Ratio 2 -$200 Equity to Assets Ratio 4 0 2007 All FDIC-Insured Institutions Billions of Dollars $300 Source: FDIC. * 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. 2012 2013 2014 2015 Source: FDIC. FDIC Quarterly 3 -210 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2015, Volume 9, No. 4 Retail Deposits Fund Balance Sheet Growth New Charter Is Only Second Start-Up in Almost Five Years Total deposits increased by $58 billion (0.5 percent) during the quarter, with foreign office deposits falling by $4.7 billion (0.3 percent) and deposits in domestic offices rising by $62.7 billion (0.6 percent). Most of the deposit growth consisted of smaller-denomination deposits. Estimated insured deposits increased by $69.1 billion (1.1 percent). Banks reduced their nondeposit liabilities by $32.8 billion as borrowings from Federal Home Loan Banks fell by $18.3 billion (3.9 percent) and securities sold under repurchase agreements declined by $17.7 billion (6.3 percent). The number of FDIC-insured commercial banks and savings institutions filing quarterly financial results declined from 6,348 to 6,270 during the third quarter. Merger transactions absorbed 72 institutions; there was one insured institution failure, and one new charter was added. This is only the second new charter (excluding charters created to absorb failed banks) of an FDICinsured institution since December 2010. During the quarter, the number of full-time equivalent employees at FDIC-insured institutions declined from 2,042,405 to 2,038,462. The number of banks on the FDIC’s “Problem List” declined from 228 to 203, and total assets of “problem” banks fell from $56.5 billion to $51.1 billion. Author: Ross Waldrop, Senior Banking Analyst Division of Insurance and Research (202) 898-3951 Chart 7 Chart 8 Quarterly Change in Asset Funding Billions of Dollars Number and Assets of Banks on the “Problem List” All FDIC-Insured Institutions $500 Assets (Billions of Dollars) $500 Equity Capital Nondeposit Liabilities Deposits Number 1,000 Number of Problem Banks $450 900 $400 800 $200 $350 700 $100 $300 600 $400 $300 $0 $250 500 -$100 $200 400 -$200 $150 203 300 -$300 $100 -$400 $50 -$500 2007 2008 2009 2010 2011 2012 2013 2014 200 51 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2015 Source: FDIC. FDIC Quarterly Problem Bank Assets 100 0 Source: FDIC. 4 2015, Volume 9, No. 4 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������������������������������������������������������������������������������������������ Number of assisted institutions�������������������������������������������������������������������������������������� 2015** 1.05 9.33 9.61 0.99 0.42 2.94 3.05 5.88 6,270 5,410 860 4.78 203 $51 6 0 2014** 1.03 9.17 9.51 1.29 0.49 5.10 3.15 2.07 6,589 5,670 919 6.60 329 $102 14 0 2014 1.01 9.01 9.45 1.20 0.49 5.59 3.14 -0.73 6,509 5,607 902 6.28 291 $87 18 0 2013 1.07 9.54 9.40 1.63 0.69 1.94 3.26 12.83 6,812 5,847 965 8.15 467 $153 24 0 2012 1.00 8.90 9.15 2.20 1.10 4.02 3.42 17.76 7,083 6,072 1,011 11.00 651 $233 51 0 2011 0.88 7.79 9.07 2.61 1.55 4.30 3.60 43.60 7,357 6,275 1,082 16.23 813 $319 92 0 2010 0.65 5.85 8.89 3.11 2.55 1.77 3.76 1594.34 7,658 6,519 1,139 22.15 884 $390 157 0 * Excludes insured branches of foreign banks (IBAs). ** Through September 30, ratios annualized where appropriate. Asset growth rates are for 12 months ending september 30. TABLE II-A. Aggregate Condition and Income Data, All FDIC-Insured Institutions 3rd Quarter 2015 6,270 2,038,462 2nd Quarter 2015 6,348 2,042,405 3rd Quarter 2014 6,589 2,048,640 %Change 14Q3-15Q3 -4.8 -0.5 $15,800,219 4,307,188 1,887,013 1,199,543 266,088 471,539 1,802,149 1,453,749 714,790 79,159 1,001,990 1,942 8,642,292 118,558 8,523,734 3,303,921 16,118 356,949 3,599,496 $15,753,685 4,261,412 1,880,064 1,175,789 255,774 477,910 1,798,015 1,422,688 701,190 76,344 990,420 1,925 8,546,955 119,646 8,427,309 3,278,029 17,515 359,993 3,670,840 $15,348,842 4,136,131 1,838,276 1,133,409 230,477 496,130 1,672,435 1,382,419 683,022 72,926 898,107 1,922 8,160,096 125,254 8,034,841 3,166,081 24,891 363,934 3,759,095 2.9 4.1 2.7 5.8 15.5 -5.0 7.8 5.2 4.7 8.5 11.6 1.0 5.9 -5.3 6.1 4.4 -35.2 -1.9 -4.2 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������������������������������������������������������������������������������������������� 15,800,219 11,990,437 10,649,105 1,341,332 1,382,904 92,163 537,619 1,797,096 1,790,375 15,753,685 11,932,441 10,586,399 1,346,042 1,430,708 92,571 522,235 1,775,730 1,768,861 15,348,842 11,596,585 10,172,707 1,423,878 1,393,698 97,389 534,340 1,726,830 1,718,404 2.9 3.4 4.7 -5.8 -0.8 -5.4 0.6 4.1 4.2 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��������������������������������������������������������������������������������������� First Three INCOME DATA Quarters 2015 Total interest income������������������������������������������������������������������� $356,366 Total interest expense����������������������������������������������������������������� 34,684 Net interest income�������������������������������������������������������������� 321,683 Provision for loan and lease losses�������������������������������������������� 24,958 Total noninterest income������������������������������������������������������������� 190,567 Total noninterest expense����������������������������������������������������������� 312,520 Securities gains (losses)������������������������������������������������������������� 2,895 Applicable income taxes������������������������������������������������������������� 54,356 Extraordinary gains, net�������������������������������������������������������������� 49 Total net income (includes minority interests)��������������������� 123,360 Bank net income������������������������������������������������������������ 122,952 Net charge-offs���������������������������������������������������������������������������� 26,555 Cash dividends���������������������������������������������������������������������������� 77,187 Retained earnings����������������������������������������������������������������������� 45,766 Net operating income����������������������������������������������������������� 121,294 61,158 139,170 74,153 1,818,696 14,169,513 455,477 6,802,991 16,865,318 846,683 194,663,554 First Three Quarters 2014 $351,521 35,654 315,867 21,554 188,064 315,187 2,347 53,299 -116 116,121 115,639 29,670 67,323 48,316 114,558 (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�������������������������������������������������������������������������������������������������������� FDIC Quarterly 59,144 144,702 76,828 1,787,500 14,110,622 473,738 6,680,672 17,780,968 873,089 201,004,777 3rd Quarter %Change 2015 1.4 $120,289 -2.7 11,545 1.8 108,744 15.8 8,501 1.3 63,255 -0.9 105,558 23.3 838 2.0 18,278 N/M -34 6.2 40,466 6.3 40,356 -10.5 8,675 14.7 25,643 -5.3 14,713 5.9 39,932 66,207 171,923 89,190 1,718,461 13,695,294 443,157 6,435,142 18,187,509 967,831 243,042,211 3rd Quarter 2014 $118,779 11,840 106,940 7,210 64,571 108,761 755 17,661 -112 38,522 38,411 9,244 25,599 12,812 38,076 -7.6 -19.1 -16.9 5.8 3.5 2.8 5.7 -7.3 -12.5 -19.9 %Change 14Q3-15Q3 1.3 -2.5 1.7 17.9 -2.0 -3.0 11.0 3.5 N/M 5.0 5.1 -6.2 0.2 14.8 4.9 N/M - Not Meaningful 5 2015, Volume 9, No. 4 TABLE III-A. Third Quarter 2015, All FDIC-Insured Institutions Asset Concentration Groups* THIRD QUARTER All Insured (The way it is...) Institutions Number of institutions reporting����������������������� 6,270 Commercial banks������������������������������������� 5,410 Savings institutions����������������������������������� 860 Total assets (in billions)������������������������������������ $15,800.2 Commercial banks������������������������������������� 14,726.6 Savings institutions����������������������������������� 1,073.6 Total deposits (in billions)��������������������������������� 11,990.4 Commercial banks������������������������������������� 11,163.0 Savings institutions����������������������������������� 827.4 Bank net income (in millions)��������������������������� 40,356 Commercial banks������������������������������������� 37,568 Savings institutions����������������������������������� 2,788 Performance Ratios (annualized, %) Yield on earning assets������������������������������������ 3.40 Cost of funding earning assets������������������������ 0.33 Net interest margin������������������������������������ 3.08 Noninterest income to assets��������������������������� 1.61 Noninterest expense to assets������������������������� 2.68 Loan and lease loss provision to assets���������� 0.22 Net operating income to assets����������������������� 1.01 Pretax return on assets������������������������������������ 1.49 Return on assets����������������������������������������������� 1.02 Return on equity����������������������������������������������� 9.09 Net charge-offs to loans and leases���������������� 0.40 Loan and lease loss provision to 98.00 net charge-offs���������������������������������������������� Efficiency ratio�������������������������������������������������� 60.16 % of unprofitable institutions���������������������������� 5.02 % of institutions with earnings gains���������������� 58.93 Structural Changes New reporters�������������������������������������������� 1 Institutions absorbed by mergers������������� 72 Failed institutions�������������������������������������� 1 PRIOR THIRD QUARTERS (The way it was...) Return on assets (%)��������������������������������2014 1.01 ��������������������������������������2012 1.06 ��������������������������������������2010 0.72 Net charge-offs to loans & leases (%)�����2014 ��������������������������������������2012 ��������������������������������������2010 0.45 1.18 2.38 Credit Card International Agricultural Commercial Banks Banks Banks Lenders 14 4 1,494 3,124 12 4 1,477 2,812 2 0 17 312 $519.6 $3,836.6 $274.8 $5,508.6 411.5 3,836.6 269.1 5,120.2 108.0 0.0 5.7 388.4 296.7 2,701.6 225.2 4,285.2 218.2 2,701.6 222.0 4,001.7 78.5 0.0 3.2 283.5 3,647 8,114 252 13,550 2,677 8,114 217 12,717 970 0 34 833 Mortgage Consumer Lenders Lenders 515 57 123 43 392 14 $416.3 $184.5 145.0 93.4 271.3 91.1 317.3 154.3 117.7 77.8 199.6 76.5 599 490 450 264 149 225 Other Specialized All Other <$1 Billion <$1 Billion 337 663 300 584 37 79 $54.8 $118.3 48.8 101.0 6.1 17.3 43.7 99.5 39.6 85.4 4.1 14.1 349 224 157 197 192 27 All Other >$1 Billion 62 55 7 $4,886.7 4,701.0 185.8 3,867.1 3,699.0 168.0 13,132 12,775 356 10.65 0.96 9.70 4.39 6.44 2.41 2.83 4.50 2.83 19.11 2.61 2.59 0.29 2.29 1.78 2.52 0.12 0.83 1.16 0.84 8.50 0.49 4.17 0.46 3.71 0.67 3.43 0.10 0.35 0.61 0.37 3.19 0.08 3.66 0.38 3.28 1.28 2.71 0.14 0.99 1.40 0.99 8.44 0.20 3.18 0.63 2.55 0.53 2.18 -0.02 0.54 0.82 0.57 4.93 0.12 4.16 0.45 3.71 1.38 2.77 0.47 1.07 1.69 1.08 10.52 0.58 3.02 0.35 2.66 6.93 5.81 0.03 2.53 3.56 2.55 16.65 0.19 3.91 0.40 3.51 1.00 3.21 0.10 0.73 0.96 0.76 6.31 0.18 2.90 0.18 2.72 1.65 2.33 0.17 1.06 1.62 1.08 9.47 0.37 120.42 47.27 0.00 50.00 68.83 65.81 0.00 75.00 199.68 60.57 2.41 57.30 98.90 63.21 5.06 62.32 -26.37 73.85 9.51 54.95 109.22 55.51 7.02 56.14 54.53 61.93 9.79 48.96 101.84 75.41 5.13 54.00 94.57 55.80 1.61 70.97 0 0 0 0 1 0 0 8 0 0 57 1 0 2 0 0 2 0 1 0 0 0 1 0 0 1 0 3.10 3.19 2.04 0.79 0.98 0.63 1.28 1.36 1.08 0.95 0.92 0.35 0.83 0.75 0.70 1.18 1.67 1.52 2.12 1.42 1.94 0.92 1.04 0.89 0.96 1.01 0.93 2.62 3.53 8.94 0.68 1.74 2.05 0.09 0.23 0.58 0.25 0.74 1.96 0.15 0.76 1.33 0.57 1.26 1.97 0.30 0.42 0.98 0.24 0.49 0.52 0.26 1.07 1.64 * See Table V-A (page 10) for explanations. Note: Blue font identifies data that are also presented in the prior quarters’ data at the bottom of the table. FDIC Quarterly 6 2015, Volume 9, No. 4 Quarterly Banking Profile TABLE III-A. Third Quarter 2015, All FDIC-Insured Institutions Asset Size Distribution THIRD QUARTER All Insured (The way it is...) Institutions Number of institutions reporting����������������������������� 6,270 Commercial banks������������������������������������������� 5,410 Savings institutions����������������������������������������� 860 Total assets (in billions)������������������������������������������ $15,800.2 Commercial banks������������������������������������������� 14,726.6 Savings institutions����������������������������������������� 1,073.6 Total deposits (in billions)��������������������������������������� 11,990.4 Commercial banks������������������������������������������� 11,163.0 Savings institutions����������������������������������������� 827.4 Bank net income (in millions)��������������������������������� 40,356 Commercial banks������������������������������������������� 37,568 Savings institutions����������������������������������������� 2,788 Geographic Regions* Less Than $100 $1 Billion Greater $100 Million to to Than Million $1 Billion $10 Billion $10 Billion New York 1,752 3,812 596 110 780 1,542 3,289 486 93 403 210 523 110 17 377 $102.7 $1,194.8 $1,642.8 $12,859.9 $3,018.8 90.9 1,009.4 1,358.5 12,267.8 2,571.6 11.8 185.4 284.3 592.1 447.2 85.8 991.7 1,296.0 9,616.9 2,246.7 76.6 845.4 1,083.5 9,157.5 1,920.4 9.1 146.4 212.5 459.4 326.3 249 3,115 4,426 32,566 6,743 216 2,653 3,826 30,872 6,033 32 461 600 1,694 710 Atlanta 778 705 73 $3,323.9 3,250.7 73.3 2,594.6 2,536.5 58.2 8,424 8,548 -124 Chicago 1,351 1,129 222 $3,531.9 3,421.6 110.3 2,539.4 2,459.1 80.3 8,141 7,775 367 Kansas City 1,559 1,497 62 $3,436.7 3,382.0 54.7 2,606.2 2,564.5 41.8 9,919 9,810 109 San Dallas Francisco 1,319 483 1,236 440 83 43 $940.8 $1,548.1 831.9 1,268.8 108.9 279.3 775.8 1,227.6 686.1 996.5 89.7 231.1 2,654 4,475 2,311 3,091 343 1,383 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�������������������������������������������������������� % of unprofitable institutions���������������������������������� % of institutions with earnings gains���������������������� 3.40 0.33 3.08 1.61 2.68 0.22 1.01 1.49 1.02 9.09 0.40 4.16 0.44 3.72 1.23 3.46 0.09 0.95 1.11 0.97 7.63 0.16 4.18 0.46 3.72 1.18 3.21 0.10 1.03 1.34 1.05 9.29 0.15 4.18 0.40 3.78 1.19 2.91 0.20 1.08 1.56 1.09 9.16 0.22 3.22 0.30 2.92 1.70 2.60 0.23 1.00 1.50 1.02 9.08 0.47 3.42 0.43 2.99 1.44 2.56 0.25 0.89 1.30 0.89 7.51 0.43 3.51 0.28 3.24 1.53 2.71 0.25 0.98 1.50 1.02 8.22 0.44 2.66 0.25 2.42 1.84 2.69 0.06 0.92 1.25 0.92 8.98 0.27 3.63 0.34 3.29 1.45 2.48 0.23 1.15 1.70 1.16 11.27 0.46 3.98 0.31 3.67 1.39 3.10 0.18 1.13 1.49 1.14 10.15 0.24 3.96 0.40 3.56 2.04 3.03 0.41 1.17 1.93 1.18 9.56 0.51 98.00 60.16 5.02 58.93 97.34 74.49 9.87 53.08 102.48 69.11 3.38 60.18 130.95 61.76 1.68 68.29 95.21 58.93 2.73 58.18 109.15 61.33 7.18 58.46 97.98 60.59 8.10 60.93 46.05 66.87 5.48 58.77 95.67 55.00 3.01 58.50 117.63 64.64 3.64 57.09 129.82 53.04 5.59 63.35 Structural Changes New reporters�������������������������������������������������� Institutions absorbed by mergers������������������� Failed institutions�������������������������������������������� 1 72 1 1 26 1 0 38 0 0 5 0 0 3 0 1 6 0 0 7 0 0 18 0 0 13 0 0 19 1 0 9 0 PRIOR THIRD QUARTERS (The way it was…) Return on assets (%)��������������������������������������2014 ��������������������������������������������2012 ��������������������������������������������2010 1.01 1.06 0.72 0.88 0.79 0.39 1.04 0.87 0.34 1.11 1.02 0.27 0.99 1.09 0.83 0.87 1.02 0.77 0.89 0.72 0.58 0.82 0.95 0.61 1.14 1.28 0.99 1.17 1.16 0.78 1.61 1.68 0.74 Net charge-offs to loans & leases (%)����������� 2014 ��������������������������������������������2012 ��������������������������������������������2010 0.45 1.18 2.38 0.22 0.38 0.87 0.18 0.58 1.16 0.24 0.79 1.74 0.53 1.33 2.70 0.68 1.15 3.05 0.35 1.33 2.31 0.32 1.04 1.94 0.55 1.54 2.77 0.21 0.52 1.20 0.45 0.83 2.28 * See Table V-A (page 11) for explanations. Note: Blue font identifies data that are also presented in the prior quarters’ data at the bottom of the table. FDIC Quarterly 7 2015, Volume 9, No. 4 TABLE IV-A. First Three Quarters 2015, All FDIC-Insured Institutions Asset Concentration Groups* FIRST THREE QUARTERS All Insured (The way it is...) Institutions Number of institutions reporting����������������������� 6,270 Commercial banks������������������������������������� 5,410 Savings institutions����������������������������������� 860 Total assets (in billions)������������������������������������ $15,800.2 Commercial banks������������������������������������� 14,726.6 Savings institutions����������������������������������� 1,073.6 Total deposits (in billions)��������������������������������� 11,990.4 Commercial banks������������������������������������� 11,163.0 Savings institutions����������������������������������� 827.4 Bank net income (in millions)��������������������������� 122,952 Commercial banks������������������������������������� 114,077 Savings institutions����������������������������������� 8,875 Performance Ratios (annualized, %) Yield on earning assets������������������������������������ 3.38 Cost of funding earning assets������������������������ 0.33 Net interest margin������������������������������������ 3.05 Noninterest income to assets��������������������������� 1.62 Noninterest expense to assets������������������������� 2.66 Loan and lease loss provision to assets���������� 0.21 Net operating income to assets����������������������� 1.03 Pretax return on assets������������������������������������ 1.51 Return on assets����������������������������������������������� 1.05 Return on equity����������������������������������������������� 9.33 Net charge-offs to loans and leases���������������� 0.42 Loan and lease loss provision to 93.98 net charge-offs���������������������������������������������� Efficiency ratio�������������������������������������������������� 59.99 % of unprofitable institutions���������������������������� 4.78 % of institutions with earnings gains���������������� 63.37 Condition Ratios (%) Earning assets to total assets�������������������������� 89.68 Loss allowance to: Loans and leases�������������������������������������� 1.37 Noncurrent loans and leases�������������������� 85.19 Noncurrent assets plus other real estate owned to assets���������������� 0.99 Equity capital ratio�������������������������������������������� 11.33 Core capital (leverage) ratio ���������������������������� 9.61 Common equity tier 1 capital ratio ������������������ 12.73 Tier 1 risk-based capital ratio��������������������������� 12.82 Total risk-based capital ratio���������������������������� 14.32 Net loans and leases to deposits��������������������� 71.09 Net loans to total assets ���������������������������������� 53.95 Domestic deposits to total assets�������������������� 67.40 Structural Changes New reporters�������������������������������������������� Institutions absorbed by mergers������������� Failed institutions�������������������������������������� 1 224 6 Credit Card International Agricultural Commercial Banks Banks Banks Lenders 14 4 1,494 3,124 12 4 1,477 2,812 2 0 17 312 $519.6 $3,836.6 $274.8 $5,508.6 411.5 3,836.6 269.1 5,120.2 108.0 0.0 5.7 388.4 296.7 2,701.6 225.2 4,285.2 218.2 2,701.6 222.0 4,001.7 78.5 0.0 3.2 283.5 10,933 26,132 1,864 39,669 8,112 26,132 1,784 37,052 2,821 0 80 2,617 Mortgage Consumer Lenders Lenders 515 57 123 43 392 14 $416.3 $184.5 145.0 93.4 271.3 91.1 317.3 154.3 117.7 77.8 199.6 76.5 2,331 1,517 1,301 868 1,030 648 Other Specialized All Other <$1 Billion <$1 Billion 337 663 300 584 37 79 $54.8 $118.3 48.8 101.0 6.1 17.3 43.7 99.5 39.6 85.4 4.1 14.1 1,060 443 484 372 576 71 All Other >$1 Billion 62 55 7 $4,886.7 4,701.0 185.8 3,867.1 3,699.0 168.0 39,004 37,972 1,032 10.46 0.92 9.54 4.48 6.40 2.36 2.91 4.54 2.91 19.39 2.72 2.55 0.30 2.25 1.83 2.44 0.14 0.87 1.24 0.88 9.18 0.56 4.08 0.45 3.62 0.66 2.81 0.11 0.89 1.13 0.91 7.93 0.08 3.65 0.38 3.27 1.28 2.74 0.13 0.98 1.37 0.99 8.37 0.19 3.20 0.66 2.54 0.77 2.14 0.01 0.69 1.09 0.74 6.42 0.13 4.06 0.45 3.61 1.40 2.66 0.45 1.11 1.76 1.12 11.11 0.58 3.00 0.36 2.65 6.78 5.60 0.03 2.54 3.62 2.59 17.02 0.18 3.87 0.40 3.46 0.95 3.29 0.08 0.47 0.82 0.50 4.18 0.17 2.94 0.19 2.75 1.63 2.36 0.16 1.06 1.61 1.08 9.46 0.38 111.89 47.35 0.00 71.43 72.32 63.45 0.00 75.00 215.05 61.72 2.28 63.32 101.91 63.86 5.22 67.48 15.35 67.11 8.74 53.59 105.75 54.08 5.26 59.65 68.26 60.87 6.82 49.55 87.04 78.92 4.52 58.52 85.40 56.38 3.23 66.13 92.43 86.76 93.12 90.40 94.72 95.55 91.40 92.61 89.93 3.25 301.00 1.62 85.79 1.40 159.49 1.21 107.04 1.03 38.38 1.10 85.61 1.73 103.65 1.45 99.21 1.23 54.67 0.83 14.83 12.42 12.91 13.03 15.49 130.55 74.56 56.67 0.71 9.98 8.67 12.83 12.86 14.27 49.28 34.70 44.98 0.75 11.48 10.69 14.47 14.48 15.58 79.50 65.14 81.94 0.96 11.81 10.05 12.21 12.35 13.83 86.85 67.56 76.83 1.95 11.63 11.22 22.17 22.23 23.11 81.44 62.07 76.21 1.00 10.22 10.23 13.41 13.64 14.49 87.32 73.02 83.62 0.71 15.49 14.64 32.83 32.89 33.79 33.48 26.67 79.65 1.16 12.10 11.69 20.30 20.34 21.49 64.15 53.97 84.12 1.19 11.42 9.22 12.29 12.36 13.91 62.90 49.78 72.79 0 0 0 0 1 0 0 31 0 0 166 5 0 6 0 0 2 0 1 1 0 0 14 1 0 3 0 PRIOR THREE QUARTERS (The way it was...) Number of institutions������������������������������2014 ��������������������������������������2012 ��������������������������������������2010 6,589 7,181 7,761 16 17 22 3 5 5 1,501 1,539 1,583 3,284 3,576 4,172 570 706 725 50 53 81 371 397 320 729 818 789 65 70 64 Total assets (in billions)����������������������������2014 ��������������������������������������2012 ��������������������������������������2010 $15,348.8 14,222.9 13,372.7 $605.5 580.5 695.1 $3,690.9 3,774.3 3,278.1 $254.1 223.9 194.0 $5,186.4 4,125.0 4,442.5 $435.5 821.8 789.5 $167.5 116.9 102.9 $60.4 63.4 44.5 $128.5 142.7 131.6 $4,819.9 4,374.5 3,694.6 Return on assets (%)��������������������������������2014 ��������������������������������������2012 ��������������������������������������2010 1.03 1.02 0.64 3.20 3.14 1.47 0.81 0.83 0.79 1.20 1.30 1.03 0.97 0.91 0.28 0.86 0.82 0.70 1.10 1.62 1.42 2.08 1.25 1.58 0.89 1.01 0.71 0.97 1.01 0.74 Net charge-offs to loans & leases (%)�����2014 ��������������������������������������2012 ��������������������������������������2010 0.49 1.14 2.63 2.86 3.81 11.94 0.73 1.53 2.27 0.09 0.22 0.53 0.26 0.75 1.89 0.19 0.78 1.22 0.62 1.44 2.20 0.24 0.33 0.81 0.23 0.42 0.51 0.29 0.98 1.96 Noncurrent assets plus OREO to assets (%)������������������������������2014 ��������������������������������������2012 ��������������������������������������2010 1.29 2.36 3.24 0.82 1.10 1.97 0.90 1.47 2.36 0.88 1.26 1.70 1.30 2.51 3.84 2.27 2.26 3.13 1.10 1.45 1.05 0.75 1.10 1.06 1.46 1.65 1.96 1.58 3.30 3.78 Equity capital ratio (%)�����������������������������2014 ��������������������������������������2012 ��������������������������������������2010 11.20 11.39 11.18 14.90 14.82 14.62 9.50 9.17 9.06 11.40 11.68 11.40 11.97 11.87 11.38 12.03 10.83 10.11 9.96 9.96 10.59 14.30 15.04 17.17 11.91 11.86 11.41 11.09 12.44 12.33 * See Table V-A (page 10) for explanations. Note: Blue font identifies data that are also presented in the prior quarters’ data at the bottom of the table. FDIC Quarterly 8 2015, Volume 9, No. 4 Quarterly Banking Profile TABLE IV-A. First Three Quarters 2015, All FDIC-Insured Institutions Asset Size Distribution FIRST THREE QUARTERS All Insured (The way it is...) Institutions Number of institutions reporting����������������������������� 6,270 Commercial banks������������������������������������������� 5,410 Savings institutions����������������������������������������� 860 Total assets (in billions)������������������������������������������ $15,800.2 Commercial banks������������������������������������������� 14,726.6 Savings institutions����������������������������������������� 1,073.6 Total deposits (in billions)��������������������������������������� 11,990.4 Commercial banks������������������������������������������� 11,163.0 Savings institutions����������������������������������������� 827.4 Bank net income (in millions)��������������������������������� 122,952 Commercial banks������������������������������������������� 114,077 Savings institutions����������������������������������������� 8,875 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�������������������������������������������������������� % of unprofitable institutions���������������������������������� % of institutions with earnings gains���������������������� Geographic Regions* Less Than $100 $1 Billion Greater $100 Million to to Than Million $1 Billion $10 Billion $10 Billion New York 1,752 3,812 596 110 780 1,542 3,289 486 93 403 210 523 110 17 377 $102.7 $1,194.8 $1,642.8 $12,859.9 $3,018.8 90.9 1,009.4 1,358.5 12,267.8 2,571.6 11.8 185.4 284.3 592.1 447.2 85.8 991.7 1,296.0 9,616.9 2,246.7 76.6 845.4 1,083.5 9,157.5 1,920.4 9.1 146.4 212.5 459.4 326.3 693 8,918 13,760 99,581 20,134 623 7,563 11,892 93,999 17,926 70 1,355 1,868 5,582 2,208 Atlanta 778 705 73 $3,323.9 3,250.7 73.3 2,594.6 2,536.5 58.2 25,367 25,148 219 Chicago 1,351 1,129 222 $3,531.9 3,421.6 110.3 2,539.4 2,459.1 80.3 25,262 24,161 1,101 Kansas City 1,559 1,497 62 $3,436.7 3,382.0 54.7 2,606.2 2,564.5 41.8 30,258 29,964 295 San Dallas Francisco 1,319 483 1,236 440 83 43 $940.8 $1,548.1 831.9 1,268.8 108.9 279.3 775.8 1,227.6 686.1 996.5 89.7 231.1 7,702 14,229 6,645 10,234 1,057 3,996 3.38 0.33 3.05 1.62 2.66 0.21 1.03 1.51 1.05 9.33 0.42 4.08 0.44 3.64 1.18 3.44 0.08 0.87 1.04 0.90 7.14 0.15 4.13 0.46 3.67 1.17 3.19 0.10 0.98 1.30 1.01 8.99 0.13 4.14 0.40 3.74 1.21 2.92 0.18 1.14 1.57 1.15 9.70 0.21 3.21 0.31 2.90 1.72 2.57 0.23 1.03 1.52 1.04 9.33 0.49 3.39 0.42 2.97 1.44 2.58 0.26 0.89 1.27 0.90 7.59 0.46 3.56 0.28 3.28 1.54 2.73 0.26 1.00 1.51 1.03 8.32 0.48 2.62 0.25 2.36 1.86 2.60 0.09 0.94 1.30 0.94 9.37 0.26 3.60 0.34 3.26 1.49 2.48 0.21 1.17 1.73 1.18 11.52 0.50 3.93 0.31 3.62 1.38 3.08 0.17 1.11 1.46 1.12 10.01 0.20 3.98 0.43 3.55 2.04 2.97 0.35 1.27 2.04 1.28 10.30 0.49 93.98 59.99 4.78 63.37 98.83 75.40 9.70 56.68 115.39 69.76 3.20 64.69 129.82 62.11 1.01 75.17 90.76 58.63 1.82 60.00 105.40 62.14 6.67 59.87 91.87 60.47 8.23 61.83 71.68 64.87 4.89 63.95 82.09 55.07 2.57 66.13 128.68 65.14 3.71 60.27 115.81 53.57 6.00 69.36 89.68 91.96 92.74 92.10 89.07 89.18 88.97 88.86 89.47 91.59 93.33 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��������������������������� 1.37 85.19 1.48 109.46 1.38 118.15 1.27 113.34 1.39 79.36 1.31 102.76 1.40 77.62 1.41 78.68 1.44 68.94 1.28 99.75 1.27 169.68 0.99 11.33 9.61 12.73 12.82 14.32 71.09 53.95 67.40 1.30 12.84 12.43 20.02 20.09 21.20 69.31 57.88 83.51 1.20 11.35 10.95 15.48 15.54 16.67 78.60 65.24 82.99 0.99 11.92 10.61 13.78 13.84 14.89 86.04 67.88 78.54 0.97 11.24 9.33 12.29 12.39 13.98 68.31 51.09 64.40 0.76 11.99 9.72 12.94 13.13 14.71 71.54 53.25 66.53 1.19 12.44 9.71 12.60 12.71 14.26 73.93 57.71 75.24 0.96 10.35 9.12 12.54 12.59 13.77 66.09 47.51 61.97 1.21 10.28 9.05 11.78 11.78 13.72 68.35 51.83 57.00 1.07 11.26 10.04 13.25 13.40 14.57 76.49 63.08 82.25 0.53 12.28 11.28 14.83 14.99 16.08 76.98 61.05 78.69 Structural Changes New reporters�������������������������������������������������� Institutions absorbed by mergers������������������� Failed institutions�������������������������������������������� 1 224 6 1 78 4 0 126 1 0 17 1 0 3 0 1 22 1 0 25 2 0 49 2 0 42 0 0 60 1 0 26 0 PRIOR THREE QUARTERS (The way it was…) Number of institutions������������������������������������ 2014 ��������������������������������������������2012 ��������������������������������������������2010 6,589 7,181 7,761 1,940 2,287 2,682 3,966 4,235 4,414 575 551 556 108 108 109 816 891 961 823 918 1,041 1,427 1,529 1,609 1,614 1,738 1,841 1,387 1,513 1,637 522 592 672 Total assets (in billions)����������������������������������2014 ��������������������������������������������2012 ��������������������������������������������2010 $15,348.8 14,222.9 13,372.7 $114.2 132.4 151.1 $1,227.5 1,278.3 1,315.7 $1,531.4 1,424.4 1,400.5 $12,475.8 11,387.8 10,505.3 $3,045.1 2,927.6 2,724.5 $3,134.2 2,942.9 2,957.1 $3,503.2 3,230.9 2,948.0 $3,363.6 3,059.1 1,649.5 $884.9 845.8 788.4 $1,417.9 1,216.4 2,305.2 Return on assets (%)��������������������������������������2014 ��������������������������������������������2012 ��������������������������������������������2010 1.03 1.02 0.64 0.84 0.72 0.40 0.99 0.84 0.37 1.08 1.18 0.27 1.03 1.02 0.73 0.94 0.94 0.72 0.89 0.76 0.36 0.89 0.91 0.62 1.14 1.13 0.79 1.15 1.10 0.74 1.50 1.79 0.80 Net charge-offs to loans & leases (%)����������� 2014 ��������������������������������������������2012 ��������������������������������������������2010 0.49 1.14 2.63 0.21 0.39 0.73 0.20 0.60 1.02 0.28 0.75 1.71 0.57 1.29 3.07 0.73 1.26 3.77 0.40 1.23 2.51 0.35 0.93 2.04 0.60 1.44 3.02 0.21 0.55 1.22 0.48 0.88 2.35 Noncurrent assets plus OREO to assets (%)������������������������������������ 2014 ��������������������������������������������2012 ��������������������������������������������2010 1.29 2.36 3.24 1.56 2.20 2.42 1.53 2.61 3.42 1.50 2.70 3.70 1.24 2.30 3.17 0.92 1.53 2.18 1.71 3.66 4.04 1.19 2.13 3.06 1.60 2.51 4.59 1.29 2.27 3.28 0.69 1.56 2.72 Equity capital ratio (%)�����������������������������������2014 ��������������������������������������������2012 ��������������������������������������������2010 11.20 11.39 11.18 12.35 12.13 12.18 11.19 11.10 10.36 11.98 11.88 11.22 11.09 11.35 11.26 12.02 12.38 12.48 12.11 12.31 11.55 9.92 9.19 9.06 10.30 11.04 11.55 11.15 11.03 10.76 12.72 13.70 11.76 * See Table V-A (page 11) for explanations. Note: Blue font identifies data that are also presented in the prior quarters’ data at the bottom of the table. FDIC Quarterly 9 2015, Volume 9, No. 4 TABLE V-A. Loan Performance, All FDIC-Insured Institutions Asset Concentration Groups* September 30, 2015 All Insured Institutions Credit Card Banks International Agricultural Commercial Mortgage Banks Banks Lenders Lenders Consumer Lenders Other All Other All Other Specialized <$1 >$1 <$1 Billion Billion 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������������������������������������������������������ 0.84 0.39 0.29 0.13 0.65 1.47 0.23 1.28 1.19 1.36 0.21 0.71 0.24 0.00 0.00 0.00 0.00 0.25 0.82 1.28 1.28 1.23 0.00 1.24 1.19 1.54 0.26 0.03 0.96 1.79 0.19 1.27 1.15 1.47 0.34 0.80 0.59 0.85 0.49 0.25 0.45 1.13 0.73 1.40 0.93 1.44 0.40 0.59 0.51 0.35 0.29 0.14 0.49 0.94 0.24 1.07 1.19 1.05 0.18 0.47 0.93 0.53 0.31 0.17 0.63 1.04 0.46 0.95 1.53 0.88 0.24 0.89 0.64 0.62 1.21 0.72 0.48 0.61 0.11 0.76 0.72 0.77 0.12 0.67 1.39 0.90 0.93 0.01 0.61 1.97 1.12 1.97 2.17 1.93 0.45 1.37 1.14 0.80 0.76 0.41 0.64 1.49 1.03 1.61 2.09 1.60 0.44 1.13 1.36 0.26 0.24 0.19 0.74 2.20 0.14 1.54 1.10 1.79 0.12 0.91 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������������������������������������������������������ 2.62 1.29 0.96 0.33 2.62 4.41 0.69 0.80 1.07 0.53 0.22 1.61 0.35 0.00 0.00 0.00 0.00 0.37 0.62 1.13 1.15 0.59 0.00 1.08 4.06 0.76 0.69 0.23 4.38 6.04 0.77 0.98 1.01 0.94 0.15 1.89 1.00 1.42 1.26 0.70 0.63 1.04 1.23 0.55 0.29 0.57 0.47 0.88 1.45 1.28 0.89 0.34 1.30 2.53 0.71 0.68 1.06 0.63 0.27 1.13 2.89 1.47 1.53 0.75 1.97 3.18 0.89 0.49 1.07 0.42 0.14 2.68 3.36 6.77 7.82 2.62 2.55 2.96 0.26 0.57 1.13 0.41 3.18 1.28 1.93 3.33 2.22 0.82 0.74 1.70 1.54 0.74 0.89 0.72 0.28 1.66 1.66 2.00 1.81 0.99 0.60 1.73 1.32 0.62 1.05 0.60 0.38 1.46 4.55 1.27 1.04 0.28 3.67 6.86 0.59 0.55 0.97 0.32 0.17 2.24 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������������������������������������������������������ 0.13 -0.05 0.06 0.00 0.40 0.14 0.22 1.77 2.91 0.65 0.10 0.42 0.21 0.00 0.00 0.00 0.00 0.22 2.07 2.80 2.87 1.33 0.00 2.72 0.21 -0.04 0.01 0.00 0.48 0.21 0.21 2.32 3.15 0.95 0.04 0.56 0.02 -0.17 0.00 0.02 0.08 0.07 0.23 0.34 1.03 0.29 0.00 0.08 0.09 -0.05 0.08 0.00 0.26 0.12 0.20 0.84 3.37 0.48 0.19 0.19 0.11 0.00 0.03 0.01 0.27 0.11 0.22 1.07 6.20 0.47 0.08 0.13 0.20 0.31 0.08 0.01 0.50 0.12 0.07 0.78 2.17 0.39 0.03 0.58 0.08 -0.05 0.10 0.24 0.15 0.09 0.09 0.57 1.62 0.37 0.75 0.18 0.09 -0.17 0.09 0.09 0.07 0.12 0.34 0.56 3.47 0.48 0.41 0.17 0.17 -0.04 0.02 0.00 0.56 0.15 0.16 1.48 2.74 0.74 0.09 0.38 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)�������������� $4,307.2 266.1 1199.5 329.1 471.5 1887.0 1802.1 1453.7 714.8 739.0 1081.1 8644.2 $0.3 0.0 0.0 0.0 0.0 0.3 34.1 365.6 349.0 16.6 0.4 400.4 $506.4 8.6 36.2 60.5 70.7 278.0 279.6 245.4 152.4 93.0 322.5 1353.9 $108.8 6.2 29.8 3.4 2.4 27.3 21.6 6.7 0.5 6.2 44.5 181.6 $2,286.1 197.0 866.4 217.9 212.8 754.8 891.4 302.8 37.1 265.7 288.1 3768.3 $238.5 4.8 18.6 6.2 11.5 196.7 6.4 5.9 0.6 5.3 10.3 261.1 $30.0 0.5 2.5 0.3 5.9 20.6 7.3 93.1 19.9 73.3 5.9 136.3 $10.6 0.7 3.5 0.3 0.4 5.1 1.8 1.6 0.3 1.4 0.8 14.9 $49.5 $1,076.9 2.9 45.2 12.0 230.5 1.4 39.1 2.0 165.8 27.4 576.7 5.6 554.2 5.4 427.1 0.1 155.0 5.3 272.2 4.2 404.5 64.8 2462.8 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�������������������������������������������������������������������� GNMA properties������������������������������������������������������ 16,118.3 5,207.0 3,965.0 278.2 4,906.7 226.3 1,510.1 0.1 0.0 0.0 0.0 0.1 0.0 0.0 823.3 1.3 54.0 2.0 416.0 0.0 327.0 460.4 183.2 142.9 17.2 79.0 38.1 0.0 10,239.6 4,101.3 2,981.1 225.8 2,615.2 161.3 154.8 1,045.5 129.1 59.1 4.3 332.1 1.3 519.7 105.0 17.7 24.4 0.5 57.1 0.0 5.4 134.1 53.9 43.2 2.9 30.1 3.8 0.2 417.9 129.8 130.8 9.3 141.1 6.9 0.1 2,892.3 590.7 529.5 16.1 1,236.0 15.0 503.0 * 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. FDIC Quarterly 10 2015, Volume 9, No. 4 Quarterly Banking Profile TABLE V-A. Loan Performance, All FDIC-Insured Institutions Asset Size Distribution September 30, 2015 Geographic Regions* Less Than $100 $1 Billion Greater All Insured $100 Million to to Than Institutions Million $1 Billion $10 Billion $10 Billion 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��������������������������������������������� 0.84 0.39 0.29 0.13 0.65 1.47 0.23 1.28 1.19 1.36 0.21 0.71 1.20 0.69 0.99 0.54 0.81 1.70 1.11 1.78 3.80 1.75 0.53 1.14 0.62 0.56 0.43 0.31 0.49 0.96 0.59 1.48 1.86 1.45 0.33 0.64 0.41 0.37 0.28 0.11 0.43 0.67 0.39 1.44 1.98 1.19 0.21 0.47 1.00 0.34 0.24 0.11 0.69 1.70 0.18 1.26 1.16 1.37 0.20 0.75 0.55 0.49 0.32 0.14 0.48 0.89 0.25 1.08 0.95 1.31 0.07 0.54 1.08 0.38 0.26 0.16 0.79 1.86 0.16 1.68 1.34 2.04 0.12 0.87 0.88 0.41 0.36 0.08 0.73 1.40 0.24 1.12 1.00 1.16 0.49 0.71 1.15 0.29 0.27 0.20 0.68 1.96 0.19 1.28 1.21 1.35 0.15 0.81 0.77 0.40 0.35 0.17 0.46 1.56 0.43 0.96 0.71 1.08 0.18 0.67 0.36 0.35 0.18 0.13 0.30 0.62 0.25 1.10 1.53 0.73 0.18 0.49 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��������������������������������������������� 2.62 1.29 0.96 0.33 2.62 4.41 0.69 0.80 1.07 0.53 0.22 1.61 1.48 2.01 1.83 0.48 0.63 1.56 1.74 0.83 1.47 0.82 0.62 1.36 1.24 1.99 1.20 0.77 0.70 1.33 1.21 0.84 1.40 0.80 0.41 1.17 1.17 1.26 0.94 0.33 0.80 1.73 1.08 0.84 1.77 0.40 1.00 1.12 3.34 1.03 0.86 0.26 2.98 5.44 0.60 0.79 1.05 0.53 0.16 1.75 1.78 1.46 1.13 0.27 2.21 2.74 0.67 0.86 0.94 0.72 0.40 1.27 3.26 1.90 0.93 0.24 3.15 5.23 0.61 0.82 1.12 0.51 0.14 1.81 3.01 1.13 1.05 0.40 2.68 4.86 0.63 0.74 0.92 0.67 0.17 1.79 3.83 1.03 0.97 0.37 3.04 6.43 0.74 0.79 1.07 0.45 0.20 2.10 1.55 0.94 0.83 0.75 1.53 2.84 1.11 0.73 1.12 0.54 0.29 1.28 0.86 1.05 0.73 0.24 0.73 1.09 0.66 0.75 1.31 0.27 0.25 0.75 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��������������������������������������������� 0.13 -0.05 0.06 0.00 0.40 0.14 0.22 1.77 2.91 0.65 0.10 0.42 0.10 0.03 0.14 0.17 0.04 0.11 0.31 0.53 7.04 0.44 0.00 0.15 0.08 0.05 0.07 0.04 0.11 0.11 0.25 0.72 4.48 0.43 0.16 0.13 0.07 -0.05 0.11 0.00 0.15 0.08 0.19 1.58 3.54 0.66 0.15 0.21 0.15 -0.09 0.04 -0.01 0.45 0.16 0.23 1.81 2.88 0.66 0.10 0.49 0.11 0.05 0.10 0.00 0.26 0.11 0.17 1.94 2.63 0.72 0.11 0.46 0.19 0.10 0.05 0.01 0.53 0.19 0.18 1.81 2.87 0.69 0.06 0.48 0.12 -0.13 0.04 0.01 0.36 0.14 0.21 1.07 2.84 0.50 0.15 0.26 0.15 -0.24 -0.01 -0.03 0.54 0.18 0.23 2.27 3.27 0.98 0.07 0.50 0.04 -0.06 0.03 -0.01 0.25 0.07 0.24 1.17 2.09 0.72 0.19 0.20 0.07 -0.12 0.16 -0.02 0.05 0.04 0.39 1.60 3.12 0.29 0.15 0.49 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)����� $4,307.2 266.1 1199.5 329.1 471.5 1887.0 1802.1 1453.7 714.8 739.0 1081.1 8644.2 $41.2 2.4 10.5 1.1 1.0 18.8 7.1 3.8 0.1 3.8 8.2 60.4 $606.0 53.9 231.3 32.1 26.4 217.4 101.7 33.0 2.3 30.7 50.1 790.7 $808.2 71.7 327.3 76.4 48.5 265.3 179.6 83.9 26.8 57.1 58.3 1129.9 $2,851.8 138.1 630.4 219.4 395.7 1385.5 1513.8 1333.0 685.6 647.4 964.6 6663.2 $876.3 48.2 274.0 118.0 88.5 343.4 276.0 303.5 192.0 111.5 173.4 1629.2 $890.5 55.9 247.7 40.9 123.6 411.2 452.8 370.5 188.8 181.7 231.9 1945.8 $870.4 43.3 186.8 86.7 118.2 413.2 368.1 210.8 51.4 159.3 253.1 1702.3 $842.1 40.3 173.5 28.7 93.6 415.4 368.1 294.2 163.4 130.8 303.7 1808.0 $372.7 53.0 146.9 14.2 19.8 123.8 125.1 59.1 19.1 40.0 44.4 601.3 $455.1 25.4 170.6 40.6 27.9 180.0 212.1 215.8 100.1 115.7 74.6 957.6 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����������������������������������������������������������� GNMA properties��������������������������������������������� 16,118.3 5,207.0 3,965.0 278.2 4,906.7 226.3 1,510.1 516.3 185.6 163.7 22.6 135.1 9.1 0.3 5,015.8 2,338.9 1,574.8 106.5 878.9 115.2 1.5 3,524.9 1,472.1 1,065.2 73.7 811.8 79.2 22.9 7,061.2 1,210.4 1,161.2 75.5 3,080.8 22.8 1,485.5 2,223.7 450.4 579.1 91.4 1,055.0 18.7 29.1 4,230.8 1,526.8 827.3 34.8 1,224.1 53.8 563.9 3,231.5 759.8 868.3 53.9 1,125.4 42.4 381.6 3,161.5 1,087.6 710.6 42.6 755.9 31.8 508.1 2,199.2 982.6 672.5 36.3 432.5 61.1 14.2 1,071.6 399.8 307.1 19.1 313.8 18.5 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 2015, Volume 9, No. 4 Table VI-A. Derivatives, All FDIC-Insured Call Report Filers Asset Size Distribution 3rd Quarter 2015 2nd Quarter 2015 1st Quarter 2015 4th Quarter 2014 3rd Quarter 2014 (dollar figures in millions; notional amounts unless otherwise indicated) ALL DERIVATIVE HOLDERS Number of institutions reporting derivatives����������������� 1,413 1,429 1,434 1,400 1,392 Total assets of institutions reporting derivatives���������� $14,228,410 $14,195,802 $14,161,464 $13,921,828 $13,713,845 Total deposits of institutions reporting derivatives������� 10,732,972 10,704,380 10,664,980 10,461,458 10,291,809 Total derivatives������������������������������������������������������������� 194,663,554 201,004,777 205,900,727 221,952,961 243,042,211 % Change Less $100 $1 Billion 14Q3Than $100 Million to to $10 15Q3 Million $1 Billion Billion 1.5 3.8 4.3 -19.9 70 $5,144 4,278 362 Derivative Contracts by Underlying Risk Exposure Interest rate�������������������������������������������������������������������� 147,846,233 153,754,334 157,728,028 174,010,311 190,996,275 Foreign exchange*�������������������������������������������������������� 34,636,877 34,969,999 35,563,105 34,745,833 37,993,284 Equity����������������������������������������������������������������������������� 2,589,507 2,363,902 2,359,532 2,536,871 2,317,271 Commodity & other (excluding credit derivatives)�������� 1,393,268 1,428,824 1,233,520 1,210,879 1,327,011 Credit������������������������������������������������������������������������������ 8,197,668 8,487,718 9,016,543 9,449,068 10,408,370 Total�������������������������������������������������������������������������������� 194,663,554 201,004,777 205,900,727 221,952,961 243,042,211 -22.6 -8.8 11.7 5.0 -21.2 -19.9 362 0 0 0 0 362 21,209 0 30 8 10 21,257 92,485 5,243 304 120 596 98,749 Derivative Contracts by Transaction Type Swaps���������������������������������������������������������������������������� 112,697,606 117,508,966 117,711,335 135,169,550 148,331,152 Futures & forwards�������������������������������������������������������� 38,988,101 40,352,331 44,537,485 43,368,437 45,058,920 Purchased options��������������������������������������������������������� 16,477,230 15,936,785 16,070,746 16,388,881 18,040,949 Written options��������������������������������������������������������������� 15,840,244 15,628,814 15,784,253 16,014,343 17,609,844 Total�������������������������������������������������������������������������������� 184,003,181 189,426,895 194,103,819 210,941,211 229,040,866 -24.0 -13.5 -8.7 -10.0 -19.7 48 78 27 209 362 7,489 6,922 800 6,036 21,247 59,577 112,630,491 19,507 38,961,594 4,636 16,471,766 14,349 15,819,649 98,071 183,883,501 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 (%)����������������������������������������������������� 833 407 $349,947 $1,239,207 288,196 987,104 21,257 98,749 Greater Than $10 Billion 103 $12,634,113 9,453,394 194,543,186 147,732,177 34,631,634 2,589,173 1,393,140 8,197,062 194,543,186 76,694 -15,284 7,880 -6,952 1,891 2,441 71,659 -19,614 2,695 -3,488 35,840 -34,672 68,541 -10,042 335 -5,755 54,676 -53,203 60,023 -4,845 3,769 -3,376 47,533 -36,630 65,131 13,334 -657 219 67,082 -62,731 17.8 N/M N/M N/M -97.2 N/M -1 0 0 0 0 0 52 0 0 0 -1 0 -278 16 0 2 -1 -25 76,921 -15,299 7,881 -6,953 1,892 2,466 62,273,980 55,134,239 36,553,709 25,206,275 3,672,989 1,500,445 1,667,034 670,068 183,539 63,464,805 54,758,959 35,837,361 25,075,066 3,859,497 1,612,940 1,567,482 579,705 162,800 68,441,241 54,762,265 35,099,032 25,506,806 3,917,108 1,612,457 1,471,237 518,723 167,889 71,808,688 33,727,025 22,213,590 22,145,398 2,586,643 969,047 996,137 351,854 100,903 79,984,774 40,334,338 22,393,371 22,877,893 2,459,545 1,021,332 763,470 323,010 77,484 -22.1 36.7 63.2 10.2 49.3 46.9 118.3 107.4 136.9 87 23 36 0 0 0 0 0 0 6,868 3,015 4,708 0 0 0 4 10 0 18,166 25,390 29,992 3,907 127 0 32 81 32 62,248,859 55,105,812 36,518,973 25,202,367 3,672,862 1,500,445 1,666,999 669,978 183,507 2,567,847 5,812,508 756,438 2,358,147 5,329,031 428,122 5,553,640 5,890,994 600,004 1,298,825 3,623,142 289,055 1,407,104 4,045,843 321,390 82.5 43.7 135.4 0 0 0 3 5 0 48 35 25 2,567,795 5,812,468 756,413 34.3 50.3 31.6 54.9 39.8 50.3 28.8 48.6 26.0 53.2 0.1 0.7 0.4 0.3 0.8 0.5 39.0 57.4 84.6 86.4 90.1 77.4 79.2 0.8 0.7 1.4 96.3 Credit losses on derivatives***���������������������������������� 72.0 61.0 69.0 91.0 83.0 -13.3 0.0 0.0 0.0 71.0 HELD FOR TRADING Number of institutions reporting derivatives����������������� Total assets of institutions reporting derivatives���������� Total deposits of institutions reporting derivatives������� 247 11,385,441 8,554,842 251 11,368,900 8,548,960 250 11,442,012 8,585,796 247 11,274,435 8,457,075 244 11,015,085 8,262,859 1.2 3.4 3.5 7 497 415 83 37,635 31,472 92 307,794 244,342 65 11,039,515 8,278,613 Derivative Contracts by Underlying Risk Exposure Interest rate�������������������������������������������������������������������� 145,317,817 150,988,408 154,706,680 170,761,929 188,011,288 Foreign exchange���������������������������������������������������������� 31,764,787 31,318,657 32,197,481 32,536,107 33,675,874 Equity����������������������������������������������������������������������������� 2,566,962 2,344,517 2,340,858 2,519,511 2,300,741 Commodity & other�������������������������������������������������������� 1,390,888 1,426,415 1,227,079 1,205,276 1,320,794 Total�������������������������������������������������������������������������������� 181,040,454 186,077,996 190,472,098 207,022,823 225,308,697 -22.7 -5.7 11.6 5.3 -19.6 27 0 0 0 27 1,776 0 0 0 1,776 Trading Revenues: Cash & Derivative Instruments Interest rate�������������������������������������������������������������������� Foreign exchange���������������������������������������������������������� Equity����������������������������������������������������������������������������� Commodity & other (including credit derivatives)�������� Total trading revenues��������������������������������������������������� 2,581 1,931 50 758 5,319 3,404 854 584 660 5,502 957 4,702 791 1,211 7,662 658 2,902 643 255 4,458 -826 4,830 652 946 5,602 N/M -60.0 -92.3 -19.9 -5.1 0 0 0 0 0 0 0 0 0 0 6 4 0 -2 9 2,575 1,927 50 760 5,311 Share of Revenue Trading revenues to gross revenues (%)���������������������� Trading revenues to net operating revenues (%)���������� 4.4 19.9 4.5 19.0 6.4 29.4 3.8 19.6 4.7 23.6 0.0 0.0 0.0 0.7 0.3 1.3 4.5 20.4 HELD FOR PURPOSES OTHER THAN TRADING Number of institutions reporting derivatives����������������� Total assets of institutions reporting derivatives���������� Total deposits of institutions reporting derivatives������� 1,299 13,938,048 10,499,959 1,307 13,891,982 10,461,534 1,308 13,844,232 10,410,932 1,277 13,613,678 10,218,508 1,272 13,421,601 10,062,067 2.1 3.8 4.4 64 4,731 3,937 767 322,666 265,232 370 1,145,571 912,675 98 12,465,080 9,318,115 Derivative Contracts by Underlying Risk Exposure Interest rate�������������������������������������������������������������������� Foreign exchange���������������������������������������������������������� Equity����������������������������������������������������������������������������� Commodity & other�������������������������������������������������������� Total notional amount���������������������������������������������������� 2,528,416 409,385 22,545 2,381 2,962,726 2,765,926 561,179 19,385 2,409 3,348,899 3,021,347 585,259 18,674 6,441 3,631,721 3,248,382 647,043 17,361 5,602 3,918,388 2,984,988 724,435 16,530 6,216 3,732,169 -15.3 -43.5 36.4 -61.7 -20.6 335 0 0 0 335 19,433 0 30 8 19,471 71,070 1,308 304 92 72,774 2,437,578 408,077 22,211 2,281 2,870,146 21,415 145,294,599 3,853 31,760,934 0 2,566,962 28 1,390,859 25,296 181,013,354 All line items are reported on a quarterly basis. N/M - Not Meaningful * Include 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. ** Derivative contracts subject to the risk-based capital requirements for derivatives. *** The reporting of credit losses on derivatives is applicable to all banks filing the FFIEC 031 report form and to those banks filing the FFIEC 041 report form that have $300 million or more in total assets. FDIC Quarterly 12 2015, Volume 9, No. 4 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 3rd Quarter 2015 2nd Quarter 2015 1st Quarter 2015 4th Quarter 2014 3rd % Change Less Than $100 $1 Billion Greater Quarter 14Q3$100 Million to to $10 Than $10 2014 15Q3 Million $1 Billion Billion Billion 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������������������������������������������������������������������������������������������ 74 74 72 78 74 0.0 0 21 16 37 $734,582 31 14,187 6,221 5,370 14 86,277 846,683 $753,697 33 17,766 5,660 6,534 14 89,384 873,089 $821,870 35 17,817 3,740 5,966 13 94,400 943,841 $847,508 36 18,499 3,951 6,191 11 96,257 972,452 $845,279 38 16,782 4,198 6,425 10 95,099 967,831 -13.1 -18.4 -15.5 48.2 -16.4 40.0 -9.3 -12.5 $0 0 0 0 0 0 0 0 $2,076 0 0 0 617 8 106 2,806 $11,837 0 0 1,977 0 5 8,448 22,267 $720,670 31 14,187 4,244 4,753 1 77,723 821,610 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��� 2,933 0 1,187 0 89 0 1,319 5,528 37 3,101 0 1,470 0 187 0 1,084 5,842 38 3,117 0 1,531 0 211 0 1,405 6,264 0 2,918 0 1,529 0 194 0 1,369 6,011 17 2,806 0 1,418 0 188 0 1,129 5,541 17 4.5 0.0 -16.3 0.0 -52.7 0.0 16.8 -0.2 117.6 0 0 0 0 0 0 0 0 0 4 0 0 0 0 0 0 4 0 0 0 0 0 0 0 0 0 0 2,929 0 1,187 0 89 0 1,319 5,524 37 3.8 5.9 0.4 1.1 3.8 0.0 0.3 3.3 3.4 5.3 0.4 0.9 4.0 1.2 0.3 3.0 3.1 5.2 0.4 0.9 4.6 0.0 0.4 2.8 3.9 7.5 0.7 0.9 4.9 0.0 0.3 3.5 3.9 8.0 0.8 0.7 4.8 0.0 0.6 3.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.3 0.0 0.0 0.0 0.0 0.0 0.6 1.0 1.5 0.0 0.0 1.3 0.0 0.0 0.0 0.9 3.8 5.9 0.4 1.0 4.3 0.0 0.4 3.4 2.1 47.4 0.3 0.2 3.9 1.2 1.2 2.0 2.1 46.5 0.3 0.1 4.3 1.8 1.4 2.0 2.0 44.7 0.3 0.1 5.1 1.8 1.4 2.0 2.2 43.3 0.5 0.1 5.3 2.4 3.3 2.3 2.2 42.0 0.5 0.1 5.2 3.0 6.5 2.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.3 0.0 0.0 0.0 0.0 2.0 8.3 1.3 0.7 0.0 0.0 0.3 0.0 0.0 0.5 0.6 2.1 47.4 0.3 0.1 4.4 0.0 1.3 2.0 0.3 3.2 1.4 0.2 0.5 0.0 0.5 0.3 0.2 1.8 0.8 0.1 0.3 0.0 0.3 0.2 0.1 0.7 0.4 0.1 0.2 0.0 0.1 0.1 0.4 1.0 1.7 0.2 0.8 0.0 0.9 0.4 0.3 0.1 1.5 0.1 0.6 0.0 0.6 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.5 0.0 0.0 0.0 0.0 0.3 3.2 1.4 0.1 0.6 0.0 0.5 0.3 0 13,248 0 0 10,380 0 0 9,983 0 0 12,247 0 0 12,198 0 0.0 8.6 0.0 0 0 0 0 0 0 0 0 0 0 13,248 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 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�������������������������������������������������������������������������������� Home equity, credit card receivables, auto, and other consumer loans��������� Commercial and industrial loans����������������������������������������������������������������������� All other loans, leases, and other assets���������������������������������������������������������� Total sold and not securitized����������������������������������������������������������������������������������� 1,098 1,107 1,097 1,103 1,105 -0.6 127 737 181 53 39,027 721 217 72,204 112,168 38,997 750 80 74,994 114,821 38,864 694 83 71,382 111,023 40,547 712 91 69,560 110,909 40,838 709 52 66,271 107,869 -4.4 1.7 317.3 9.0 4.0 1,516 0 0 0 1,517 14,803 8 16 116 14,942 10,355 28 68 1,183 11,634 12,354 685 133 70,904 84,075 Maximum Credit Exposure by Asset Type 1-4 family residential loans�������������������������������������������������������������������������������� Home equity, credit card receivables, auto, and other consumer loans��������� Commercial and industrial loans����������������������������������������������������������������������� All other loans, leases, and other assets���������������������������������������������������������� Total credit exposure������������������������������������������������������������������������������������������������� 10,495 140 154 19,659 30,448 10,441 144 16 19,656 30,257 10,051 137 19 18,624 28,831 9,737 137 27 17,954 27,855 9,850 140 23 17,233 27,246 6.5 0.0 569.6 14.1 11.8 112 0 0 0 113 2,717 8 16 15 2,756 3,793 3 5 69 3,870 3,873 129 133 19,574 23,709 Support for Securitization Facilities Sponsored by Other Institutions Number of institutions reporting securitization facilities sponsored by others������� Total credit exposure������������������������������������������������������������������������������������������������� 110 42,211 110 44,649 117 44,981 125 44,248 132 41,590 -16.7 1.5 9 7 59 152 23 371 19 41,681 Total unused liquidity commitments������������������������������������������������������������������������� 884 2,005 887 1,150 918 -3.7 0 0 0 883 0 4,360,921 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 (%)**������������������������������������������������������������� 0 0 4,412,785 -100.0 0 0 0 0 12,020 12,284 11,736 11,981 10,189 18.0 4 1 0 12,015 27,631 1,043 348 5.3 27,902 4,548 325 5.5 28,878 1,600 298 5.5 28,924 1,197 340 5.5 27,948 2,886 385 5.3 -1.1 -63.9 -9.6 0 8 0 0.9 0 199 11 2.2 882 100 7 2.5 26,749 737 329 6.1 * 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 2015, Volume 9, No. 4 Quarterly Banking Profile COMMUNITY BANK PERFORMANCE Community banks are identified based on criteria defined in the FDIC’s Community Banking Study. When comparing community bank performance across quarters, prior-quarter dollar amounts are based on community banks designated in the current quarter, adjusted for mergers. In contrast, prior-quarter performance ratios are based on community banks designated during the prior quarter. ■ Earnings Improved Almost 8 Percent From Third Quarter 2014 ■ Net Interest Income and Noninterest Income Increased From the Year Before ■ Loan and Lease Balances Increased, Outpacing Growth at Noncommunity Banks ■ Asset Quality Indicators Continued to Improve Earnings of $5.2 Billion Increased From the Previous Year Net Interest Margin Declined Despite an Increase in Net Interest Income Improved net interest income and noninterest income, coupled with lower loan-loss provisions, lifted earnings at 5,812 community banks (up $363.4 million, or 7.5 percent) from third quarter 2014. Almost 60 percent of community banks reported higher yearover-year earnings. The pretax return on assets was 1.31 percent, up 7 basis points from the 2014 quarter but 21 basis points below that of noncommunity banks. The percent of unprofitable community banks in the third quarter totaled 5.2 percent, the lowest since second quarter 1998. Net operating revenue totaled $22.4 billion during third quarter 2015, up $1.6 billion (7.5 percent) from the year before. Higher net interest income (up $1.1 billion, or 6.5 percent) and noninterest income (up $495.8 million, or 11.1 percent) contributed to the improvement in net operating revenue. Almost 70 percent of community banks reported higher net interest income than in third quarter 2014. Average net interest margin (NIM) was 3.62 percent, down 3 basis points from a year earlier, as average asset yields declined more rapidly than average funding costs. NIM at community banks was 63 basis points above the average for noncommunity banks. More than half (54.1 percent) of the year-over-year increase in noninterest income among community banks was from higher loan sales revenue (up $268 million, or 31 percent). Chart 1 Chart 2 Net Interest Margin Contributors to the Year-Over-Year Change in Income FDIC-Insured Community Banks Positive Factor Negative Factor Billions of Dollars $1.5 $0.36 Percent $1.06 -$0.01 $0.50 $0.98 -$0.01 Community Banks All Insured Institutions 4.0 $0.23 $1.0 3.65 3.62 $0.5 3.5 $0.0 -$0.5 +8% +6% Net Income Net Interest Income -2% +11% +7% Loan Loss Noninterest Noninterest Provisions Income Expense -7% Realized Gains on Securities 3.15 +17% Income Taxes 3.0 2007 Source: FDIC. FDIC Quarterly 2008 2009 2010 2011 2012 2013 2014 3.08 2015 Source: FDIC. 15 2015, Volume 9, No. 4 Long-Term Assets Remained Elevated at Community Banks All Major Loan Categories Increased From the Previous Quarter and the Year Before Long-term assets at community banks represented 33.9 percent of total assets in the current quarter, down from 34.3 percent in third quarter 2014.1 Despite being below the peak of 34.5 percent in second quarter 2014, long-term assets at community banks continue to exceed the 26.1 percent held by the banking industry and the 25 percent for noncommunity banks. For the past 12 of 16 consecutive quarters, community banks have increased their holdings of long-term assets. Meanwhile, long-term funding has not grown at the same pace. This imbalance may lead to an increase in interest rate risk. Total assets at community banks increased by $27.8 billion (1.3 percent) from second quarter 2015, as loan and lease balances grew by $26.7 billion (1.9 percent). Almost three out of every four community banks (71 percent) increased their loan and lease balances from the previous quarter, as did all major loan categories. Close to 74 percent of the quarterly increase was driven by nonfarm nonresidential loans (up $9.4 billion, or 2.3 percent), 1-to-4 family residential mortgages (up $3.5 billion, or 1 percent), multifamily residential mortgages (up $3.5 billion, or 4.2 percent), and construction and development loans (up $3.4 billion, or 3.9 percent). The year-over-year increase in loan and lease balances was $111.1 billion (8.5 percent). Almost half (47 percent) of the yearly increase in loan and lease balances was led by nonfarm nonresidential loans (up $31.3 billion, or 8.2 percent) and 1-to-4 family residential mortgages (up $21.2 billion, or 6 percent). Community banks continued to expand their 12-month growth rate in loan and lease balances at almost twice the rate of noncommunity banks (5.4 percent). Noninterest Expense Rose From Third Quarter 2014 With 68 percent of community banks increasing their noninterest expense from third quarter 2014, noninterest expense of $15.1 billion grew $978.9 million (6.9 percent). While noninterest expense increased at community banks, it was down $3.2 billion (3.4 percent) for noncommunity banks. The annual increase in noninterest expense for community banks was led by higher salary and employee benefits (up $629 million, or 8.1 percent). Full-time employees increased by 10,846 (2.5 percent) from third quarter 2014 to 439,171. Average assets per employee at community banks totaled $4.8 million in the latest quarter, up from $4.6 million in third quarter 2014. Community Banks Expanded Small Loans to Businesses Community banks reported $299.2 billion in small loans to businesses during the third quarter, up $2.5 billion (0.8 percent) from the second quarter.2 The quarterly growth in these loans at community 1 Long-term assets are loans and debt securities with remaining maturities or repricing intervals of over five years. 2 Small loans to businesses consist of loans to commercial borrowers up to $1 million and farm loans up to $500,000. Chart 3 Chart 4 Noncurrent Loan Rates for FDIC-Insured Community Banks Change in Loan Balances and Unused Commitments Billions of Dollars FDIC-Insured Community Banks Percent of Loan Portfolio Noncurrent 16 31.3 Change 3Q 2015 vs. 3Q 2014 Change 3Q 2015 vs. 2Q 2015 21.2 C&D Loans Nonfarm Nonresidential RE 1-to-4 Family RE C&I Loans Home Equity Credit Cards 14 12 10 15.0 10.8 9.4 6 7.7 2.0 Nonfarm Nonresidential RE 8 13.8 C&I Loans Source: FDIC. FDIC Quarterly 3.5 1-to-4 Family Residential RE 3.4 C&D Loans 4.5 1.7 2.0 Agricultural Loans to Production Individuals Loans Loan Balances 3.7 3.2 0.8 4 3.7 1.0 Home Equity 2 CRE & C&D C&I Loans 0 2007 Unused Commitments 2008 2009 2010 2011 2012 2013 2014 2015 Source: FDIC. 16 2015, Volume 9, No. 4 Quarterly Banking Profile banks outperformed that of noncommunity banks (down $876.2 million, or 0.2 percent). While close to 60 percent of the quarterly increase was led by agricultural production loans (up $1.5 billion, or 5.3 percent), commercial and industrial loans declined (down $202.5 million, or 0.2 percent). The yearly increase in small loans to businesses at community banks (up $9.5 billion, or 3.3 percent) surpassed that of noncommunity banks (up $2.4 billion, or 0.7 percent). The 12-month increase at community banks was led by commercial and industrial loans (up $4 billion, or 4.6 percent), and nonfarm nonresidential loans (up $2.8 billion, or 1.9 percent). Community banks continued to hold 44 percent of all small loans to businesses. was 53 basis points below the 1.7 percent at noncommunity banks. All major loan categories at community banks, except for commercial and industrial loans, had lower noncurrent rates from the previous quarter. After declining for 21 consecutive quarters, the noncurrent rate for commercial and industrial loans (1.09 percent) increased 6 basis points from second quarter 2015. The quarterly net charge-off rate was 0.14 percent, down 3 basis points from third quarter 2014. All major loan categories, except for commercial and industrial loans (up 4 basis points), had a decline in the net charge-off rate from the year before. One Community Bank Failed in the Third Quarter The number of FDIC-insured community banks totaled 5,812 at the end of third quarter 2015, down 69 banks from the previous quarter. One community bank failed during the quarter. One new community bank charter was added during the same period. Noncurrent Rate Declined for 22 Consecutive Quarters With nearly 60 percent of community banks reducing their noncurrent loan and lease balances from the year-ago quarter, the noncurrent loan and lease balance declined $3.1 billion (15.7 percent) from third quarter 2014 to $16.5 billion. During third quarter 2015, the noncurrent rate was 1.17 percent, down 7 basis points from the previous quarter and 33 basis points from third quarter 2014. The noncurrent rate FDIC Quarterly Author: Benjamin Tikvina, Financial Analyst Division of Insurance and Research (202) 898-6578 17 2015, Volume 9, No. 4 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 (%)�������������������������������������������������������������������� 2015* 0.99 8.88 10.72 1.14 0.13 3.15 3.58 10.29 5,812 5.04 2014* 0.92 8.44 10.60 1.46 0.20 1.22 3.61 1.04 6,107 6.80 2014 0.93 8.46 10.57 1.34 0.21 2.31 3.61 4.92 6,037 6.44 2013 0.90 8.28 10.43 1.73 0.32 0.33 3.59 14.61 6,306 8.40 2012 0.83 7.68 10.18 2.26 0.58 2.25 3.67 56.25 6,541 11.15 2011 0.55 5.19 9.98 2.84 0.87 1.60 3.74 207.82 6,798 16.34 2010 0.21 2.07 9.57 3.25 1.11 -2.45 3.71 206.20 7,014 22.16 * Through September 30, ratios annualized where appropriate. Asset growth rates are for 12 months ending June 30. TABLE II-B. Aggregate Condition and Income Data, FDIC-Insured Community Banks 3rd Quarter 2015 5,812 439,171 2nd Quarter 2015 5,881 442,060 3rd Quarter 2014 6,107 445,091 %Change 3Q14-3Q15 -4.8 -1.3 $2,095,679 1,076,041 373,813 411,999 90,288 50,092 192,959 59,947 2,191 50,561 35,488 589 1,414,406 18,660 1,395,746 438,119 7,237 13,735 240,842 $2,085,054 1,064,892 373,660 407,547 87,874 50,049 193,551 60,284 2,152 48,759 35,023 568 1,401,942 18,812 1,383,130 443,577 7,746 13,597 237,004 $2,031,679 1,017,259 355,439 396,537 82,912 49,206 186,293 58,280 1,790 46,074 29,466 573 1,336,799 19,458 1,317,341 452,580 9,450 12,561 239,746 3.2 5.8 5.2 3.9 8.9 1.8 3.6 2.9 22.4 9.7 20.4 2.8 5.8 -4.1 6.0 -3.2 -23.4 9.3 0.5 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������������������������������������������������������������������������������������������� 2,095,679 1,717,385 1,717,000 385 70,040 1,304,485 125,039 455 16,794 236,006 235,886 2,085,054 1,708,626 1,708,188 438 67,309 1,308,563 127,407 524 15,633 232,865 232,746 2,031,679 1,672,408 1,672,191 217 59,462 1,300,115 117,209 400 15,628 226,035 225,881 3.2 2.7 2.7 77.5 17.8 0.3 6.7 13.8 7.5 4.4 4.4 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��������������������������������������������������������������������������������������� First Three INCOME DATA Quarters 2015 Total interest income������������������������������������������������������������������� $57,455 Total interest expense����������������������������������������������������������������� 6,528 Net interest income�������������������������������������������������������������� 50,926 Provision for loan and lease losses�������������������������������������������� 1,683 Total noninterest income������������������������������������������������������������� 14,623 Total noninterest expense����������������������������������������������������������� 44,593 Securities gains (losses)������������������������������������������������������������� 453 Applicable income taxes������������������������������������������������������������� 4,481 Extraordinary gains, net�������������������������������������������������������������� 26 Total net income (includes minority interests)��������������������� 15,271 Bank net income������������������������������������������������������������ 15,248 Net charge-offs���������������������������������������������������������������������������� 1,297 Cash dividends���������������������������������������������������������������������������� 6,861 Retained earnings����������������������������������������������������������������������� 8,387 Net operating income����������������������������������������������������������� 14,893 8,203 16,528 9,695 184,588 1,945,663 93,861 286,501 242,405 16,035 53,177 First Three Quarters 2014 $56,664 6,820 49,844 1,889 13,219 43,773 390 3,980 2 13,812 13,795 1,907 6,192 7,603 13,504 8,188 17,328 9,961 189,057 1,933,577 95,914 282,020 247,787 14,575 58,202 3rd Quarter 2015 $19,660 2,208 17,452 560 4,955 15,145 100 1,593 1 5,209 5,202 477 2,183 3,019 5,134 9,025 20,004 11,346 197,961 1,879,887 85,855 248,643 238,809 18,907 43,485 3rd Quarter 2014 $19,311 2,274 17,037 574 4,536 14,820 110 1,394 -6 4,890 4,882 554 1,943 2,940 4,807 (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�������������������������������������������������������������������������������������������������������� FDIC Quarterly %Change 1.4 -4.3 2.2 -10.9 10.6 1.9 16.4 12.6 1,357.5 10.6 10.5 -32.0 10.8 10.3 10.3 -9.1 -17.4 -14.6 -6.8 3.5 9.3 15.2 1.5 -15.2 22.3 %Change 3Q14-3Q15 1.8 -2.9 2.4 -2.4 9.3 2.2 -9.6 14.3 N/M 6.5 6.5 -14.0 12.4 2.7 6.8 N/M - Not Meaningful 18 2015, Volume 9, No. 4 Quarterly Banking Profile TABLE II-B. Aggregate Condition and Income Data, FDIC-Insured Community Banks Prior Periods Adjusted for Mergers 3rd Quarter 2015 5,812 439,171 2nd Quarter 2015 5,811 439,337 3rd Quarter 2014 5,811 434,526 %Change 3Q14-3Q15 0.0 1.1 $2,095,679 1,076,041 373,813 411,999 90,288 50,092 192,959 59,947 2,191 50,561 35,488 589 1,414,406 18,660 1,395,746 438,119 7,237 13,735 240,842 $2,067,837 1,054,150 370,268 402,600 86,883 49,120 190,924 59,118 2,182 48,843 35,192 568 1,387,660 18,675 1,368,985 442,211 7,672 13,452 235,517 $1,983,966 991,454 352,602 380,691 79,511 46,861 177,992 57,952 2,213 46,013 30,464 555 1,303,320 18,939 1,284,381 444,498 9,288 11,806 233,992 5.6 8.5 6.0 8.2 13.6 6.9 8.4 3.4 -1.0 9.9 16.5 6.0 8.5 -1.5 8.7 -1.4 -22.1 16.3 2.9 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������������������������������������������������������������������������������������������� 2,095,679 1,717,385 1,717,000 385 70,040 1,304,485 125,039 455 16,794 236,006 235,886 2,067,837 1,695,089 1,694,664 425 66,790 1,300,322 125,828 455 15,472 230,992 230,874 1,983,966 1,628,961 1,628,577 385 60,231 1,269,746 118,713 451 15,116 220,725 220,603 5.6 5.4 5.4 0.2 16.3 2.7 5.3 0.9 11.1 6.9 6.9 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��������������������������������������������������������������������������������������� First Three INCOME DATA Quarters 2015 Total interest income������������������������������������������������������������������� $57,455 Total interest expense����������������������������������������������������������������� 6,528 Net interest income�������������������������������������������������������������� 50,926 Provision for loan and lease losses�������������������������������������������� 1,683 Total noninterest income������������������������������������������������������������� 14,623 Total noninterest expense����������������������������������������������������������� 44,593 Securities gains (losses)������������������������������������������������������������� 453 Applicable income taxes������������������������������������������������������������� 4,481 Extraordinary gains, net�������������������������������������������������������������� 26 Total net income (includes minority interests)��������������������� 15,271 Bank net income������������������������������������������������������������ 15,248 Net charge-offs���������������������������������������������������������������������������� 1,297 Cash dividends���������������������������������������������������������������������������� 6,861 Retained earnings����������������������������������������������������������������������� 8,387 Net operating income����������������������������������������������������������� 14,893 8,203 16,528 9,695 184,588 1,945,663 93,861 286,501 242,405 16,035 53,177 First Three Quarters 2014 $54,502 6,604 47,898 1,713 12,834 41,852 394 3,848 2 13,716 13,698 1,770 6,176 7,523 13,405 8,180 17,189 9,845 188,052 1,917,421 94,424 278,574 249,519 14,575 55,437 3rd Quarter 2015 $19,660 2,208 17,452 560 4,955 15,145 100 1,593 1 5,209 5,202 477 2,183 3,019 5,134 9,006 19,604 11,223 194,050 1,836,654 87,617 256,473 233,594 13,056 40,433 3rd Quarter 2014 $18,599 2,207 16,392 574 4,460 14,166 108 1,366 -6 4,846 4,839 567 1,925 2,914 4,765 (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�������������������������������������������������������������������������������������������������������� FDIC Quarterly %Change 5.4 -1.1 6.3 -1.7 13.9 6.5 15.0 16.5 1,357.5 11.3 11.3 -26.7 11.1 11.5 11.1 -8.9 -15.7 -13.6 -4.9 5.9 7.1 11.7 3.8 22.8 31.5 %Change 3Q14-3Q15 5.7 0.0 6.5 -2.3 11.1 6.9 -7.2 16.6 N/M 7.5 7.5 -15.9 13.4 3.6 7.7 N/M - Not Meaningful 19 2015, Volume 9, No. 4 TABLE III-B. Aggregate Condition and Income Data by Geographic Region, FDIC-Insured Community Banks Geographic Regions* Third Quarter 2015 (dollar figures in millions) All Community Banks Number of institutions reporting����������������������������������� 5,812 Total employees (full-time equivalent)������������������������� 439,171 New York 684 87,774 Atlanta 715 55,854 Chicago 1,282 92,541 Kansas City 1,502 70,811 Dallas San Francisco 1,244 385 95,510 36,681 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������������������������������������������������������ $2,095,679 1,076,041 373,813 411,999 90,288 50,092 192,959 59,947 2,191 50,561 35,488 589 1,414,406 18,660 1,395,746 438,119 7,237 13,735 240,842 $544,584 320,965 126,660 113,134 17,206 16,834 46,302 12,758 463 527 10,894 164 391,283 4,465 386,818 99,775 1,011 4,481 52,499 $245,743 134,618 43,875 57,668 15,084 7,669 18,716 6,580 132 1,307 2,732 98 163,855 2,291 161,563 48,542 1,886 1,262 32,489 $387,310 194,799 71,222 70,840 11,966 11,637 36,229 12,115 434 7,799 6,319 63 257,197 3,593 253,605 85,322 1,503 2,219 44,661 $325,354 146,927 48,088 48,484 11,772 4,573 31,803 9,792 474 28,054 5,308 35 221,849 3,074 218,775 69,787 1,091 1,720 33,982 $404,953 185,067 61,617 74,803 26,287 4,338 41,247 13,693 306 10,051 7,037 124 256,972 3,419 253,553 97,472 1,337 2,578 50,014 $187,734 93,665 22,351 47,070 7,973 5,041 18,662 5,009 382 2,823 3,197 106 123,251 1,818 121,432 37,222 409 1,474 27,197 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����������������������������������������� 2,095,679 1,717,385 1,717,000 385 70,040 1,304,485 125,039 455 16,794 236,006 235,886 544,584 432,440 432,139 301 24,806 317,952 44,851 309 5,615 61,370 61,317 245,743 204,256 204,246 9 7,213 157,091 11,990 23 1,841 27,634 27,616 387,310 319,969 319,952 17 11,706 257,242 20,445 50 2,909 43,938 43,917 325,354 264,723 264,723 0 10,413 210,747 22,322 4 2,038 36,268 36,267 404,953 339,867 339,867 0 9,927 251,760 17,694 6 2,701 44,686 44,661 187,734 156,130 156,073 58 5,975 109,692 7,737 66 1,691 22,110 22,109 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������������������������������������� 8,203 16,528 9,695 184,588 1,945,663 93,861 286,501 242,405 16,035 53,177 2,262 5,699 2,662 55,176 508,167 35,897 68,982 51,903 3,877 18,841 1,124 2,381 1,530 20,495 225,669 9,372 29,546 9,431 535 6,276 1,508 3,147 2,552 32,881 359,082 14,315 49,809 64,601 6,132 8,910 1,112 1,704 1,066 22,130 303,233 16,076 44,239 66,243 816 7,601 1,749 2,664 1,109 36,180 374,525 13,705 48,538 39,456 618 7,410 448 934 777 17,726 174,988 4,495 45,386 10,770 4,057 4,139 INCOME DATA Total interest income���������������������������������������������������� Total interest expense�������������������������������������������������� Net interest income����������������������������������������������� Provision for loan and lease 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�������������������������������������������� $19,660 2,208 17,452 560 4,955 15,145 100 1,593 1 5,209 5,202 477 2,183 3,019 5,134 $4,898 703 4,195 212 940 3,483 41 477 0 1,004 1,002 136 219 783 977 $2,378 270 2,108 50 566 1,995 12 181 -1 459 458 60 141 316 452 $3,546 391 3,155 47 1,242 3,006 17 316 1 1,047 1,045 113 557 488 1,031 $3,104 351 2,753 89 737 2,235 11 198 0 979 979 56 493 486 969 $3,969 364 3,606 137 965 3,040 13 207 0 1,200 1,198 100 558 640 1,188 $1,765 131 1,634 25 505 1,386 5 213 1 521 521 11 215 305 516 * See Table V-A (page 11) for explanations. FDIC Quarterly 20 2015, Volume 9, No. 4 Quarterly Banking Profile Table IV-B. Third Quarter 2015, FDIC-Insured Community Banks All Community Banks 3rd Quarter 2015 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������������������������������ 4.08 0.46 3.62 0.95 2.91 0.11 0.99 1.31 1.00 8.93 0.14 117.58 67.24 77.88 5.16 58.48 2nd Quarter 2015 4.03 0.46 3.57 0.98 2.92 0.11 1.00 1.29 1.02 9.10 0.14 120.28 67.66 77.10 5.99 58.51 Third Quarter 2015, Geographic Regions* New York 3.90 0.56 3.34 0.70 2.58 0.16 0.72 1.10 0.74 6.61 0.14 155.80 67.44 81.70 7.46 57.31 Atlanta 4.24 0.48 3.76 0.93 3.26 0.08 0.74 1.04 0.75 6.70 0.15 82.84 74.16 78.82 8.67 59.58 Chicago 3.98 0.44 3.54 1.29 3.13 0.05 1.07 1.42 1.09 9.62 0.18 41.13 68.06 71.75 5.54 58.35 Kansas City Dallas 4.12 0.47 3.65 0.91 2.76 0.11 1.20 1.45 1.21 10.93 0.10 159.46 63.65 78.89 3.06 58.39 4.27 0.39 3.88 0.96 3.02 0.14 1.18 1.40 1.19 10.88 0.16 137.44 66.23 78.88 3.70 57.23 San Francisco 4.11 0.30 3.81 1.10 3.01 0.05 1.12 1.59 1.13 9.54 0.04 224.16 64.46 76.40 6.23 63.38 Table V-B. First Three Quarters 2015, FDIC-Insured Community Banks All Community Banks First Three First Three Quarters 2015 Quarters 2014 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������������������������������ 4.03 0.46 3.58 0.95 2.90 0.11 0.97 1.28 0.99 8.88 0.13 129.76 67.68 77.69 5.04 63.04 4.11 0.49 3.61 0.88 2.93 0.13 0.90 1.19 0.92 8.44 0.20 99.07 69.08 79.04 6.80 60.26 First Three Quarters 2015, Geographic Regions* New York 3.87 0.56 3.31 0.70 2.61 0.16 0.69 1.07 0.72 6.44 0.16 143.34 68.58 81.42 7.46 59.50 Atlanta 4.21 0.48 3.72 0.92 3.22 0.09 0.77 1.06 0.80 7.15 0.15 89.16 73.96 78.73 8.95 60.28 Chicago 3.95 0.44 3.51 1.29 3.08 0.07 1.09 1.42 1.11 9.89 0.15 73.59 67.41 71.57 4.99 64.04 Kansas City Dallas 4.05 0.47 3.58 0.91 2.76 0.10 1.16 1.41 1.18 10.72 0.08 189.85 64.62 78.57 2.60 65.78 4.21 0.39 3.82 0.93 2.99 0.13 1.14 1.36 1.16 10.64 0.14 153.57 66.74 79.16 3.94 60.37 San Francisco 4.04 0.30 3.74 1.12 3.01 0.04 1.08 1.56 1.09 9.22 0.02 324.70 65.16 75.60 6.75 69.09 * See Table V-A (page 11) for explanations. FDIC Quarterly 21 2015, Volume 9, No. 4 Table VI-B. Loan Performance, FDIC-Insured Community Banks Geographic Regions* September 30, 2015 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���������������������������������������������������������� 0.55 0.49 0.37 0.17 0.44 0.89 0.51 1.70 1.85 1.70 0.34 0.58 0.51 0.43 0.35 0.14 0.49 0.79 0.47 2.97 2.43 2.99 0.34 0.58 0.67 0.75 0.43 0.21 0.52 1.05 0.57 1.68 1.44 1.68 0.21 0.69 0.61 0.40 0.40 0.26 0.44 1.02 0.41 1.01 1.31 1.00 0.32 0.59 0.48 0.47 0.39 0.27 0.35 0.73 0.58 1.03 3.05 0.93 0.35 0.50 0.63 0.45 0.43 0.15 0.44 1.04 0.62 1.96 1.23 1.98 0.34 0.68 0.33 0.43 0.22 0.07 0.28 0.64 0.41 0.79 0.91 0.78 0.38 0.36 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���������������������������������������������������������� 1.22 1.76 1.10 0.44 0.78 1.53 1.09 0.71 0.98 0.70 0.96 1.17 1.44 1.76 1.25 0.22 0.93 2.01 1.07 0.81 1.34 0.79 4.30 1.46 1.54 3.16 1.34 0.71 0.73 1.49 1.15 1.04 0.59 1.05 0.58 1.45 1.37 1.95 1.27 0.89 0.85 1.65 1.03 0.47 0.88 0.45 0.36 1.22 0.81 1.59 0.93 0.45 0.39 0.81 1.01 0.45 1.25 0.41 0.43 0.77 1.04 1.05 0.93 0.96 0.57 1.24 1.29 1.00 0.66 1.01 0.44 1.04 0.75 1.39 0.63 0.21 0.71 0.91 0.93 0.35 0.73 0.32 0.64 0.76 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���������������������������������������������������������� 0.08 0.04 0.07 0.02 0.12 0.10 0.22 0.74 4.15 0.61 0.13 0.13 0.11 0.18 0.15 0.02 0.15 0.10 0.24 0.93 4.09 0.81 0.15 0.16 0.11 0.16 0.09 0.07 0.12 0.11 0.21 0.71 1.33 0.69 0.21 0.15 0.11 0.03 0.08 0.03 0.20 0.17 0.25 0.55 3.49 0.43 0.16 0.15 0.03 -0.20 0.06 0.01 0.06 0.06 0.16 0.68 9.62 0.24 0.05 0.08 0.05 0.03 0.04 0.06 0.06 0.08 0.28 0.81 1.32 0.80 0.16 0.14 -0.05 -0.10 -0.06 -0.01 -0.03 -0.02 0.08 0.66 1.94 0.54 0.40 0.02 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���������������������������������������������������������� $1,076.0 90.3 412.0 87.6 50.1 373.8 193.0 59.9 2.2 57.8 86.0 1,415.0 $321.0 17.2 113.1 45.2 16.8 126.7 46.3 12.8 0.5 12.3 11.4 391.4 $134.6 15.1 57.7 6.2 7.7 43.9 18.7 6.6 0.1 6.4 4.0 164.0 $194.8 12.0 70.8 14.2 11.6 71.2 36.2 12.1 0.4 11.7 14.1 257.3 $146.9 11.8 48.5 7.3 4.6 48.1 31.8 9.8 0.5 9.3 33.4 221.9 $185.1 26.3 74.8 6.4 4.3 61.6 41.2 13.7 0.3 13.4 17.1 257.1 $93.7 8.0 47.1 8.2 5.0 22.4 18.7 5.0 0.4 4.6 6.0 123.4 Memo: Unfunded Commitments (in millions) Total Unfunded Commitments��������������������������������������������� Construction and development: 1-4 family residential�� Construction and development: CRE and other����������� Commercial and industrial�������������������������������������������� 286,501 22,486 51,846 89,301 68,982 4,671 15,658 21,510 29,546 3,891 7,282 8,297 49,809 2,502 7,535 18,561 44,239 2,735 5,712 14,677 48,538 6,356 11,466 16,414 45,386 2,330 4,193 9,841 * See Table V-A (page 11) for explanations. ** 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 22 2015, Volume 9, No. 4 Quarterly Banking Profile INSURANCE FUND INDICATORS ■ DIF Reserve Ratio Rises 3 Basis Points to 1.09 Percent ■ Insured Deposits Increase by 1.1 Percent ■ One Institution Failed During Third Quarter Total assets of the 6,270 FDIC-insured institutions increased by 0.3 percent ($46.5 billion) during the third quarter of 2015. Total deposits increased by 0.5 percent ($58.0 billion), domestic office deposits increased by 0.6 percent ($62.7 billion), and foreign office deposits decreased by 0.3 percent ($4.7 billion). Domestic interest-bearing deposits increased by 1.1 percent ($85.4 billion), and noninterest-bearing deposits decreased by 0.8 percent ($22.7 billion). For the 12 months ending September 30, total domestic deposits grew by 4.7 percent ($476.4 billion), with interest-bearing deposits increasing by 4.4 percent ($321.7 billion) and noninterest-bearing deposits rising by 5.5 percent ($154.7 billion).1 Other borrowed money increased by 6.0 percent, securities sold under agreements to repurchase declined by 9.9 percent, and foreign office deposits declined by 5.8 percent over the same 12-month period.2 The DIF increased by $2.5 billion during the third quarter of 2015 to $70.1 billion (unaudited). Assessment income of $2.2 billion and a negative provision for insurance losses of $578 million were the main drivers behind the fund balance increase. Interest on investments, unrealized gains on available for sale securities, and other miscellaneous income added another $188 million to the fund. Third quarter operating expenses reduced the fund balance by $410 million. For the first nine months of 2015, six insured institutions failed, with combined assets of $6.4 billion, at a current estimated cost to the DIF of $0.8 billion. In 2011, as part of the FDIC’s long-term fund management plan, the FDIC Board of Directors adopted a lower rate schedule for regular risk-based assessments that will go into effect the quarter after the DIF reserve ratio first meets or exceeds 1.15 percent.4 The DIF’s reserve ratio was 1.09 percent on September 30, up from 1.06 percent at June 30, 2015, and 0.88 percent four quarters ago. Total estimated insured deposits increased by 1.1 percent in the third quarter of 2015.3 For institutions existing at the start and the end of the most recent quarter, insured deposits increased during the quarter at 2,929 institutions (47 percent), decreased at 3,318 institutions (53 percent), and remained unchanged at 29 institutions. Estimated insured deposits increased by 4.5 percent over the 12 months ending September 30, 2015. Effective April 1, 2011, the deposit insurance assessment base changed to average consolidated total assets minus average tangible equity.5 Revisions to insurance assessment rates and risk-based pricing rules for large banks (banks with assets greater than $10 billion) also became effective on that date.6 Table 1 shows the distribution of the assessment base as of September 30, by institution asset size category. Throughout the insurance fund discussion, FDIC-insured institutions include insured commercial banks and savings associations and, except where noted, exclude insured branches of foreign banks. 2 Other borrowed money includes FHLB advances, term federal funds, mortgage indebtedness, and other borrowings. 3 Figures for estimated insured deposits in this discussion include insured branches of foreign banks, in addition to insured commercial banks and savings institutions. 1 FDIC Quarterly Adoption of Federal Deposit Insurance Corporation Restoration Plan, 75 Fed. Reg. 66293 (Oct. 27, 2010). 5 There is an additional adjustment to the assessment base for b anker’s banks and custodial banks, as permitted under Dodd-Frank. 6 The Fourth Quarter 2010 Quarterly Banking Profile includes a more detailed explanation of these changes. 4 23 2015, Volume 9, No. 4 Table 1 Distribution of the Assessment Base for FDIC-Insured Institutions* by Asset Size Data as of September 30, 2015 Asset Size Less Than $1 Billion $1 - $10 Billion $10 - $50 Billion $50 - $100 Billion Over $100 Billion Total Number of Institutions 5,564 596 72 14 24 6,270 Percent of Assessment Base** Total Institutions ($ Bil.) 88.7 $1,147.2 9.5 1,457.7 1.1 1,430.3 0.2 913.8 0.4 8,674.0 100.0 13,623.0 Percent of Base 8.4 10.7 10.5 6.7 63.7 100.0 * Excludes insured U.S. branches of foreign banks. ** Average consolidated total assets minus average tangible equity, with adjustments for banker’s banks and custodial banks. and the 2 percent DRR using estimated insured deposits would have been 0.94 percent using the new assessment base. Dodd-Frank requires that, for at least five years, the FDIC must make available to the public the reserve ratio and the DRR using both estimated insured deposits and the new assessment base. As of September 30, 2015, the FDIC reserve ratio would have been 0.51 percent using the new assessment base (compared to 1.09 percent using estimated insured deposits), FDIC Quarterly Author: Kevin Brown, Senior Financial Analyst Division of Insurance and Research (202) 898-6817 24 2015, Volume 9, No. 4 Quarterly Banking Profile Table I-C. Insurance Fund Balances and Selected Indicators Deposit Insurance Fund* 3rd 2nd 1st 4th Quarter Quarter Quarter Quarter 2014 2014 2014 2013 $51,059 $48,893 $47,191 $40,758 3rd Quarter 2015 $67,589 2nd Quarter 2015 $65,296 1st Quarter 2015 $62,780 4th Quarter 2014 $54,320 3rd Quarter 2013 $37,871 2nd Quarter 2013 $35,742 1st Quarter 2013 $32,958 4th Quarter 2012 $25,224 3rd Quarter 2012 $22,693 2,170 2,328 2,189 2,030 2,009 2,224 2,393 122 113 60 70 80 87 45 2,224 2,339 2,526 2,645 2,937 2,833 23 34 54 -9 66 0 410 0 434 0 396 0 408 0 406 0 428 -8 0 422 302 436 156 298 0 439 0 436 0 469 0 442 -578 -317 -426 -6,787 -1,663 -204 348 -4,588 -539 -33 -499 -3,344 -84 2 3 6 -43 6 6 9 9 46 51 55 1,878 57 64 2,526 -34 2,293 231 2,516 24 8,460 -91 3,261 73 2,166 25 1,702 -277 6,433 71 2,887 -96 2,129 30 2,784 -22 7,734 7 2,531 Ending Fund Balance������� Percent change from four quarters earlier������� 70,115 67,589 65,296 62,780 54,320 51,059 48,893 47,191 40,758 37,871 35,742 32,958 25,224 29.08 Reserve Ratio (%)������������� 1.09 32.37 33.55 33.03 33.27 34.82 36.79 43.19 61.58 66.88 133.73 178.67 222.85 1.06 1.03 1.01 0.88 0.84 0.80 0.79 0.68 0.64 0.60 0.45 0.35 6,420,010 6,350,086 6,343,610 6,211,168 6,141,707 6,109,681 6,120,778 6,010,853 5,967,558 5,951,124 5,999,614 7,405,043 7,248,466 4.53 3.93 3.64 3.33 2.92 2.66 2.02 -18.83 -17.67 -15.96 -14.67 6.19 7.32 Domestic Deposits����������� 10,695,512 10,629,336 10,616,332 10,408,065 10,213,080 10,099,337 Percent change from four quarters earlier������� 4.72 5.25 6.56 5.93 6.04 7.16 9,962,453 9,825,399 9,631,580 9,424,503 9,454,658 9,474,585 9,084,803 5.37 3.70 6.02 5.45 6.85 7.88 6.55 (dollar figures in millions) Beginning Fund Balance��� 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��� Estimated Insured Deposits**�������������������������� Percent change from four quarters earlier������� Assessment Base***�������� 13,671,780 13,604,417 13,526,397 13,338,064 13,107,460 12,905,563 12,797,323 12,743,995 12,527,654 12,485,955 12,433,502 12,435,091 12,276,302 Percent change from four quarters earlier������� 4.31 5.42 2.42 4.66 4.63 3.36 2.93 2.48 2.05 2.68 2.68 2.67 2.35 Number of Institutions Reporting����������������������� 6,279 6,357 6,428 6,518 6,598 6,665 6,739 0.79 0.64 0.80 1.03 1.06 6,900 6,949 7,028 1.09 DIF Balance 0.88 $7,248,466 9/12 0.68 $25,224 12/12 32,958 7,405,043 35,742 5,999,614 6/13 5,951,124 40,758 5,967,558 12/13 47,191 6,010,853 3/14 0.45 0.35 37,871 9/13 48,893 6,120,778 6/14 0.60 51,059 6,109,681 9/14 54,320 6,141,707 12/14 62,780 6,211,168 3/15 9/12 12/12 3/13 6/13 9/13 12/13 3/14 6/14 9/14 12/14 3/15 6/15 7,190 DIF-Insured Deposits 3/13 0.84 7,092 Deposit Insurance Fund Balance and Insured Deposits ($ Millions) DIF Reserve Ratios Percent of Insured Deposits 1.01 6,821 6,343,610 67,589 6,350,086 9/15 9/15 65,296 6/15 70,115 6,420,010 Table II-C. Problem Institutions and Failed Institutions (dollar figures in millions) Problem Institutions Number of institutions���������������������������������������������������������������������� Total assets��������������������������������������������������������������������������������������� 2015**** 203 $51,068 2014**** 329 $102,256 2014 291 $86,712 2013 2012 2011 2010 467 $152,687 651 $232,701 813 $319,432 884 $390,017 Failed Institutions 51 92 Number of institutions���������������������������������������������������������������������� 6 14 18 24 157 $11,617 $34,923 $6,421 $1,816 $2,914 $6,044 Total assets*****������������������������������������������������������������������������������� $92,085 * Quarterly financial statement results are unaudited. ** Beginning in the third quarter of 2009, estimates of insured deposits are based on a $250,000 general coverage limit. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) temporarily provided unlimited coverage for noninterest-bearing transaction accounts for two years beginning December 31, 2010, and ending December 31, 2012. *** Average consolidated total assets minus tangible equity, with adjustments for banker’s banks and custodial banks. **** Through September 30. ***** Total assets are based on final Call Reports submitted by failed institutions. FDIC Quarterly 25 2015, Volume 9, No. 4 Table III-C. Estimated FDIC-Insured Deposits by Type of Institution (dollar figures in millions) September 30, 2015 Commercial Banks and Savings Institutions Number of Institutions Total Assets Domestic Deposits* Est. Insured Deposits FDIC-Insured Commercial Banks����������������������������������������������� FDIC-Supervised������������������������������������������������������������������� OCC-Supervised�������������������������������������������������������������������� Federal Reserve-Supervised������������������������������������������������� 5,410 3,588 1,015 807 $14,726,590 2,369,036 10,102,573 2,254,981 $9,821,750 1,853,152 6,444,181 1,524,417 $5,713,221 1,335,207 3,603,766 774,248 FDIC-Insured Savings Institutions���������������������������������������������� OCC-Supervised Savings Institutions����������������������������������� FDIC-Supervised Savings Institutions����������������������������������� Federal Reserve-Supervised������������������������������������������������� 860 416 407 37 1,073,629 687,967 362,195 23,467 827,354 536,968 272,157 18,229 677,021 446,605 215,557 14,858 Total Commercial Banks and Savings Institutions���������������������� 6,270 15,800,219 10,649,105 6,390,242 U.S. Branches of Foreign Banks������������������������������������������������� 9 98,665 46,408 29,768 Total FDIC-Insured Institutions���������������������������������������������������� .. 6,279 15,898,884 10,695,512 6,420,010 Other FDIC-Insured Institutions * Excludes $1.4 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 June 30, 2015 (dollar figures in billions) Number of Annual Rate in Basis Points Institutions 2.50-5.00 1,601 5.01-7.50 3,107 7.51-10.00 972 10.01-15.00 425 15.01-20.00 23 20.01-25.00 191 25.01-30.00 1 30.01-35.00 37 greater than 35.00 0 Percent of Total Institutions 25.18 48.88 15.29 6.69 0.36 3.00 0.02 0.58 0.00 Amount of Assessment Base* $2,086.3 10,020.4 1,025.3 371.1 41.9 52.1 0.0 7.3 0.0 Percent of Total Assessment Base 15.34 73.66 7.54 2.73 0.31 0.38 0.00 0.05 0.00 * 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 26 2015, Volume 9, No. 4 Quarterly Banking Profile Notes to Users 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 gradually adjusted upward over time. For banking offices, banks must have more than one office, and the maximum number of offices starts at 40 in 1985 and reaches 75 in 2010. The maximum level of deposits for any one office is $1.25 billion in deposits in 1985 and $5 billion in deposits in 2010. 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 over time from $250 million in 1985 to $1 billion in 2010, below which the limits on banking activi ties and geographic scope are waived. 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. 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 com arability of source data and reporting differences p over time. Tables I-A through VIII-A. The information presented in Tables I-A through V-A of the FDIC Quarterly Banking Profile is aggregated for all FDICinsured institutions, both commercial banks and savings insti tutions. Tables VI-A (Derivatives) and VII-A (Servicing, Securitization, and Asset Sales Activities) aggregate information only for insured commercial banks and state-chartered savings banks that file quarterly Call Reports. Table VIII-A (Trust Services) aggregates Trust asset and income information collected annually from all FDIC-insured 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 g eographic 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. Summary of FDIC Research Definition of Community Banking Organizations 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: http://fdic.gov/regulations/ resources/cbi/report/cbi-full.pdf. The determination of which insured institutions are considered community banks is based on five steps. The first step in defining a community bank is to aggre ate g all charter-level data reported under each holding company into a single banking organization. This aggrega ion applies t 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 compa ies, trust comn panies, 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 deposts to assets i (greater than 50 percent). Core deposits are defined as nonbrokered 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 indi idual banks construct v their balance sheets. FDIC Quarterly Community banks are designated at the level of the banking. (All charters under designated holding companies are considered community banking charters.) Exclude: Any organization with: — No loans or no core deposits — Foreign Assets ≥ 10% of total assets — More than 50% of assets in certain specialty banks, including: • credit card specialists • consumer nonbank banks1 • industrial loan companies • trust companies • bankers’ banks Include: All remaining banking organizations with: 2 — Total assets < indexed size threshold — 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 m aximum number of offices.3 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 billion in 2010. 3 Maximum number of offices indexed to equal 40 in 1985 and 75 in 2010. 1 27 2015, Volume 9, No. 4 • Number of large MSAs with offices ≤ 2 • Number of states with offices ≤ 3 • No single office with deposits > indexed maximum branch deposit size.4 bilities, 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. 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, e.g., institutions can move their home offices between regions, and savings institutions can convert to commercial banks or commercial banks may convert to savings institutions. 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/assisted institutions, estimated FDIC-insured deposits, as well as assessment rate information. Depository institutions that are not insured by the FDIC through the DIF are not included in the FDIC Quarterly Banking Profile. U.S. branches of institutions eadquartered in h 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. ACCOUNTING CHANGES Debt Issuance Costs In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” This ASU requires debt issuance costs associated with a recognized debt liability to be presented as a direct deduction from the face amount of the related debt liability, similar to debt discounts. The ASU is limited to the presentation of debt issuance costs; therefore, the recognition and measurement guidance for such costs is unaffected. At present, Accounting Standards Codification (ASC) Subtopic 835-30, Interest—Imputation of Interest, requires debt issuance costs to be reported on the balance sheet as an asset (i.e., a deferred charge). For Call Report purposes, the costs of issuing debt currently are reported, net of accumulated amortization, in “Other assets.” For institutions that are public business entities, as defined under U.S. generally accepted accounting principles (GAAP), ASU 2015-03 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. For example, institutions with a calendar year fiscal year that are public business entities must apply the ASU in their Call Reports beginning March 31, 2016. For institutions that are not public business entities (i.e., that are private companies), the ASU is effective for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Thus, institutions with a calendar year fiscal year that are private companies must apply the ASU in their December 31, 2016, and subsequent quarterly Call Reports. Early adoption of the guidance in ASU 2015-03 is permitted. Extraordinary Items In January 2015, the FASB issued ASU No. 2015-01, “Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates from U.S. GAAP the concept of extraordinary items. At present, ASC Subtopic 225-20, Income Statement – Extraordinary and Unusual Items (formerly Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations”), requires an entity to separately classify, present, and disclose extraordinary events and transactions. An event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction currently meets the criteria for extraordinary classification, an institution must segregate the extraordinary item 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 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 e nding March 31, 2012.) All condition and performance ratios represent weighted averages, i.e., 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 (beginningof-period amount plus end-of-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 yearto-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 liaMaximum branch deposit size indexed to equal $1.25 billion in 1985 and $5 billion in 2010. 4 FDIC Quarterly 28 2015, Volume 9, No. 4 Quarterly Banking Profile from the results of its ordinary operations and report the extraordinary item in its income statement as “Extraordinary items and other adjustments, net of income taxes.” ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Thus, for example, institutions with a calendar year fiscal year must begin to apply the ASU in their Call Reports for March 31, 2016. Early adoption of ASU 2015-01 is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. For Call Report purposes, an institution with a calendar year fiscal year must apply the ASU prospectively, that is, in general, to events or transactions occurring after the date of adoption. However, an institution with a fiscal year other than a calendar year may elect to apply ASU 2015-01 prospectively or, alternatively, it may elect to apply the ASU retrospectively to all prior calendar quarters included in the institution’s year-to-date Call Report income statement that includes the beginning of the fiscal year of adoption. After an institution adopts ASU 2015-01, any event or transaction that would have met the criteria for extraordinary classification before the adoption of the ASU should be reported in “Other noninterest income,” or “Other noninterest expense,” as appropriate, unless the event or transaction would otherwise be reportable in the income statement. In addition, consistent with ASU 2015-01, the agencies plan to remove reference to the term “extraordinary items” from the income in 2016. For additional information, institutions should refer to ASU 2015-01, which is available at http://www.fasb.org/jsp/FASB/ Page/SectionPage&cid=1176156316498. Accounting by Private Companies for Identifiable Intangible Assets in a Business Combination In December 2014, the FASB issued ASU No. 2014-18, “Accounting for Identifiable Intangible Assets in a Business Combination,” which is a consensus of the Private Company Council (PCC). This ASU provides an accounting alternative that permits a private company, as defined in U.S. GAAP (and discussed in a later section of these Supple mental Instructions), to simplify the accounting for certain intangible assets. The accounting alternative applies when a private company is required to recognize or otherwise consider the fair value of intangible assets as a result of certain transactions, including when applying the acquisition method to a business combination under ASC Topic 805, Business Combinations (formerly FASB Statement No. 141 (revised 2007), “Business Combinations”). Under ASU 2014-18, a private company that elects the accounting alternative should no longer recognize separately from goodwill: • Customer-related intangible assets unless they are capable of being sold or licensed independently from the other assets of a business, and • Noncompetition agreements. However, because mortgage servicing rights and core deposit intangibles are regarded as capable of being sold or licensed independently, a private company that elects this accounting alternative must recognize these intangible assets separately from goodwill, initially measure them at fair value, and subsequently measure them in accordance with ASC Topic 350, FDIC Quarterly Intangibles–Goodwill and Other (formerly FASB Statement No. 142, “Goodwill and Other Intangible Assets”). A private company that elects the accounting alternative in ASU 2014-18 also must adopt the private company goodwill accounting alternative described in ASU 2014-02, “Accounting for Goodwill.” However, a private company that elects the goodwill accounting alternative in ASU 2014-02 is not required to adopt the accounting alternative for identifiable intangible assets in ASU 2014-18. A private company’s decision to adopt ASU 2014-18 must be made upon the occurrence of the first business combination (or other transaction within the scope of the ASU) in fiscal years beginning after December 15, 2015. The effective date of the private company’s decision to adopt the accounting alternative for identifiable intangible assets depends on the timing of that first transaction. If the first transaction occurs in the private company’s first fiscal year beginning after December 15, 2015, the adoption will be effective for that fiscal year’s annual financial reporting period and all interim and annual periods thereafter. If the first transaction occurs in a fiscal year beginning after December 15, 2016, the adoption will be effective in the interim period that includes the date of the transaction and subsequent interim and annual periods thereafter. Early application of the intangibles accounting alternative is permitted for any annual or interim period for which a private company’s financial statements have not yet been made available for issuance. Customer-related intangible assets and noncompetition agreements that exist as of the beginning of the period of adoption should continue to be accounted for separately from goodwill, i.e., such existing intangible assets should not be combined with goodwill. A bank or savings association that meets the private company definition in U.S. GAAP is permitted, but not required, to adopt ASU 2014-18 for Call Report purposes and may choose to early adopt the ASU, provided it also adopts the private company goodwill accounting alternative. If a private institution issues U.S. GAAP financial statements and adopts ASU 2014-18, it should apply the ASU’s intangible asset accounting alternative in its Call Report in a manner consistent with its reporting of intangible assets in its financial statements. For additional information on the private company a ccounting alternative for identifiable intangible assets, i nstitutions should refer to ASU 2014-18, which is available at http://www.fasb.org/jsp/FASB/Page/SectionPage&cid= 1176156316498. Private Company Accounting Alternatives, Including Accounting for Goodwill In May 2012, the Financial Accounting Foundation, the independent private sector organization responsible for the oversight of the FASB, approved the establishment of the Private Company Council (PCC) to improve the process of setting accounting standards for private companies. The PCC is charged with working jointly with the FASB to determine whether and in what circumstances to provide alternative recognition, measurement, disclosure, display, effective date, and transition guidance for private companies reporting under U.S. GAAP. Alternative guidance for private companies may include modifications or exceptions to otherwise applicable existing U.S. GAAP standards. The banking agencies have 29 2015, Volume 9, No. 4 concluded that a bank or savings association that is a private company, as defined in U.S. GAAP (as discussed in the next section of these Supplemental Instructions), is permitted to use private company accounting alternatives issued by the FASB when preparing its Call Reports, except as provided in 12 U.S.C. 1831n(a) as described in the following sentence. If the agencies determine that a particular accounting principle within U.S. GAAP, including a private company accounting alternative, is inconsistent with the statutorily specified supervisory objectives, the agencies may prescribe an accounting principle for regulatory reporting purposes that is no less s tringent than U.S. GAAP. In such a situation, an institution would not be permitted to use that particular private company accounting alternative or other accounting principle within U.S. GAAP for Call Report purposes. The agencies would provide appropriate notice if they were to disallow any accounting alternative under the statutory process. On January 16, 2014, the FASB issued ASU No. 2014-02, “Accounting for Goodwill,” which is a consensus of the PCC. This ASU generally permits a private company to elect to amortize goodwill on a straight-line basis over a period of ten years (or less than ten years if more appropriate) and apply a simplified impairment model to goodwill. In addition, if a private company chooses to adopt the ASU’s goodwill accounting alternative, the ASU requires the private company to make an accounting policy election to test goodwill for impairment at either the entity level or the reporting unit level. Goodwill must be tested for impairment when a triggering event occurs that indicates that the fair value of an entity (or a reporting unit) may be below its carrying amount. In contrast, U.S. GAAP does not otherwise permit goodwill to be amortized, instead requiring goodwill to be tested for impairment at the reporting unit level annually and between annual tests in certain circumstances. The ASU’s goodwill accounting alternative, if elected by a private company, is effective prospectively for new goodwill recognized in annual periods beginning after December 15, 2014, and in interim periods within annual periods beginning after December 15, 2015. Goodwill existing as of the beginning of the period of adoption is to be amortized prospectively over ten years (or less than ten years if more appropriate). The ASU states that early application of the goodwill accounting alternative is permitted for any annual or interim period for which a private company’s financial statements have not yet been made available for issuance. A bank or savings association that meets the private company definition in ASU 2014-02 is permitted, but not required, to adopt this ASU for Call Report purposes and may choose to early adopt the ASU. If a private institution issues U.S. GAAP financial statements and adopts the ASU, it should apply the ASU’s goodwill accounting alternative in its Call Report in a manner consistent with its reporting of goodwill in its financial statements. Thus, for example, a private institution with a calendar year fiscal year that chooses to adopt ASU 2014-02 must apply the ASU’s provisions in its December 31, 2015, and subsequent quarterly Call Reports unless early application of the ASU is elected. For example, if a private institution with a calendar year fiscal year chooses to early adopt ASU 2014-02 for third quarter 2015 financial reporting purposes, the institution may implement the provisions of the ASU in its Call Report for September 30, 2015. This would require the private institution to report in its FDIC Quarterly third quarter 2015 Call Report nine months amortization of goodwill existing as of January 1, 2015, and the amortization of any new goodwill recognized in the first nine months of 2015. Goodwill amortization expense should be reported unless the amortization is associated with a discontinued operation, in which case the goodwill amortization should be included within the results of discontinued operations and reported as “Extraordinary items and other adjustments, net of income taxes.” For additional information on the private company accounting alternative for goodwill, institutions should refer to ASU 2014-02, which is available at http://www.fasb.org/jsp/FASB/ Page/SectionPage&cid=1176156316498. Definitions of Private Company and Public Business Entity According to ASU No. 2014-02, “Accounting for Goodwill,” a private company is a business entity that is not a public business entity. ASU No. 2013-12, “Definition of a Public Business Entity,” which was issued in December 2013, added this term to the Master Glossary in the Accounting Standards Codification. This ASU states that a business entity, such as a bank or savings association, that meets any one of five criteria set forth in the ASU is a public business entity for reporting purposes under U.S. GAAP, including for Call Report purposes. An institution that is a public business entity is not permitted to apply the private company goodwill accounting alternative discussed in the preceding section when preparing its Call Report. For additional information on the definition of a public b usiness entity, institutions should refer to ASU 2013-12, which is available at http://www.fasb.org/jsp/FASB/Page/ SectionPage&cid=1176156316498. Reporting Certain Government-Guaranteed Mortgage Loans Upon Foreclosure In August 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-14, “Classification of Certain Government-Guaranteed Mortgage Loans Upon Fore closure,” to address diversity in practice for how governmentguaranteed mortgage loans are recorded upon foreclosure. The ASU updates guidance contained in ASC Subtopic 31040, Receivables—Troubled Debt Restructurings by Creditors (formerly FASB Statement No. 15, “Accounting by Debtors and Creditors for Troubled Debt Restructurings,” as amended), because U.S. GAAP previously did not provide specific guidance on how to categorize or measure foreclosed mortgage loans that are government guaranteed. This guidance is applicable to fully and partially governmentguaranteed mortgage loans. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. This other receivable should be reported in “All other assets.” Any interest income earned on the other receivable would be reported in “Other interest income.” Other real estate owned would not be recognized by the institution. For institutions that are public business entities, as defined under U.S. GAAP, ASU 2014-14 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014. For example, institutions with a calendar year fiscal year that are public business entities must apply the ASU in their Call Reports beginning March 31, 2015. 30 2015, Volume 9, No. 4 Quarterly Banking Profile However, institutions that are not public business entities (i.e., that are private companies) are not required to apply the guidance in ASU 2014-14 until annual periods ending after December 15, 2015, and interim periods beginning after December 15, 2015. Thus, institutions with a calendar year fiscal year that are private companies must apply the ASU in their December 31, 2015, and subsequent quarterly Call Reports. Earlier adoption of the guidance in ASU 201414 is permitted if the institution has already adopted the amendments in ASU No. 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure.” Entities can elect to apply ASU 2014-14 on either a modified retrospective transition basis or a prospective transition basis. For additional information, institutions should refer to ASU 2014-14, which is available at http://www.fasb.org/jsp/FASB/Page/SectionPage&cid= 1176156316498. Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure In January 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” to address diversity in practice for when certain loan receivables should be derecognized and the real estate collateral recognized. The ASU updated guidance contained in Accounting Standards Codification Subtopic 310-40, Receivables–Troubled Debt Restructurings by Creditors (formerly FASB Statement No.15, “Accounting by Debtors and Creditors for Troubled Debt Restructurings,” as amended). Under prior accounting guidance, all loan receivables were reclassified to other real estate owned (OREO) when the institution, as creditor, obtained physical possession of the property, regardless of whether formal foreclosure proceedings had taken place. The new ASU clarifies when a creditor is considered to have received physical possession (resulting from an in-substance repossession or foreclosure) of residential real estate collateralizing a consumer mortgage loan. Under the new guidance, physical possession for these residential real estate properties is considered to have occurred and a loan receivable would be reclassified to OREO only upon: • The institution obtaining legal title upon completion of a foreclosure even if the borrower has redemption rights that provide the borrower with a legal right for a period of time after foreclosure to reclaim the property by paying certain amounts specified by law, or • The completion of a deed in lieu of foreclosure or similar legal agreement under which the borrower conveys all interest in the residential real estate property to the institution to satisfy the loan. Loans secured by real estate other than consumer mortgage loans collateralized by residential real estate should continue to be reclassified to OREO when the institution has received physical possession of a borrower’s real estate, regardless of whether formal foreclosure proceedings take place. For institutions that are public business entities, as defined under U.S. generally accepted accounting principles, ASU 2014-04 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014. For example, institutions with a calendar year fiscal year that are FDIC Quarterly public business entities must apply the ASU in their Call Reports beginning March 31, 2015. However, institutions that are not public business entities are not required to apply the guidance in ASU 2014-04 until annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Thus, institutions with a calendar year fiscal year that are not public business entities must apply the ASU in their December 31, 2015, and subsequent quarterly Call Reports. Earlier adoption of the guidance in ASU 2014-04 is permitted. Entities can elect to apply the ASU on either a modified retrospective transition basis or a prospective transition basis. Applying the ASU on a prospective transition basis should be less complex for institutions than applying the ASU on a modified retrospective transition basis. Under the prospective transition method, an institution should apply the new guidance to all instances where it receives physical possession of residential real estate property collateralizing consumer mortgage loans that occur after the date of adoption of the ASU. Under the modified retrospective transition method, an institution should apply a cumulative-effect adjustment to residential consumer mortgage loans and OREO existing as of the beginning of the annual period for which the ASU is effective. As a result of adopting the ASU on a modified retrospective basis, assets reclassified from OREO to loans should be measured at the carrying value of the real estate at the date of adoption while assets reclassified from loans to OREO should be measured at the lower of the net amount of the loan receivable or the OREO property’s fair value less costs to sell at the time of adoption. For additional information, institutions should refer to ASU 2014-04, which is available at http://www.fasb.org/jsp/FASB/ Page/SectionPage&cid=1176156316498. True-Up Liability Under an FDIC Loss-Sharing Agreement An insured depository institution that acquires a failed insured institution may enter into a loss-sharing agreement with the FDIC under which the FDIC agrees to absorb a p ortion of the losses on a specified pool of the failed institution’s assets during a specified time period. The acquiring institution typically records an indemnification asset representing its right to receive payments from the FDIC for losses during the specified time period on assets covered under the loss-sharing agreement. Since 2009, most loss-sharing agreements have included a true-up provision that may require the acquiring institution to reimburse the FDIC if cumulative losses in the acquired loss-share portfolio are less than the amount of losses claimed by the institution throughout the loss-sharing period. Typically, a true-up liability may result because the recovery period on the loss-share assets (e.g., eight years) is longer than the period during which the FDIC agrees to reimburse the acquiring institution for losses on the loss-share portfolio (e.g., five years). Consistent with U.S. GAAP and bank guidance for “Offsetting,” institutions are permitted to offset assets and l iabilities recognized in the Report of Condition when a “right of setoff” exists. Under ASC Subtopic 210-20, Balance Sheet—Offsetting (formerly FASB Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts”), in general, a right of setoff exists when a reporting institution and another party each owes the other determinable 31 2015, Volume 9, No. 4 amounts, the reporting institution has the right to set off the amounts each party owes and also intends to set off, and the right of setoff is enforceable at law. Because the conditions for the existence of a right of offset in ASC Subtopic 210-20 normally would not be met with respect to an indemnification asset and a true-up liability under a loss-sharing agreement with the FDIC, this asset and liability should not be netted for Call Report purposes. Therefore, institutions should report the indemnification asset gross (i.e., without regard to any true-up liability) in Other Assets, and any trueup liability in Other Liabilities. In addition, an institution should not continue to report assets covered by loss-sharing agreements after the expiration of the loss-sharing period even if the terms of the loss-sharing agreement require reimbursements from the institution to the FDIC for certain amounts during the recovery period. Indemnification Assets and Accounting Standards Update No. 201206 – In October 2012, the FASB issued Accounting Standards Update (ASU) No. 2012-06, “Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution,” to address the subsequent measurement of an indemnification asset recognized in an acquisition of a financial institution that includes an FDIC loss-sharing agreement. This ASU amends ASC Topic 805, Business Combinations (formerly FASB Statement No. 141 (revised 2007), “Business Combinations”), which includes guidance applicable to FDICassisted acquisitions of failed institutions. Under the ASU, when an institution experiences a change in the cash flows expected to be collected on an FDIC loss- sharing indemnification asset because of a change in the cash flows expected to be collected on the assets covered by the loss-sharing agreement, the institution should account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in the value of the indemnification asset should be limited to the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2012. For institutions with a calendar year fiscal year, the ASU takes effect January 1, 2013. Early adoption of the ASU is permitted. The ASU’s provisions should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from an FDIC-assisted acquisition of a financial institution. Institutions with indemnification assets arising from FDIC loss-sharing agreements are expected to adopt ASU 2012-06 for Call Report purposes in accordance with the effective date of this standard. For additional information, refer to ASU 2012-06, available at http://www.fasb.org/jsp/FASB/ Page/SectionPage&cid=1176156316498. Goodwill Impairment Testing – In September 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-08, “Testing Goodwill for Impairment,” to address concerns about the cost and complexity of the existing goodwill impairment test in ASC Topic 350, Intangibles-Goodwill and Other ( formerly FASB Statement No. 142, “Goodwill and Other Intangible Assets”). The ASU’s amendments to ASC Topic 350 are effective for annual and interim goodwill FDIC Quarterly impairment tests performed for fiscal years beginning after December 15, 2011 (i.e., for annual or interim tests performed on or after January 1, 2012, for institutions with a calendar year fiscal year). Early adoption of the ASU was permitted. Under ASU 2011-08, an institution has the option of first assessing qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test described in ASC Topic 350. If, after considering all relevant events and circumstances, an institution determines it is unlikely (that is, a likelihood of 50 percent or less) that the fair value of a reporting unit is less than its carrying amount (including goodwill), then the institution does not need to perform the two-step goodwill impairment test. If the institution instead concludes that the opposite is true (that is, it is likely that the fair value of a reporting unit is less than its carrying amount), then it is required to perform the first step and, if necessary, the second step of the two-step goodwill impairment test. Under ASU 2011-08, an institution may choose to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. Troubled Debt Restructurings and Current Market Interest Rates – Many institutions are restructuring or modifying the terms of loans to provide payment relief for those borrowers who have suffered deterioration in their financial condition. Such loan restructurings may include, but are not limited to, reductions in principal or accrued interest, reductions in interest rates, and extensions of the maturity date. Modifications may be executed at the original contractual interest rate on the loan, a current market interest rate, or a below-market interest rate. Many of these loan modifications meet the definition of a troubled debt restructuring (TDR). The TDR accounting and reporting standards are set forth in ASC Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors (formerly FASB Statement No. 15, “Accounting by Debtors and Creditors for Troubled Debt Restructurings,” as amended). This guidance specifies that a restructuring of a debt constitutes a TDR if, at the date of restructuring, the creditor for economic or legal reasons related to a debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider. In the Call Report, until a loan that is a TDR is paid in full or otherwise settled, sold, or charged off, it must be reported in the appropriate loan category, as well as identified as a performing TDR loan, if it is in compliance with its modified terms. If a TDR is not in compliance with its modified terms, it is reported as a past-due and nonaccrual loan in the appropriate loan category, as well as distinguished from other past due and nonaccrual loans. To be considered in compliance with its modified terms, a loan that is a TDR must not be in nonaccrual status and must be current or less than 30 days past due on its contractual principal and interest payments under the modified repayment terms. A loan restructured in a TDR is an impaired loan. Thus, all TDRs must be measured for impairment in accordance with ASC Subtopic 310-10, Receivables – Overall (formerly FASB Statement No. 114, “Accounting by Creditors for Impairment of a Loan,” as amended), and the Call Report Glossary entry for “Loan Impairment.” Consistent with ASC Subtopic 310-10, TDRs may be aggregated and measured for impairment with other impaired loans that share common risk characteristics by using historical statistics, such as average recovery period and 32 2015, Volume 9, No. 4 Quarterly Banking Profile a verage amount recovered, along with a composite effective interest rate. The outcome of such an aggregation approach must be consistent with the impairment measurement methods prescribed in ASC Subtopic 310-10 and Call Report instructions for loans that are “individually” considered impaired instead of the measurement method prescribed in ASC Subtopic 450-20, Contingencies – Loss Contingencies (formerly FASB Statement No. 5, “Accounting for Contin gencies”) for loans not individually considered impaired that are collectively evaluated for impairment. When a loan not previously considered individually impaired is restructured and determined to be a TDR, absent a partial charge-off, it generally is not appropriate for the impairment estimate on the loan to decline as a result of the change from the impairment measurement method prescribed in ASC Subtopic 45020 to the methods prescribed in ASC Subtopic 310-10. Troubled Debt Restructurings and Accounting Standards Update No. 2011-02 – In April 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring,” to provide additional guidance to help creditors determine whether a concession has been granted to a borrower and whether a borrower is experiencing financial difficulties. The guidance is also intended to reduce diversity in practice in identifying and reporting TDRs. This ASU was effective for public companies for interim and annual periods beginning on or after June 15, 2011, and should have been applied retrospectively to the beginning of the annual period of adoption for purposes of identifying TDRs. The measurement of impairment for any newly identified TDRs resulting from retrospective application should have been applied prospectively in the first interim or annual period beginning on or after June 15, 2011. (For most public institutions, the ASU takes effect July 1, 2011, but retrospective application begins as of January 1, 2011.) Nonpublic companies should apply the new guidance for annual periods ending after December 15, 2012, including interim periods within those annual periods. (For most nonpublic institutions, the ASU took effect January 1, 2012.) Early adoption of the ASU was permitted for both public and nonpublic entities. Nonpublic entities that adopt early are subject to a retrospective identi fication requirement. For additional information, refer to ASU 2011-02, available at http://www.fasb.org/jsp/FASB/ Page/SectionPage&cid=1176156316498. Accounting for Loan Participations – Amended ASC Topic 860 (formerly FAS 166) modified the criteria that must be met in order for a transfer of a portion of a financial asset, such as a loan participation, to qualify for sale accounting – refer to previously published Quarterly Banking Profile notes: http://www5.fdic.gov/qbp/2011mar/qbpnot.html. Other-Than-Temporary Impairment – When the fair value of an investment in an individual available-for-sale or held-tomaturity security is less than its cost basis, the impairment is either temporary or other-than-temporary. The amount of the total other-than-temporary impairment related to credit loss must be recognized in earnings, but the amount of total impairment related to other factors must be recognized in other comprehensive income, net of applicable taxes. To determine whether the impairment is other-than-temporary, an institution must apply the applicable accounting guidance – refer to previously published Quarterly Banking Profile notes: http://www5.fdic.gov/qbp/2011mar/qbpnot.html. FDIC Quarterly ASC Topics 860 & 810 (formerly FASB Statements 166 & 167) – In June 2009, the FASB issued Statement No. 166, Accounting for Transfers of Financial Assets (FAS 166), and Statement No. 167, Amendments to FASB Interpre tation No. 46(R) (FAS 167), which change the way entities account for securitizations and special purpose entities— refer to previously published Quarterly Banking Profile notes: https://www5.fdic.gov/qbp/2014dec/qbpnot.html. Accounting Standards Codification – refer to previously published Quarterly Banking Profile notes: http://www5.fdic.gov/qbp/2011sep/qbpnot.html. DEFINITIONS (in alphabetical order) All other assets – total cash, balances due from depository institutions, 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 has 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 DIF deposits (deposits insured by the FDIC Deposit Insurance Fund) in banks’ domestic offices with certain adjustments. Assets securitized and sold – total outstanding principal balance 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 noncumulative 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 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. Construction and development loans – includes loans for all p roperty types under construction, as well as loans for land acquisition and development. 33 2015, Volume 9, No. 4 Core capital – common equity capital plus noncumulative perpetual 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 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 associ ted with a given issuance. a 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. 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 intangible 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 noninterestbearing 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. 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 un erlying variable or index at a stated price d (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 specified period. The cash flows of a swap are either fixed, or 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. FDIC Quarterly Fair Value – the valuation of various assets and liabilities on the balance sheet—including trading assets and liabilities, available-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 s ervicing rights, purchased credit card relationships, and other 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. 34 2015, Volume 9, No. 4 Quarterly Banking Profile 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. Maximum credit exposure – the maximum contractual credit exposure remaining under recourse arrangements and other seller-provided 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 enterprises. Also, see “Securities,” below. 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. Net charge-offs – total loans and leases charged off (removed from balance sheet because of uncollectibility), less amounts recovered on loans and leases previously charged off. Net interest margin – the difference between interest and dividends 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. 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. 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. Retained earnings – net income less cash dividends on common and preferred stock for the reporting period. 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). Return on assets – bank net income (including gains or losses on securities and extraordinary items) as a percentage of aver age total (consolidated) assets. The basic yardstick of bank profitability. Noncurrent assets – the sum of loans, leases, debt securities, and other assets that are 90 days or more past d e, or in nonu accrual status. Return on equity – bank net income (including gains or losses on securities and extraordinary items) as a percentage of average total equity capital. Noncurrent loans & leases – the sum of loans and leases 90 days or more past due, and loans and leases in nonaccrual status. Risk-based capital groups – definitions: Number of institutions reporting – the number of institutions that actually filed a financial report. Capital Ratios Used to Determine Capital Evaluations for Assessment Purposes, Effective January 1, 2015* New reporters – insured institutions filing quarterly financial reports for the first time. Capital Evaluations 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. Leverage Ratio Well Capitalized ≥10% ≥8% ≥6.5% ≥5% Adequately Capitalized** ≥8% ≥6% ≥4.5% ≥4% Under capitalized 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 file 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.) Does not qualify as either Well Capitalized or Adequately Capitalized * Effective January 1, 2018, the supplemental leverage ratio will be added to capital evaluations for deposit insurance assessment purposes. **An institution is Adequately Capitalized if it is not Well Capitalized, but satisfies each of the listed capital ratio standards for Adequately Capitalized. Risk Categories and Assessment Rate Schedule – The current risk categories became effective January 1, 2007. Capital ratios and supervisory ratings distinguish one risk category from another. Effective April 1, 2011, risk categories for large institutions (generally those with at least $10 billion in assets) were eliminated. The following table shows the relationship of risk categories (I, II, III, IV) for small institutions to capital and supervisory groups as well as the initial base assessment rates (in basis points) for each risk category. Supervisory Group A generally includes institutions with CAMELS composite ratings of 1 or 2; Supervisory Group B generally includes institutions with a CAMELS composite rating of 3; and Supervisory Group C generally includes institutions with 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. “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 FDIC Quarterly Total RiskTier 1 Common Based Risk-Based Equity Tier 1 Capital Ratio Capital Ratio Capital Ratio 35 2015, Volume 9, No. 4 CAMELS composite ratings of 4 or 5. For purposes of riskbased assessment capital groups, undercapitalized includes institutions that are significantly or critically undercapitalized. Adjustment), minimum and maximum total base assessment rates for each risk category are as follows: Total Base Assessment Rates* Risk Risk Risk Risk Category Category Category Category I II III IV Supervisory Group Capital Category 1. Well Capitalized 2. Adequately Capitalized 3. Undercapitalized A B I 5–9 bps II 14 bps III 23 bps II 14 bps C Initial base assessment rate III 23 bps Unsecured debt adjustment Brokered deposit adjustment Total Base Assessment rate IV 35 bps Effective April 1, 2011, the initial base assessment rates are 5 to 35 basis points. An institution’s total assessment rate may be less than or greater than its initial base assessment rate as a result of additional risk adjustments. The base assessment rates for small institutions in Risk Category I are based on a combination of financial ratios and CAMELS component ratings (the financial ratios method). As required by Dodd-Frank, the calculation of risk-based assessment rates for large institutions no longer relies on longterm debt issuer ratings. Rates for large institutions are based on CAMELS ratings and certain forward-looking 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). In general, a highly complex institution is an institution (other than a credit card bank) with more than $500 billion in total assets that is controlled by a parent or intermediate parent company with more than $500 billion in total assets or a processing bank or trust company with total fiduciary assets of $500 billion or more. The FDIC retains its ability to take additional information into account to make a limited adjustment to an institution’s total score (the large bank adjustment), which will be used to determine an institution’s initial base assessment rate. Effective April 1, 2011, the three possible adjustments to an institution’s initial base assessment rate are as follows: (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 5 basis points would have a maximum unsecured debt adjustment of 2.5 basis points and could not have a total base assessment rate lower than 2.5 basis points. (2) Depository Institution Debt Adjustment: For institutions that hold longterm 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 small institutions that are not in Risk Category I and 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. After applying all possible adjustments (excluding the Depository Institution Debt FDIC Quarterly Large and Highly Complex Institutions 5–9 14 23 35 5–35 -4.5–0 -5–0 -5–0 -5–0 -5–0 — 0–10 0–10 0–10 0–10 2.5–9 9–24 18–33 30–45 2.5–45 * 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. Beginning in 2007, 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. Special Assessment – On May 22, 2009, the FDIC board approved a final rule that imposed a 5 basis point special assessment as of June 30, 2009. The special assessment was levied on each insured depository institution’s assets minus its Tier 1 capital as reported in its report of condition as of June 30, 2009. The special assessment was collected September 30, 2009, at the same time that the risk-based assessment for the second quarter of 2009 was collected. The special assessment for any institution was capped at 10 basis points of the institution’s assessment base for the second quarter of 2009 risk-based assessment. Prepaid Deposit Insurance Assessments – In November 2009, the FDIC Board of Directors adopted a final rule requiring insured depository institutions (except those that are exempted) to prepay their quarterly risk-based deposit insurance assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012, on December 30, 2009. For regulatory capital purposes, an institution may assign a zero-percent risk weight to the amount of its prepaid deposit assessment asset. As required by the FDIC’s regulation establishing the prepaid deposit insurance assessment program, this program ended with the final application of prepaid assessments to the quarterly deposit insurance assessments payable March 29, 2013. The FDIC issued refunds of any unused prepaid deposit insurance assessments on June 28, 2013. Risk-weighted assets – assets adjusted for risk-based capital definitions which include on-balance-sheet as well as off- balance-sheet 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-balancesheet accounts. Securities – excludes securities held in trading accounts. Banks’ securities portfolios consist of securities designated as “held-to-maturity,” which are reported at amortized cost 36 2015, Volume 9, No. 4 Quarterly Banking Profile (book value), and securities designated as “available-for-sale,” reported at fair (market) value. Securities gains (losses) – realized gains (losses) on held-tomaturity 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 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 (http://www.treasury.gov/resource-center/ sb-programs/Pages/Small-Business-Lending-Fund.aspx). 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 FDIC Quarterly 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 & 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. 37 2015, Volume 9, No. 4 Financial Performance and Management Structure of Small, Closely Held Banks control over the bank. Subchapter S status, however, is only a rough proxy for being closely held. Introduction It is widely recognized that community banks embody unique characteristics that distinguish them from other banks.1 Community banks are generally smaller in asset size than other banks. They tend to focus on traditional banking activities, making and holding loans, and funding themselves with core deposits. They hold relatively large amounts of equity capital relative to assets. Because they do business in a relatively limited geographic area, community banks are able to make operational decisions locally, frequently based on tacit, personal knowledge of their customers and market area, as opposed to relying primarily on models and standardized data. As a result, a defining characteristic commonly attributed to community banks is that of relationship lending, as opposed to a more impersonal, transactional banking model. A recent study has incorporated a number of these attributes into a community bank definition that can be applied consistently over the past 31 years.2 Additional information on organizational form is available in confidential supervisory data. A 1995 study by researchers at the Federal Reserve Bank of Kansas City and the Office of the Comptroller of the Currency used supervisory data to identify closely held banks as those where supervisory reports indicated that there was a “principal shareholder” who owned more than 10 percent of voting shares.6 The study found evidence that efficient banks tend to have a principal shareholder, managers who hold an ownership stake in the bank, or owners who were actively involved in the day-to-day management of the bank. The 10 percent ownership stake, however, is a blunt measure of the ownership structure of a bank. The limited availability of more nuanced data on ownership and related agency issues has impeded research in this area. This paper revisits the issue of organizational structure using new data from an April 2015 survey of FDIC examiners in three supervisory Regions. The examiners answered questions about ownership structure, overlap of ownership and management, and management succession at FDIC-supervised banks that were examined in 2014 and first quarter 2015. The survey was designed to limit the demands on participating examiners and eliminate any reporting burden for bankers. Although it did not employ a random sample of all FDIC-insured banks, the survey provides a fairly detailed look at the organizational attributes of more than 1,350 FDIC-supervised, state-chartered community banks that operate in the FDIC Kansas City, Dallas, or Chicago Regions. Less extensively studied are the organizational characteristics of community banks, including management and ownership structure. As of December 2014, 93.2 percent of FDIC-insured community banks were organized as stock charters, and the remaining 6.8 percent were organized as mutuals, where depositors own the bank.3 As of year-end 2014, 35 percent of community banks as defined by the FDIC were organized under Subchapter S, which allows banks with limited ownership to decrease taxes on earnings.4 Only 7 percent of banks that did not meet the FDIC community bank definition were organized under Subchapter S.5 This broad measure confirms the general understanding that community banks are much more likely than noncommunity banks to be “closely held,” or controlled by an ownership group with relatively few, closely allied members who effectively exercise strategic The survey allows us to identify closely held banks among these community banks. Additionally, it provides information on the overlap of ownership and management, and preparedness for management succession, at these banks. By merging the survey results with Call Report data, we find that closely held banks have not underperformed widely held banks over the past six years. In fact, closely held banks in which the manager is a member of the ownership group, or is another insider, outperform both closely held banks with no overlap between ownership and management and widely held banks. For example, see Hein, Koch, and MacDonald (2005). FDIC (2012). 3 Approximately 2 percent of stock banks are owned by mutual bank holding companies, so that they are, in effect, mutually owned banks. 4 Under Subchapter C status, earnings are taxed at the corporate level and again at the shareholder level. Subchapter S eliminates the corporate taxation of earnings, reducing the tax burden to shareholders. There are several conditions—including having 100 or fewer owners— that a firm must meet to receive Subchapter S status. See 26 U.S.C. § 1361 for the restrictions on Subchapter S firms. 5 See FDIC (2012) for the FDIC definition of community bank, which presents a functional definition, rather than a fixed-asset-size definition. 1 2 FDIC Quarterly 6 38 Spong, Sullivan, and DeYoung (1995). 2015, Volume 9, No. 4 Financial Performance and Management Structure of Small, Closely Held Banks Concentrated Ownership. One reason a closely held ownership structure may be an operational advantage is that insider shareholders are likely to view their stake as a major, long-term investment rather than as one stock in a portfolio. As a result, the owners of a closely held bank can be expected to take a longer, more strategic perspective than the owners of a bank that must meet an earnings target every quarter. To the extent that this strategic focus translates into more profitable operational decisions, it could enhance the financial performance of the institution over time. This effect might be especially pronounced in the case of family-owned banks, for which the planning horizon could span more than one generation.8 In the next section, we briefly discuss what economic theory has to say about how ownership structure and the overlap between ownership and management might affect financial performance. Then we describe the survey of FDIC examiners, and compare closely and widely held banks as identified in the survey. The final section summarizes our findings and suggests areas for future research. Economic Theory: Ownership, Management, and Bank Efficiency Closely held banks frequently differ from widely held banks in two important dimensions. The first is the degree of concentration of ownership. By definition, ownership is more concentrated in a closely held bank than in a widely held bank. One individual may own the majority of the closely held bank, or ownership may be shared among a group affiliated by family or community ties. A second potential advantage of closely held ownership is the ability of the bank to address the principal-agent problem that can arise between owners and managers. A principal-agent problem occurs when the owner (principal) of a firm delegates responsibility to the manager (agent), but the two do not share the same goals.9 Divergence between the goals of owners and managers may cause firms to underperform if the manager’s choices do not maximize the value of the firm. Second, concentrated ownership may have implications for the management structure of the bank. In a closely held bank, day-to-day operational control of the bank may reside with a manager who is either a member of the ownership group or can otherwise be considered an ownership insider.7 In other cases, the bank may be run by a hired manager who otherwise has no affiliation with the ownership group. Both the concentration of ownership and the degree of overlap between ownership and control present potential advantages and disadvantages in terms of efficiency (Table 1). Bank owners can solve this problem by monitoring and supervising the manager, but these actions are costly in both time and money. In the case of a closely held bank, however, owners may have a greater incentive to invest in monitoring managers because more of the benefits of monitoring accrue to insider owners, rather than to external shareholders. Owners of the closely held bank are then better equipped to address principalagent problems that may arise from the separation of ownership and control. Table 1 How Might Closely Held Ownership Influence Operational Efficiency? Pros Closely held banks may be less beholden to short-term earnings pressures. Closely held banks invest more in monitoring managers because they capture most of the returns to monitoring. On the other hand, a bank with a closely held ownership structure may pursue goals other than strict profit maximization, so it may be less efficient than a widely held bank. In some cases, these goals may reflect a decision to incur noninterest expenses for the benefit of the owners, managers, or other affiliated stakeholders to the detriment of current earnings (generally referred to as expense preference behavior).10 This is not to say that the owners’ goals are inconsistent with the long-term interests of the bank, or the mission of a community bank. Cons Closely held banks may have more trouble raising external capital to make investments. Closely held banks may pursue goals other than profit maximization. Source: Review of literature on pages 39 and 40. Anderson and Reeb (2003) show that family-owned nonfinancial businesses outperform non-family-owned businesses among a sample of S&P 500 companies. 9 For a theoretical discussion of agency problems, see Jensen and Meckling (1976). 10 See Edwards (1977). 8 Although it is possible that the manager of a widely held bank can also hold an ownership stake or be considered an ownership insider, the fact that ownership is not concentrated in a single group limits the degree to which ownership and control can overlap at widely held banks. 7 FDIC Quarterly 39 2015, Volume 9, No. 4 For example, bank owners may choose to support the credit needs of local businesses during difficult times, or to invest in the local community through sponsorships or community events. In either case, closely held ownership may allow owners to achieve some of their financial and strategic goals through means other than maximizing profits in the short run. pool from which to recruit qualified managers. When the ownership group comprises individuals with close family or community ties, those ties may also limit the pool of managerial candidates. Even if the owners of the closely held bank solve the principal-agent problem by finding a qualified manager in the ownership group, the bank may face the problem once again when that manager retires and the owners must find a qualified successor. Additionally, if the retiring manager wants to sell a substantial stake in the bank, the bank must also find a new owner as well as a new manager. A second potential disadvantage to closely held ownership is that it may be more difficult for the bank to raise capital to make investments that improve the profitability of the bank. Banks raise capital using retained earnings or by issuing new ownership shares. Issuing shares to new shareholders will dilute the stake of the current owners in the bank, so closely held banks may be less willing to do this. Closely held banks may instead raise new capital from existing owners as “external capital,” and so the amount of capital they can raise may be limited. This could prevent the bank from making a profitable investment, such as expanding or making an acquisition. Results of the FDIC Examiner Survey A lack of publicly available data has limited the ability to study how ownership structure and managerial control affect efficiency and profitability at community banks. Most research on bank ownership focuses on large banks that are required to file public disclosures. For smaller banks without these disclosure requirements, researchers have used confidential supervisory data. These supervisory data provide some information on the ownership structure of community banks, but only about the existence of a “principal shareholder.” These data do not address the overlap of ownership and management. Overlap of Ownership and Control. The degree of overlap between ownership and managerial control can also be an operational advantage or disadvantage for a bank (Table 2). Widely held banks, by definition, have a substantial separation between ownership and control, so they are inherently subject to inefficiencies arising from principal-agent problems and must implement potentially costly measures to overcome them. In contrast, when the principal owner or an ownership group insider exerts day-to-day managerial control over a bank, the agency problem is minimized. The manager can be expected to act in the interests of the owners because the manager is an owner. This study avoids some of these limitations by using the results of a survey of FDIC bank examiners in the Chicago, Dallas, and Kansas City supervisory Regions, which encompass 21 states (Figure 1). Responses were obtained for every bank that had been examined in 2014 and first quarter 2015. For each bank, the examiners answered a series of simple questions about the structure of bank ownership, the overlap between ownership and management, and how the bank was positioned for management succession. The survey responses include more than 1,400 FDIC-supervised banks, which represent about 50 percent of all FDICsupervised banks in these Regions. We limit our analysis to the 97 percent of banks covered by the survey that meet the FDIC definition of a community bank, which leaves us with 1,357 community banks. The potential downside of significant overlap between ownership and control is the limited size of the talent Table 2 How Might Overlap of Ownership and Control Influence Efficiency? Pros The incentives of owners and managers are wellaligned and geared toward maximizing the long-term value of the bank. Cons The survey is a snapshot of bank ownership of a subset of community banks at the end of 2014. The responses are not a random sample of community banks nationwide, nor in these three Regions. The survey responses cover half of the FDIC-supervised community banks in the three Regions, and 33 percent of all FDIC-insured community banks. However, the strengths of the survey approach include the large number of community banks within these Regions, the ability to directly access the Succession planning may be more difficult because the bank faces a limited talent pool. Succession can involve transferring both ownership and control, often at the same time. Source: Review of literature on pages 39 and 40. FDIC Quarterly 40 2015, Volume 9, No. 4 Financial Performance and Management Structure of Small, Closely Held Banks Figure 1 Surveyed Banks Represent About Half of all FDIC-Supervised Community Banks in the Chicago, Dallas, and Kansas City FDIC Regions 34 48% 118 49% 22 47% 108 47% 63 47% 27 53% 70 39% 111 49% 179 56% 42 61% 67 54% 72 59% 26 59% 57 52% 43 46% 33 46% 90 44% 50 45% 16 55% 95 53% FDIC Region Chicago Dallas Kansas City 34 58% Total Number of Community Banks Surveyed Share of FDIC-Supervised Community Banks 459 393 505 54% 52% 46% 1,357 50% Source: April 2015 FDIC Examiner Survey. Community banks are as defined by the FDIC Community Banking Study (2012). Note: Data are as of December 2014. Table 3 stake that individually or collectively exerts a deciding influence over the governance of the institution” (Table 3). The vast majority of these closely held banks are controlled by groups with family or community ties (Table 4). In almost all of the closely held community banks, members of the primary ownership group are directors of the banks. Closely Held Banks Make Up Three-Quarters of FDIC-Supervised Community Banks in Three Regions Region Chicago Kansas City Dallas Total Survey Responses 459 505 393 1,357 Identifiable Primary Owner 288 424 301 1,013 Closely Held 63% 84% 77% 75% In a majority of closely held community banks, there is also significant overlap between the primary ownership group and the key officer, defined by the survey as the person “who effectively runs the bank on a day-today basis, regardless of his/her title.” In 48 percent of closely held community banks, the key officer can be considered a member of the primary ownership group (Table 5). In an additional 10 percent of closely held banks, the key officer can be considered an ownership group insider, even though he or she is not a primary owner. Taken together, these results imply that in just under 60 percent of closely held, FDIC-supervised community banks covered by the survey, overlap between ownership and management helped to limit the potential for principal-agent problems that could impair operational efficiency. Source: April 2015 FDIC Examiner Survey. Survey Question 1: In your judgment, is there an identifiable primary owner or ownership group for this bank? The primary owner or ownership group of the bank is a person or group with a substantial ownership stake that individually or collectively exerts a deciding influence over the governance of the institution. recent experience of FDIC examiners, and the fact that bank owners or managers are not required to respond to survey questions. The survey results show that among FDIC-supervised community banks in the three Regions, closely held banks are the norm rather than the exception. Examiners characterized 75 percent of community banks in the survey as having an identifiable primary owner, defined as “a person or group with a substantial ownership FDIC Quarterly The survey also included questions on succession p lanning, as this is widely regarded as an important 41 2015, Volume 9, No. 4 Table 4 Most Closely Held Community Banks Are Built Around Family or Community Ties Region Chicago Kansas City Dallas Total Survey Responses Indicating Closely Held Bank 288 424 301 1,013 Ownership Group Has Family Ties 84% 90% 77% 85% Ownership Group Has Ties to Community 84% 83% 89% 85% Members of Ownership Group Sit on Board 94% 96% 94% 95% Source: April 2015 FDIC Examiner Survey. Table 5 Ownership and Control Overlap at Most Closely Held Community Banks Region Chicago Kansas City Dallas Total Survey Responses Indicating Closely Held Bank 288 424 301 1,013 Key Officer Is Also a Member of the Primary Ownership Group 44% 51% 45% 48% Key Officer Is Not a Member of Primary Ownership Group, but Can Be Considered an Insider 7% 6% 17% 10% Total: Key Officer Closely Affiliated With Ownership Group 51% 58% 62% 57% Source: April 2015 FDIC Examiner Survey. Table 6 significant challenge for both closely and widely held community banks. Management Succession Is an Issue for Many Closely Held and Widely Held Community Banks Survey Region Responses Chicago 288 Kansas City 424 Dallas 301 Total Closely Held 1,013 Total Widely Held 344 Bank Has Identified a Viable Successor 41% 57% 50% 50% 46% Bank Is WellPositioned to Recruit Qualified Management From Outside 56% 67% 62% 62% 69% Characteristics, Financial Performance, and Capital Formation Merging the survey data with financial data from bank Call Reports permits further analysis of closely and widely held community banks. In this section we assess the effects of ownership structure and managerial control of surveyed banks on their size and geographic characteristics, financial performance, and ability to raise capital. Characteristics: Among community banks in our survey, closely held banks tend to be smaller and more rural and agricultural, and have older charters than widely held banks. As discussed at the outset, we hold certain expectations on how closely held banks might compare to widely held banks in our survey, and these expectations are generally met (Table 7). For example, closely held banks are generally smaller than widely held banks; closely held banks had average total assets of $264 million at year-end 2014, compared with $334 million for widely held banks. Source: April 2015 FDIC Examiner Survey. operational concern for community banks.11 Among the closely held banks, 50 percent have not identified a potential successor for the key officer, compared with 54 percent of widely held banks (Table 6). In addition, 38 percent of the closely held banks were not deemed to be “well-positioned to recruit qualified management talent from outside the bank,” compared with 31 percent of widely held banks. Overall, the survey results indicate that succession planning remains a Closely held community banks are also more concentrated in rural areas than widely held banks and are more likely to be headquartered in depopulating Stewart (2013) discusses the importance of succession planning, especially following the financial crisis. 11 FDIC Quarterly 42 2015, Volume 9, No. 4 Financial Performance and Management Structure of Small, Closely Held Banks Table 7 Closely Held and Widely Held Community Banks Differ on Many Characteristics Characteristic Assets Average Asset Size Average Equity Capital as Percentage of Assets Geography Headquartered in Metropolitan Countya Headquartered in Micropolitan County Headquartered in Rural County Headquartered in Depopulating Rural Countyb Lending Specialty Agricultural Lending Specialtyc Commercial and Industrial Lending Specialty Commercial Real Estate Lending Specialty Mortgage Lending Specialty Multiple Lending Specialties No Lending Specialty (Diversified) Other Consumer Lending Specialty Age Charter 15 Years Old or Younger Charter Older Than 100 Years Closely Held Banks Widely Held Banks $264 million 10.7% $334 million 11.0% 46% 18% 36% 24% 57% 22% 21% 10% 25% 2% 20% 7% 12% 32% 1% 13% 1% 23% 18% 19% 24% 1% 7% 43% 24% 38% Source: FDIC Data and April 2015 Examiner Survey. Notes: All figures are as of December 2014. a. This study follows the designations established by the U.S. Office of Management and Budget for each of the 3,221 U.S. counties and county equivalents as either metropolitan (1,236 counties that are economically linked to 1 of the 388 U.S. Metropolitan Statistical Areas), micropolitan (646 counties centered on an urban core with a population of between 10,000 and 50,000 people), or rural (counties not located in metropolitan or micropolitan areas). b. “Depopulating Rural County” refers to a county that lost population between the 1980 census and 2010 census. See Anderlik and Cofer (2014). c. Community bank lending specialty groups as defined by Chapter 5 of the FDIC Community Banking Study (2012). c ounties. Thirty-six percent of closely held community banks were headquartered in rural counties, compared with 21 percent of widely held institutions. Twentyfour percent of the surveyed closely held community banks were headquartered in depopulating rural counties, compared with only 10 percent of widely held banks. Banks headquartered in depopulating areas face challenges of declining customer bases and, in some instances, difficulty in attracting qualified management.12 Finally, closely held community banks in the survey tended to have older charters than did widely held banks. Both types of institutions have a substantial proportion of charters that are more than 100 years old—43 percent for closely held community banks and 38 percent for widely held community banks. Widely held banks, however, are more than three times more likely (24 percent) than closely held banks (7 percent) to have a charter 15 years old or younger. Closely held community banks in the survey were also nearly twice as likely as widely held banks to specialize in agricultural lending.13 These characteristics are consistent with the higher propensity of closely held banks to be headquartered in rural counties. By contrast, the widely held community banks in the survey, which were more heavily concentrated in metropolitan or micropolitan counties, were more likely to specialize in mortgage lending or multiple lending areas. Financial performance: Among community banks in our survey, closely held banks generally outperformed widely held banks in recent years when they had an overlap with management. Based on our prior discussion of the economic theory on ownership, management, and bank efficiency, we wanted to understand how ownership structure and the overlap of ownership and control affect financial performance. To capture these differences, we segmented the banks into three groups: closely held banks where the key officer is also a member of the primary ownership group (denoted as “Overlap” in Charts 1 and 2, Tables 2 and 5, and in Table A1 in the Appendix); closely held banks where 12 13 Anderlik and Cofer (2014). Lending specialty definitions are from Chapter 5 of FDIC (2012). FDIC Quarterly 43 2015, Volume 9, No. 4 Chart 1 Closely Held Community Banks Where Ownership and Managerial Control Overlap Have Consistently Reported Higher Profitability Pretax Return on Assets Percentage 1.4% 1.4% Widely Held 1.2% 1.2% Closely Held 1.0% 1.0% 0.8% 0.8% 0.6% 0.6% 0.4% 0.4% 0.2% 0.2% 0.0% 2009 2010 2011 2012 2013 2014 0.0% Widely Held Closely Held – Overlap Closely Held – No Overlap 2009 2010 2011 2012 2013 2014 Source: FDIC Analysis of Call Report data on 1,357 FDIC-supervised community banks headquartered in the FDIC Kansas City, Dallas, and Chicago Regions that were identified in the April 2015 FDIC Examiner Survey as closely held or widely held. the manager is an outsider (“No Overlap”); and widely held banks, where by definition there is no primary ownership group. Chart 2 Closely Held Community Banks Where Ownership and Managerial Control Overlap Have Consistently Reported Higher Profitability The first comparison we made is of the pretax return on assets. The left side of Chart 1 compares pretax return on assets for closely held and widely held community banks in our survey from 2009 to 2014 and shows that the closely held banks consistently outperformed widely held banks over this period. When we split closely held banks into those that have ownership–management overlap and those that do not (right side of Chart 1), however, we found that the closely held banks where ownership and management overlap clearly outperformed both widely held banks and the closely held banks where ownership and management did not overlap. The average annual performance advantage for closely held community banks with management overlap was 21 basis points higher compared with closely held banks with no overlap, and 30 basis points higher compared with widely held community banks. Although these gaps appear to have narrowed over the past three years, they were still more than 20 basis points in 2014. Efficiency Ratio of Community Banks by Ownership Type 72% 70% 68% 66% 64% Efficiency Ratio = 62% 2009 Noninterest Expenses Net Interest Income + Noninterest Income 2010 2011 2012 2013 2014 Source: FDIC Analysis of Call Report data on 1,357 FDIC-supervised community banks headquartered in the FDIC Kansas City, Dallas, and Chicago Regions that were identified in the April 2015 FDIC Examiner Survey as closely held or widely held. of closely held banks that have no overlap, as well as those of widely held banks (Chart 2). Looking at the components of the efficiency ratio, closely held banks with overlap of management and ownership reported higher salary expense as a percentage of average assets in each of the past six years. Higher levels of noninterest income and much higher loan yields, however, more than made up for the salary expense disadvantage. Another comparison that focuses more squarely on operational efficiency involves the efficiency ratio, or the ratio of noninterest expenses to net operating revenue. This measure represents the expense incurred by the bank to generate $1 of revenue. Similar to the profitability comparisons, over the most recent six-year period, closely held community banks in our survey that have overlap between ownership and management consistently reported efficiency ratios better than those FDIC Quarterly Widely Held Closely Held – Overlap Closely Held – No Overlap Because closely held banks and widely held banks differ in many characteristics, it is important to attempt to hold these other characteristics constant when comparing performance across these groups. Accordingly, we 44 2015, Volume 9, No. 4 Financial Performance and Management Structure of Small, Closely Held Banks Chart 3 Chart 4 There Is Little Evidence That Closely Held Community Banks Were at a Decided Disadvantage in Access to Capital Closely Held Community Banks Rely More on Retained Earnings as a Source of Capital Retained Earnings Closely Held External Capital 60% Percentage of Surveyed Community Banks Raising Capital, 2009 to 2014 25 40% 20 23.5 15.2 14.6 15 Widely Held 48% 52% Widely Held Closely Held 19.3 11.3 11.9 10 12.2 9.9 8.1 9.3 7.9 6.5 5 0% 20% 40% 60% 80% 100% 0 Percentage of Gross Capital Raised by Source, 2009 to 2014 Source: FDIC Analysis of Call Report data on 1,357 FDIC-supervised community banks headquartered in the FDIC Kansas City, Dallas, and Chicago Regions that were identified in the April 2015 FDIC Examiner Survey as closely held or widely held. Note: Excludes institutions in first year of existence. 2009 2010 2011 2012 2013 2014 Source: FDIC Analysis of Call Report data on 1,357 FDIC-supervised community banks headquartered in the FDIC Kansas City, Dallas, and Chicago Regions that were identified in the April 2015 FDIC Examiner Survey as closely held or widely held. Note: Excludes institutions in first year of existence. performed multiple regression analysis of the performance of the surveyed banks during the five years from 2010 to 2014 to determine the relative contribution of the different characteristics to financial performance. The appendix presents the results of the analysis. After controlling for the other differences between the banks, we find that being closely held has not had a statistically significant effect on financial performance. Having overlap between owner and management, however, has had a significant, positive effect on financial performance. This effect provides evidence that some of the benefit of a closely held organizational structure is the opportunity to resolve principal-agent problems by aligning the interests of managers with the interests of owners. study period.14 In all but one of the six years studied, widely held community banks raised external capital more frequently than closely held banks, and the gap was widest in 2014 (Chart 4). It is important to note here that external capital may also include capital from existing owners or insiders and, for community banks, is more likely to take place through a private placement than through a market offering. On balance, although the closely held banks in our sample relied more heavily on retained earnings to increase their capital, and also raised external capital less frequently than widely held banks, there is little evidence that closely held community banks were at a decided disadvantage in terms of access to external capital. Capital formation: Among community banks in our survey, closely held banks raise external capital less often than their widely held peers, but they do not appear to be disadvantaged in their access to capital sources. One potential concern about the closely held organizational structure is whether it limits the bank’s access to external sources of capital, thereby limiting the ability to respond to adverse shocks or to pursue strategic opportunities. As expected, the closely held banks surveyed have tended to rely more heavily on retained earnings to increase equity capital and to raise less capital from external sources than do widely held banks (Chart 3). Between 2009 and 2014, the closely held banks obtained 60 percent of gross additions to capital via retained earnings, compared with just 48 percent for the widely held community banks. Summary and Conclusions Community banks have been defined in a number of studies as being generally small institutions that rely on core deposit funding and operate as relationship lenders within a limited geographic area. Less attention has been paid in the literature to the ownership structure of community banks and how it relates to day-to-day operational control and to long-term management succession. Our time period includes three years in which the federal government recapitalized banks through the Troubled Asset Relief Program (TARP) and the Small Business Lending Fund (SBLF). These programs were more heavily used by widely held banks than by closely held banks. TARP was used in 2009 and 2010, and in those years, 36 percent of widely held banks surveyed that raised capital and 21 percent of closely held banks surveyed that raised capital received TARP funds. In 2011, the year the SBLF disbursed funds, 31 percent of widely held banks surveyed that raised capital received SBLF funds, compared to 24 percent for closely held banks surveyed that raised capital. 14 Moreover, we find that the widely held community banks surveyed raised capital from external sources somewhat more often than closely held banks over the FDIC Quarterly 45 2015, Volume 9, No. 4 This paper addresses the relative lack of data describing these attributes by introducing new survey data collected from FDIC examiners of community banks headquartered in 21 states in the central FDIC supervisory Regions of the United States. We find that threequarters of FDIC-supervised community banks in these Regions are defined by a closely held organizational form, where a primary ownership group exerts a deciding influence over the governance of the institution. The vast majority of these closely held institutions are owned by groups that share family or community ties, and a majority of them also exhibit a substantial overlap between the ownership group and the key officer who effectively runs the bank. Both closely held and widely held community banks in the survey appear to face significant challenges when it comes to management succession, with only half of closely held banks reportedly having identified a successor to the key officer at the time of the survey. These favorable comparisons between closely held and widely held community banks suggest that the closely held organizational form is by no means an impediment to performance, and may well be one of the keys to the success of closely held banks. Closely held community banks in which ownership and management largely overlap appear to exhibit advantages over other community banks even after accounting for other factors that affect performance. Nonetheless, this recipe for success—relying on managers who are insiders to the ownership group—may prove difficult for these institutions to replicate going forward as they address the issue of management succession. Additional research would be useful to better understand how community banks address management succession, and how their approach to this issue can affect their financial performance and their ability to remain independent. Authors: John M. Anderlik, Assistant Director Division of Insurance and Research Economic theory suggests that the closely held organizational form and overlap between ownership and management may each offer potential advantages and disadvantages for community bank performance. Managers of closely held banks may benefit from the ability to make decisions according to a longer time horizon than widely held banks, and their owners may be able to capture more of the returns than can be earned by monitoring the performance of bank managers. Closely held community banks may choose to pursue goals other than strict profit maximization, however, and may have limited access to external capital. Although closely held banks may be able to resolve agency conflicts with managers by recruiting those managers from within the ranks of ownership, this olution constrains the size of the talent pool. Even s when a closely held bank successfully aligns the longterm interests of owners and managers, it must do so all over again when it searches for qualified successors to its current management team. Kathryn L. Fritzdixon, Financial Economist Division of Insurance and Research We thank Richard Cofer, Martin Cooper, Chasity Dschaak, Jessica Kaemingk, James LaPierre, and Rich Speigle for their valuable contributions in helping to design and execute the examiner survey. We thank Clayton Boyce and Eric Breitenstein for a wide range of analytical and editorial assistance. Any remaining errors are the responsibility of the authors. References Anderlik, John, and Richard Cofer. 2014. Long-Term Trends in Rural Depopulation and Their Implications for Community Banks. FDIC Quarterly 8, no. 2:44–59. Anderson, Ronald, and David Reeb. 2003. Founding-Family Ownership and Firm Performance: Evidence from the S&P 500. Journal of Finance 58, no. 3:1301–28. Comparisons of financial performance and efficiency indicate that the closely held community banks surveyed consistently outperformed widely held community banks in recent years. The highest performance has been found among closely held community banks where there is substantial overlap between ownership and management, and therefore the potential for agency conflicts is minimized. Although closely held banks surveyed relied more on retained earnings to raise capital than did widely held banks, and raised external capital less frequently, there is little evidence that closely held community banks were at a decided disadvantage to widely held banks in terms of access to external capital. FDIC Quarterly Richard A. Brown, Associate Director Division of Insurance and Research Edwards, Franklin R. 1977. Managerial Objectives in Regulated Industries: Expense-Preference Behavior in Banking. Journal of Political Economy 85, no. 1:147–61. Federal Deposit Insurance Corporation (FDIC). 2012. FDIC Community Banking Study. FDIC. Hein, Scott, Timothy Koch, and Scott MacDonald. 2005. On the Uniqueness of Community Banks. Federal Reserve Bank of Atlanta Economic Review First Quarter:15–36. Jensen, Michael, and William Meckling. 1976. Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics 3, no. 4:305–60. Spong, Kenneth, Richard Sullivan, and Robert DeYoung. 1995. What Makes a Bank Efficient? A Look at Financial 46 2015, Volume 9, No. 4 Financial Performance and Management Structure of Small, Closely Held Banks Table A1 Characteristics and Bank Management and Ownership Structure. Financial Industry Perspectives December:1–19. Stewart, Jackie. 2013. Community Banks Are Falling Behind in Succession Planning. American Banker, March 26. http://www.americanbanker.com/issues/178_59/communitybanks-are-falling-behind-in-succession-planning-1057825-1. html. Accessed December 2, 2015. Regression Analysis Shows Closely Held Community Banks With Overlap of Managers and Owners Outperform Other Community Banks Appendix: Regression Analysis of Pretax Return on Assets Mean Pretax Return on Assets Closely Held = 1 Closely and widely held community banks differ in several characteristics that affect financial performance. To ensure that our comparisons are not simply based on these other characteristics, we perform multiple regression analysis of pretax return on assets comparing whether a bank is closely held, whether it has overlap of ownership and control, and a number of control characteristics. Regression analysis allows us to compare the performance of closely and widely held banks that are otherwise similar. Overlap = 1 Age Total Assets ($ million) Headquarters in Metropolitan Area Headquarters in Micropolitan Area Our regression takes the form of Market Power ROAit = β0 + β1CloselyHeldi + β2Overlapi + β3 Ageit + β4 Assetsit + β5 Metroi + β6BusinessLineit + β7 MarketPower + γ State + δ Year + εit, Agricultural Specialization Commercial and Industrial Specialization Commercial Real Estate Specialization where ROAit is pretax return on assets; Closely Held is an indicator variable equal to one if the bank is closely held and zero otherwise; Overlap is an indicator variable equal to one if there is overlap between ownership and management; Age is the age of the bank; Assets is the size of the bank measured in total assets; Metro is a set of indicator variables for whether the bank is headquartered in a county in a metropolitan statistical area, micropolitan statistical area, or rural area; and BusinessLine is a set of indicator variables for the bank’s business line. The panel regressions also include state and year fixed effects. Standard errors are clustered at the state level. Mortgage Specialization Multispecialty No Specialty State Fixed Effects Year Fixed Effects Observations Adjusted R-Squared Source: FDIC Data and April 2015 Examiner Survey. Notes: This table presents regression results for pretax return on assets on whether the bank is closely held, whether there is overlap in management and ownership, and a set of controls. Standard errors, clustered at the state level, are in parentheses below the coefficients. * p < 0.10 ** p < 0.05 *** p < 0.01. The results of the regressions are presented in Table A1. The data are from the December Call Report for each surveyed community bank for the years 2010 through 2014. The data show that closely held banks, on average, have not underperformed widely held banks, even when controlling for other bank characteristics that affect profitability. The coefficient on being closely held is small and statistically insignificant. Once we control for the other differences between closely and widely held banks, there does not appear to be a difference FDIC Quarterly Pretax Return on Assets 0.083 –0.0234 (0.0690) 0.117** (0.0427) 0.000125 (0.0011) 0.314*** (0.0401) –0.260*** (0.0518) 0.00821 (0.0767) 0.0000516** (0.0000) 0.409*** (0.1190) 0.172 (0.1970) –0.046 (0.1030) 0.200* (0.1110) 0.082 (0.0917) 1.039*** (0.3270) Yes Yes 6,784 0.131 in their financial performance. The coefficient on the overlap between ownership and management, however, is positive and statistically significant, which suggests that having an owner serve as day-to-day manager of the bank is an effective way to mitigate the principalagent problem in closely held banks. 47 2015, Volume 9, No. 4