FDIC Publishes Wide-Ranging Community Banking Study

The FDIC today released a large-scale Community Banking Study that examines community bank performance between year-end 2011 and year-end 2019. The study—which is an update to a previous report published by the FDIC in 2012—examined community bank financial performance and structural changes among community and noncommunity banks. It also reviewed the effects on community banks of demographic changes, technology and regulatory changes, and discussed future challenges and opportunities—including how COVID-19 will affect community banks in these key areas.

The report retains the definition of a “community bank” established in the previous report, which takes into account a bank’s business plan, geographic footprint and number of branches. The study found that the number of community banks fell from 6,802 to 4,750 during the survey period, primarily driven by voluntary merger activity. The FDIC also found that community banks acquired more than two-thirds of the community banks that closed during that time.

Overall, the study found community banks’ financial performance to be positive, with steady improvements in pretax return on asset ratios after the last financial crisis, wide net interest margin, and strong asset quality. With regard to lending, the study noted that community banks far exceed their aggregate share with regard to commercial real estate, small business and agricultural lending. Community banks represent 15% of the industry’s total loans, but 30% of all CRE loans, 36% of small business loans and 70% of agricultural loans, the study found.