| Community banks had another strong quarter, but the majority of the 5,294 community banks in the U.S. saw declines in noninterest income as the pace of loan growth slowed.
Sixty-seven percent of community banks in the U.S. reported annual increases in net income, according to the FDIC’s third quarter banking profile.
Quarterly net income rose 6.7 percent to $6 billion on the year, reflecting an annual increase of 9.4 percent. Compared with the previous quarter, the number of banks reporting a net loss declined by 11 to 216. Two new community banks received charters during the quarter, and no community banks failed.
More than half of community banks reported a decrease in noninterest income compared with the same quarter last year. A reduction in net gains on loan sales during the year caused this decline, lowering noninterest income by $174.2 million, or 3.4 percent.
“Community banks reported another solid quarter of revenue, net income and loan growth,” FDIC Chairman Martin J. Gruenberg said in a statement. “While the quarterly results were largely favorable, the industry continued to see a gradual slowdown in the annual rate of loan growth.”
Higher interest income on non 1 to 4 family real estate loans pushed net interest income up 9.7 percent during the year to $18.8 billion.
The net interest margin rose four basis points from the linked quarter and seven basis points since the previous year. At 3.65 percent, the community bank net interest margin is 35 basis points wider than the industry, but this spread has narrowed 19 basis points since third quarter of 2015.
Community bank loan balances increased $26.3 billion (1.7 percent) to $1.6 trillion during the quarter, reflecting an annual increase of $106.7 billion (7.3 percent).
Quarterly and yearly increases slowed moderately compared with the quarterly growth rate of 2.7 percent and yearly growth rate of 7.8 percent achieved as of the second quarter. Both quarterly and annual loan growth rates continued to exceed those of the industry.
Growth in non-farm, nonresidential loans of $9 billion, led the increase in loan volume, followed by 1 to 4 family residential mortgage loan growth of $5.2 billion, and construction and development loan growth of $3.3 billion.
Community banks continued to hold a higher volume of loans and leases as a percentage of total assets (69.3 percent) when compared with the industry (54.7 percent).
Net charge-offs fell $234.5 million (34 percent) from the previous quarter and $132 million (22.5 percent) from the previous year.
“Third quarter results for the banking industry were largely positive,” Gruenberg said, adding that “an extended period of low interest rates and an increasingly competitive lending environment have led some institutions to reach for yield. This has led to heightened exposure to interest-rate risk, liquidity risk and credit risk. These risks must be managed prudently for the industry to continue to grow on a long-run, sustainable path.”
