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Community banks outshine industry in Q3

Net income, loan growth, and NIMs come in strong

Community banks outshine industry in Q3

A few years back, it was not unusual for the strong performance of a few very large banks to move the industry’s needle, belying lackluster earnings, or even losses, by the majority of the industry, community-based banks. But 2014’s third quarter came in with community banks as a group posting slightly better earnings improvement year over year than the industry as a whole.

On Tuesday, Nov. 25, FDIC issued its Quarterly Banking Profile. Nearly two out of three community banks reported higher earnings for the third quarter 2014 over 2013, and only 6.6% were unprofitable for the quarter.

Community banks bettered the industry’s overall numbers in three key measures:

Earnings. Net income at community banks for the third quarter of 2014 rose over the third quarter of 2013 by 7.8%. For the entire industry, net income was up 7.3% year over year for the quarter. Community banks earned a total of $4.9 billion in the quarter.

More than 70% of community banks saw increased net interest income for the quarter. About a third of the industry’s net interest income growth resulted from community banks.

Loan growth. Year-over-year loan growth among community banks of 8% outran the industry’s growth of 4.6%. Among community banks overall loan balances rose by 1.9% over the second quarter of 2014, versus the industry’s growth rate of under 1% for the same period. Nearly three out of four community banks saw higher loan growth than in over the second quarter. All major loan categories grew among these banks, with commercial real estate loans growing the most.

Loans to small businesses grew by 0.9% in the quarter, over the second quarter, among community banks, outdoing the industry, which saw 0.3% growth. Growth rates were higher year over year—3.6% for community banks, 2% for all banks.

Overall, loan quality improved, according to FDIC.

Community banks’ share of small business lending held steady at 45%.

Net interest margin. Community banks produced a net interest margin 51 basis points over the industry’s average. Net interest margin increased among community banks in five of the last six quarters for community banks, while it was flat or lower for the industry over that period.

FDIC Chairman Martin Gruenberg noted that third quarter income growth for all banks was founded on revenue growth, as opposed to lowering of loan-loss provisions.

“This can be a more sustainable foundation for continued earnings growth going forward,” said Gruenberg.

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