FDICi 

FEDERAL DEPOSIT INSURAl'-CE CORPORATION 

FDIC Advisory Committee on 

Community Banking 

June 1, 2023 

Discussion of Banking Conditions 
 

Outline 

• Economic Overview

• Tight Labor Markets

• High Inflation and Rising Interest Rates

• Community Bank Performance

• Net Interest Margins

• Credit Risk

• Commercial Real Estate

• Residential Real Estate

• Consumer Lending

2 
2.8 

Source: Bureau of Labor Statistics. 

2.1 

19 

21 

2.9 

3.0 

State Unemployment Rate 

■ Highest 5 

D Above Nationwide Average 

D Below Nationwide Average 

D Lowest 5 

Nationwide Average: 3.5 percent 

* 

Labor market conditions are tight but vary across states. 

3
 

 

 

Inflation is falling from multi-decade highs as interest rates rise. 

-4

-2

0 

2 

4 

6 

8 

10 

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Jan-20 Jan-22

Annual Consumer Price Index (CPI) 

Inflation 

Annual Core CPI Inflation 

Federal Funds Rate 

Sources: Bureau of Labor Statistics, Federal Reserve Board (Haver Analytics). Data through April 2023. 

Note: Gray areas indicate recession. 

Percent 

4
 

Percent 

4.5 

4.0 

3.5 

3.0 

2.5 

2.0 

1.5 

1.0 

0.5 

Quarterly Net Interest Margin 

- Community Banks 

- Industry 

o.of------------------------------------

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 

Source: FDIC. 

Net interest margins decreased from the previous quarter but 

increased from the year-ago quarter. 

5 
 

Community Bank Quarterly Change in Loan Yields and 

Basis Points Deposit Costs 

45 

40 

35 

30 

25 

20 

15 

10 

- Change in Community Bank Loan Yields 

- Change in Community Bank Deposit Costs 

5 

0 

2022Q2 

Source: FDIC. 

2022Q3 

Note: Ratios are annualized. 

2022Q4 2023Ql 

Community bank deposit costs increased more than loan yields in 

the first quarter. 

6 
 

 

 

 

Discussion Questions 

• Have your business customers been affected by

tight labor market conditions in your area? Has

your bank’s hiring been affected?

• How is your bank being affected by inflation and

rising interest rates?

• Is your bank experiencing NIM compression?

What, if anything, is your bank doing to support

NIMs?

7 
 

 

-

-

-

-

■ 

■ 

■ 

■ 

CRE loans at banks have reached a new peak. 

0.0 

0.5 

1.0 

1.5 

2.0 

2.5 

3.0 

3.5 

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 

$ Trillions 

Acquisition, Development, and Construction 

Nonfarm Nonresidential 

Multifamily 

CRE not Secured by Real Estate 

Bank-Held CRE Loans 

Source: FDIC. 

Note: Quarterly data, first quarter 2010 through first quarter 2023. 

8 
 

 

 

 

- -

- - ~ --

~ f--

-

~ - - - -~ 

f--

-

-

f--

-

I I I I I I I I I I I I I I I I I I I I I 

Banks with CRE concentrations are growing. 

0% 

10% 

20% 

30% 

40%

 -

500

 1,000

 1,500

 2,000

 2,500

 3,000

 3,500 

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 

# CRE-Concentrated IDIs (L) 

% of Total IDIs (R) 

# IDIs % of IDIs 

CRE-Concentrated Institutions* 

Source: FDIC. 

Note: Quarterly data, first quarter 2010 through first quarter 2023. 

9 *CRE-concentrated is defined as ADC loans >100% or Total CRE loans >300% of Tier 1 Cap and ALLL/ACL.
 

....... .... .... -- ... 

--- : --- .,. 

Vacancy rates are expected to keep rising, except in retail. 

0 

3 

6 

9 

12 

15 

1Q06 1Q08 1Q10 1Q12 1Q14 1Q16 1Q18 1Q20 1Q22 1Q24 

Office 

Multifamily 

Industrial 

Retail 

Source: CoStar. 

Note: Actual data through first quarter 2023. Forecast ends at first quarter 2024. Retail series begins fourth quarter 2007. 

Forecast 

Vacancy Rate 

Percent 

10 
 

 

-

-

Brisk multi-family construction began to surpass demand in 2022. 

0 

2 

4 

6 

8 

10 

0.00 

0.25 

0.50 

0.75 

1.00 

1.25 

1.50 

1Q07 1Q09 1Q11 1Q13 1Q15 1Q17 1Q19 1Q21 1Q23 

Absorption/Stock (%, Left Scale) 

Completions/Stock (%, Left Scale) 

Vacancy Rate (%, Right Scale) 

Actual Forecast 

Source: CoStar. 

Note: Actual data are as of first quarter 2023. Forecast ends at first quarter 2024. 

11 
 

 

 

Regional and community banks have been active lenders across the 

spectrum of CRE property types over the past five years. 

Share of CRE Lending – Regional/Community Banks 

Percent 

40 

35 

30 

25 

20 

15 

10 

5 

0 

Retail Hotel Industrial Office Apartment 

20 

13 

36 

29 28

Sources: Real Capital Analytics; CreditSights. 

Note: Data are the average share of financing by property type from 2017 to 2022. 12 
 

 

 

 

-

-

Mortgage activity has declined sharply as rates have increased. 

Home Sales and Mortgage Originations 30-Year Fixed Rate Mortgage Rate

Year-over-year percent change Percent 

Total Mortgage Originations (Left Axis) 140 7 

Total Existing Home Sales (Left Axis) 120 30-Year Fixed Rate Mortgage Rate (Right Axis) 6

100 

80 5 

60 

4 40 

20 3 

0 

-20 2

-40

1 

-60

-80 0 

2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 

Sources: National Association of Realtors, Mortgage Bankers Association, Freddie Mac (Haver Analytics). 

Note: Data are quarterly. Originations through fourth quarter 2022; home sales and mortgage rates through 

first quarter 2023. Weekly rate and monthly sales data were converted by Haver to quarterly data. 

13 
 

 

 

Credit card balances and delinquencies are rising. 

Transition into Serious Delinquency (90+) 

for Credit Cards by Age % of Balance 

10% 

2% 

3% 

4% 

5% 

6% 

7% 

8% 

9% 

1% 

18-29 30-39 40-49 50-59 60-69 70+ 

0% 

4Q17 2Q18 4Q18 2Q19 4Q19 2Q20 4Q20 2Q21 4Q21 2Q22 4Q22 

14 
 

 

Credit Risk Discussion 

• What credit risk trends are of most concern to 

your bank?

• How would you characterize demand for your

bank’s lending products?

• Has your bank adjusted its lending standards in

light of market trends?

15 
 

General Discussion 

• What other risks or concerns would you like to

highlight?

16