FDIC Advisory Committee on 

Community Banking

April 13, 2021

2020 Community Banking Study and FDIC Quarterly Article: 

“Farm Banks: Resilience Through Changing Conditions”
 

 

 

 

 

 

 

2020 Community Banking Study - Introduction 

• This study is a follow-up to the original FDIC Community Banking Study, 

published in December 2012. 

• That study defined "community banks" and discussed the characteristics 

and performance of community banks compared to noncommunity banks. 

• That study used banking data from 1984 through year-end 2011. 

• This study builds on several of the themes and conclusions of the 2012 study, 

bringing them forward through year-end 2019. 

• This study also presents two new assessments: regulatory change and 

technology, and their respective effects on community banks. 

• Though the study period ends at year-end 2019, each chapter includes an inset 

box regarding the pandemic's effects on the issue. 

2 
 

 

 

 

Chapter 1: Community Bank Financial Performance 

Quarterly Average Net Interest Margin (NIM) 

Percent 

4.0 

3.8 

3.6 

3.4 

3.2 

3.0 

2.8 

2.6 

2.4 

Community Banks 

Noncommunity Banks 

Key Question: How have community banks 

performed since the conclusion of the previous 

study? 

Key Findings: 

• Community banks have reported positive financial 

performance, with pretax ROA ratios steadily 

improving from 2012 through 2019. 

• Community banks benefit from wide net interest 

margins and asset quality metrics that are superior 

to those of noncommunity banks. 

• However, community banks earnings continue to 

lag noncommunity banks, primarily as a result of 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 generating lower volumes of noninterest income. Source: FDIC. 

3 
-----------------· 

Share of Community Banks at Year-end 2011 That 

Stopped Operating and Were Acquired by Other 

Community Banks Between 2012 and 2019, by 

Percent Asset Size 

100 

90 

80 

70 

60 

50 

40 

30 

20 

10 

0 

89 

65 

32 

18 

All Community Banks: 67 

< $100 Million $100 – $500 $500 Million – $1 – $10 Billion

Million $1 Billion 

Source: FDIC. Assets of Acquired Community Banks 

 

 

 

 

 

 

 

 

 

Chapter 2: Structural Change Among Community and 

Noncommunity Banks 

Key Question: How has banking industry consolidation 

proceeded between 2012 and 2019? 

Key Findings: 

Both community and noncommunity banks have continued to 

consolidate, although community banks at year-end 2011 were 

less likely to cease operating by 2019 than noncommunity 

banks. 

• Voluntary mergers between unaffiliated institutions have 

increased in importance, while failures and mergers 

between institutions in the same holding company have 

declined. The rate of net consolidation, however, has risen 

because of a sharp decline in new charters after 2012. 

• Community banks that cease operating do so primarily 

because they are acquired by another community bank. 

4 
, .. 

 

 

 

 

 

 

 

Chapter 3: The Effects of Demographic Changes on 

Community Banks 

ratios. 

Sources: U.S. Census, 2018 Census American Community Survey. 

Younger Inflow Counties 

Older Inflow Counties 

Younger Outflow Counties 

Older Outflow Counties 

Other Counties 

Key Question: How has the changing demographic 

makeup of the U.S. affected demand for community bank 

services in their local communities? 

Key Findings: 

• Between 2011 and 2019 community banks headquartered 

in counties with lower median ages and the highest levels 

of net migration inflows experienced: 

• faster asset and loan growth rates; 

• higher profitability; and 

• larger shares of business loans. 

• Community banks serving areas with higher median ages 

and highest levels of net migration outflows experienced 

fewer opportunities for growth. 

• Higher median ages have higher deposit-to-asset 

5 
Key Question: 

banking industry play in commercial real estate 

lending? 

Key Findings: 

• 

• 

 • 

 

Community Banks' Share of the Banking 

Industry's Assets and CRE Loans, 1989 to 

Percent 

40 

35 

30 

25 

20 

15 

10 

5 

0 

2019 

Assets CRE Loans 

1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 

Source: FDIC. 

 

 

 

 

 

 

 

 

 

Chapter 4: Notable Lending Strengths of Community 

Banks – Commercial Real Estate (CRE) 

What role does the community 

Community banks hold almost one-third of the 

banking industry's CRE loans, despite having 

only a small share, 12 percent, of the banking 

industry’s total assets. 

Community banks are active lenders across the 

spectrum of CRE industries, including retail and 

multifamily housing properties. 

• Community banks are important lenders to CRE 

property owners located in small markets. 6 
  

 

 

 

 

 

 

Chapter 4: Notable Lending Strengths of Community 

Banks – Small Business Lending 

Key Question: Are community banks lending to 

small businesses in their communities? 

Key Findings: 

• Community bank small business loans represent 

36 percent of total small business loans. 

• Call Report numbers are showing a decline, but: 

• Community banks state that most of their C&I 

loans are to small businesses. 

• Community banks have seen a rise in their 

share of SBA 7(a) loan originations with many 

loans greater than $1 million. 

$ Billions 

160

140 

120 

100 

80 

60 

40 

20 

0 

Source: FDIC. 

Small Business Loans By Dollar Size 

 < $100 $100- $250-$1 

Thousand $250 Million

Thousand 

Noncommunity Banks 

2011 

 < $100 $100- $250-$1 

Thousand $250 Million 

Thousand

Community Banks 

2019 

7 
 

Shares of Community-Bank Agricultural Specialists 

by Number of Years Considered Agricultural 

Specialists, Year-End 2019 

Percent of Institutions 

0 55.5 

0 

0 

0 

0 

7.6 0 3.8 3.9 4.7 3.7 5.2 5.8 4.7 5.3 

0 

1 to 3 4 to 6 7 to 9 10 to 13 to 16 to 19 to 22 to 25 to 28 to 

Years Years Years 12 15 18 21 24 27 30 

Years Years Years Years Years Years Years 

Number of Years Categorized as an Agricultural Specialist 

1990 Through 2019 Source: FDIC. 

Notes: Sample only includes banks open from January 1, 1990, through year-end 

2019, that were considered a community bank during all quarters of 1990 and 2019,

and were also considered an agricultural specialist in any quarter during 1990. A 

bank is considered as having been an agricultural specialist in a given year if it was 

identified as an agricultural specialist in any quarter during that year. 

 

Chapter 4: Notable Lending Strengths of Community 

Banks – Agriculture 

6

5

4

3

2

1

Key Question: What role does the community banking 

industry play in agricultural lending? 

Key Findings: 

• Community bank agricultural specialists hold more than 

one-third of the banking industry's agricultural loans 

despite holding just one percent of the banking 

industry's total assets. 

• Community bank agricultural specialists 

are concentrated in the center of the nation 

where agriculture is heavily concentrated in row crops 

such as corn, soybeans, and wheatand in cattle and hog 

production. 

• Most community bank agricultural specialists have a 

long history tied to agriculture, and thereare few new 

entrants into this lending space. 8 
of Small Mortgage Lenders 

Materially Reducing Mortgage Holdings 

Banks With Annualized Reduction in Mortgages of 5 Percent or More 

Percent of Small Lender Group 

60  1995 - 2001 

50  2001-2007 

40  2007 -2013 

30 

 2013 -2019 

20 

10 

0 

Assets< $100 Million Residential 

Mortgages< 5 

Percent of Assets Source: FDIC. 

Residential 

Mortgages< $1 

Million 

l'lote: Bars represent the percentage of community ban ks in each 

small lender group that reduced 1-4 family resident ia I mortgages 

holdings at an annualized rate of at least 5 percent during the six-year period. 

 

 

 

 

 

 

 

 

 

Chapter 5: Regulatory Change and Community Banks 

Key Question: How have regulatory developments 

since 2008 affected community banks? 

Key Findings: 

• While loan growth and financial performance 

have recovered strongly from the crisis, the pace of 

regulatory change may be one factor influencing: 

• An apparent reduction in residential mortgage 

lending by small mortgage lenders; 

• A record rate of exit from the banking industry 

by community banks; and 

• An apparent increase in the target asset size of new 

small banks as reflected in their initial equity capital. 

• The findings support the idea that if the benefits of a 

thriving community bank sector are to be preserved, 

regulations should achieve their goals in a way that 

accommodates, to the extent appropriate, the business 

models of community banks. 9 
•   

 

 

 

 

 

 

 

 

 

Percent 

Chapter 6: Technology in Community Banks 

Key Question: How did community banks that Percentage of Community Banks in Each Adoption adopted technology differ from those that did not? Category by Asset Size 

First Quarter 2019 

Less Than $100 Million Key Findings: 

• Community banks are most often focused on their 

$100 Million to $200 Million customers when describing the opportunities of 

technology, and on cost when describing its 

$200 Million to $500 Million challenges. 

• Larger community banks and those with higher 

$500 Million to $1 Billion revenues were most likely to adopt certain 

technologies. 

More Than $1 Billion • Technology adoption was also associated with 

higher loans-to-assets ratio, higher growth, a 

stronger economic and competitive environment, 

Low Adopting Medium Adopting High Adopting and a more positive outlook by bank leadership. 

0 25 50 75 100 

Sources: FDIC; CSBS. 10 
 

 

 

 

 

 

 

 

FDIC Quarterly 

“Farm Banks: Resilience Through Changing Conditions” 

This paper is organized into two sections: 

• The first analyzes the income boom in the U.S. agricultural 

sector from 2004 through 2013, weaknesses in the sector from 

2014 through 2019, and the events of 2020. 

• We focus on 12 states in the Upper Midwest where the effects 

of the boom and subsequent downturn were most 

substantial. 

• The second section discusses the impact of agricultural issues 

on farm bank conditions during the downturn and assesses 

potential challenges. 

11 
.S. Agriculture Experienced a Farm Income Boom 

From 2004 Through 2013 

Inflation-Adjusted Annual U.S. Net Farm Income 

2020 Dollars (Billions) Avg. Income 

180 .---.-Farm Income Booms - ·~-- 2014 

160 

140 

120 

100 

80 

60 

40 

20 

0 

1960 1970 

Avg. Income 

1987 

Avg. Income 

2004 

Through 

2013 

1980 1990 2000 

Source: U.S. Department of Agricultu.-e(Haver Analyticsi. 

Mote: 2020 is i1 forec;,ist. 

2010 

Through 

2019 

2020F 

 

 

 

 

 

 

 

A Lengthy Period of Agricultural Prosperity Was 

Followed by a Slow Recovery 

• From 2004 through 2013, farmers benefitted from the 

most prosperous conditions in a generation. 

• Farm incomes boomed as a variety of factors drove 

commodity prices to record highs. Expenses rose as 

well, but not as fast. 

• From 2014 through 2019, commodity prices fell while 

expenses remained sticky. 

• 2020 started poorly for farmers, as the COVID-19 

pandemic initially looked to be devastating for U.S. 

agriculture. But record government assistance and a 

rebound in exports and commodity prices late in the 

year propelled farm income to its highest level since 

2013. 

12 
U.S. Farm Real Estate Values Rose Substantially 

Between 2005 and 2015 

Inflation-Adjusted U.S. Farm Real Estate Values 

Dollars per acre (2020 Dollars} 

3,500 

3,000 

2,500 

2,000 

1,500 

1,000 

500 

0 

+-Farm Income Boom Periods-+ 

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 

Source: U.S. Dep;:irtment of.i\griculture. 

Note: Figllres are as of August 6, 2020, and represent annualaverage per-acre values of 

farm real estate in tile U.S. througll2020. Farn1 real estate includes land and 

irn provements. 

 

 

 

 

 

 

 

 

A Boom in Farmland Values Coincided With the Boom in 

Farm Income 

• The recent farmland boom was far more 

geographically concentrated than the farmland 

boom of the 1970s. 

• The eight states in which farmland values at least 

doubled during the recent boom all were in the 

Upper Midwest.* 

• Historically low interest rates, combined with tight 

supplies and steady demand for farmland, helped 

farmland values remain high despite lower incomes. 

* Upper Midwest (12 states): Illinois, Indiana, Iowa, 

Kansas, Michigan, Minnesota, Missouri, Nebraska, North 

Dakota, Ohio, South Dakota, and Wisconsin. Primary 

agricultural production in these states includes cattle, 

corn, and soybeans, and to a lesser degree dairy, hogs, 

and wheat. 13 
Upper Midwest Has Had Much Greater Swings 

in Net Farm Income Than the Rest of the Nation 

Indexed Aggregate Net Farm Income, by Region 

17-year average (1987 through 2003) = 100 

300 - All Other USDA Regions (Low-High Range) 

250 

200 

150 

100 

50 

0 

---All Other USDA Regions Com bined 

- Upper Midwest 

1987 1992 1997 2002 2007 

Source: U.S. Dep,u tment o f Agriculture (H,wer An<1 lytics). 

2012 2017 

Note: Data are inllatio11-adjusted net farm income figures frnm 1987 t hrough 2019 a11d 

;,ire <1ggreg;:ited by USDA Economic regions. "Upper Midwest" con t;:iins USO.ti's Corn Belt, 

Lake States, and Nortllem Plains regio11s. The base i11dex period o f 1987 througll2003 

sp<1 ns the relatively more c;:ilm period between the t<1 il end o f the 1980s agricultur<1lcrisis 

;,ind the 2004 through201.3 form incom e boom . 

 

 

 

 

 

 

 

 

 

Agricultural Incomes in the Upper Midwest Fluctuated 

Widely During and After the Boom 

• The Upper Midwest had among the lowest net 

farm income of any region in the early 2000s but 

then quickly rose and outperformed all other 

regions during the farm income boom. 

• As the farm income boom ended, the Upper 

Midwest again experienced a sizeable swing and 

fell to among the lowest-performing regions. 

• At its peak in 2011 and 2013, aggregate farm 

income in Upper Midwest states was 2.4 times 

greater than its long-term pre-boom average. 

Income then fell by more than two-thirds to its 

bottom in 2016. 

14 
of Every Four U.S. Commercial Farm 

Banks Are Based in Upper Midwest States 

Dots represent 

1,163 fa nn ba nks 

Source: FDIC. 

Note: Data are as of December 31, 2020. The FDIC defines farm bank as an 

FDIC-insured institution with 25 percent or more of total loans 

concentrated in agriculture. Fann banks located based on state of 

headquarters office. Shaded states are defined as Upper Midwest states. 

 

 

 

 

 

 

 

Farm Banks Play a Vital Role in Supporting U.S. 

Agricultural Producers and Rural Communities 

• Despite holding just 2 percent of all bank loans in the 

U.S., farm banks hold 44 percent of all bank-held 

agricultural loans. 

• Farm banks, which tend to be small, are 

geographically concentrated in the Upper Midwest. 

• The booming agricultural sector largely insulated 

farm banks from the effects of the collapse in housing 

and CRE markets that coincided with the Great 

Recession. 

• Instead, farmers were flush with cash. As a result, 

farm banks simultaneously faced increasing deposit 

balances and declining loan growth. 

15 
Agricultural Loan Farm Real Estate Agricultural Loan Farm Real E;tate 

Concentration Ratios (Percent} Value Per Acre Concentration Ratios ( Percent) Value Per Acre 

350 2,500 350 3,500 

,, ...... 

,-• 2,000 , 3,000 , 300 , 300 , ,, , , , _, , 

1,500 ,", ,,.,' , .......... 2,500 , , 

/ ,, 

250 , 250 , ,, , ,. , 1,000 2,000 

- Concentration Ratio 

200 200 

---Farm Real Estate Value 500 - concentration Ratio 1,500 

---Farm Real Estate Value 

150 0 150 1,000 

1972 1976 1980 2005 2010 2015 

 

 

 

A Cautious Attitude Generally Prevailed Concerning 

Borrowing Against Rapidly Rising Farmland Values 

Agricultural Loan Concentrations at Farm 

Banks Remained Low During the Recent 

Boom in Farm Real Estate Values 

Sources: FDIC; U.S. Department of Agriculture. 

Note: Farm real estate values are inflation-adjusted annual figures representing the average 

per-acre value of farm real estate in the United States. Concentration ratios are median fourth 

quarter ratios. Because total capital is not available prior to 1996, and for consistency, 

concentration ratios for all periods are calculated by dividing total agricultural loans by total 

equity capital and loan loss reserves. 

• The boom in farmland values provided ample 

opportunities for bankers to sharply expand credit 

to farmers. 

• Nevertheless, farm bankers and their borrowers 

were generally conservative during this period. 

• This cautious behavior contrasted with the 

previous farm boom in the 1970s, a period in 

which farm banks responded to surging farmland 

prices by dramatically increasing lending to fund 

expanding farms. 

16 
Past-Dye and Non accrual Agricultural L<>an 

Ratios at Farm Banks Reporting Delinquent 

R1ti0 

(Peroentl 

25 

20 

15 

10 

s 

0 

1D8S 

Agricultural Loans 

- Upp"rM4w~;t $ to1tQ; 190th pgrontil" • 

- - - Vpper MdV/1?$tStl.\te$(Jrot•di,rn) 

---All Othc,r Stal»5 ~90Ch Porcontilo) 

---- --- All Other Sbbe:1 (Medi:.n} 

90th Poruntilu 

200S 2015 

tlet Charged-Off Agricultural Loan Ratios at Farm 

Banks Reporting Net Charged-Off Agricultural 

R1ti0 

(Percent) 

10 

• 

6 

• 

l 

0 

1D8S 

lo.:ms 

- Vpp,9r Midw"n $t.)to-$ •90th PQrc-ontil" • 

- - - Vl)l);?r frolidwest Statie-s {t,t1?di..l11) 

---All Otho, S.tatc,:. (90th Po,cc,ntaot 

----· •· All Other S.t:.tu (Medi:tn) 

19DS 

Farmlncamo 

··-

2005 2015 

 

 

Overall, Credit Conditions at Farm Banks Remain 

Favorable 

Agricultural Loan Delinquencies and Charge-Offs Have 

Risen in Recent Years but Remain Low by Historical 

Measures 

• Farm bank agricultural credit portfolios have held up 

well overall despite the agricultural industry’s 

challenges since 2014. 

• Where issues with delinquencies are becoming 

evident are in outlier farm banks, especially those in 

the Upper Midwest. 

• FDIC bank examiners have noted increasing 

carryover debt at farm bank examinations, and 

industry participants have discussed the trend at 

meetings with regulators. 

Source: FDIC. 

Note: Agricultural loan delinquency ratios at farm banks typically spike in the first quarter while 

agricultural loan charge-offs typically spike in the fourth quarter. As a result, the data shown is 

first-quarter delinquency ratios and fourth-quarter net charge-off ratios from 1985 through 

2020. Upper Midwest states are Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, 

Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin. 17