2023 Risk Review | 23

SECTION 3

Credit Risks

Agriculture 

• The agricultural sector earned record profits in 2022 despite widespread drought conditions. Farm income 

is forecast to decline in 2023 due to higher interest rates and rising expenses but remain above its longterm average.

• Loan growth and higher loan yields boosted farm bank earnings in first quarter 2023 following a down year 

in 2022.22 Liquidity ratios at farm banks declined from previous highs but remained above the ten-year 

average.

• Stronger farm sector financial conditions led to improved farm bank asset quality through first quarter 

2023, but higher interest rates and production costs pose challenges. 

22 Unless otherwise noted, banking data are for farm banks only.

There were 1,015 farm banks comprising more than one-fih of all banks as of first quarter 2023.

All but 11 of these banks are also considered community banks by the FDIC’s definition (see Glossary

of Terms). In first quarter 2023, agricultural loans held by all banks totaled $183.6 billion. 

Source: FDIC. 

Regional Exposure to Agricultural Lending

Dots on the map represent the 220 banks with total agricultural loans above 300 percent of capital. 

• Community banks hold 69 percent ($127 billion) of total agriculture loans.

• More than 20 percent of farm banks (220 banks, or 4.7 percent of all banks) hold a concentration of agricultural 

loans above 300 percent of capital (tier 1 capital and credit loss reserves for loans and leases).

• Exposure to agriculture lending is concentrated in the Midwest.
24 | 2023 Risk Review

The agricultural sector earned record profits in 

2022 despite widespread drought conditions. The 

U.S. Department of Agriculture (USDA) forecasts that 

2022 net farm income rose 15.5 percent year over year 

to $162.7 billion, a record high on an inflation-adjusted 

basis.23 Growth in crop and livestock revenues more 

than offset higher production expenses and lower 

government payments (Chart 13).24 Higher commodity 

prices drove nearly all of the increase in crop and 

livestock revenue. Prices for various crops climbed to 

record or near-record highs in the first half of 2022 as 

the war in Ukraine and the U.S. drought caused supply 

challenges.25 Prices retreated through first quarter 

2023 but remained relatively high for corn, soybeans, 

and wheat.

During 2022, the share of the nation in moderate or 

worse drought conditions neared the share recorded 

during the historically severe drought in 2012 

(Chart 14).26 Poor pasture conditions from drought 

contributed to herd liquidation for many cattle 

producers, which boosted cattle prices.27 In addition, 

the price of poultry and eggs rose considerably in 2022 

after an outbreak of bird flu, which was the nation’s 

most severe on record.28 

Farm income is forecast to decline in 2023 due 

to higher interest rates and rising expenses but 

remain above its long-term average. The USDA 

forecast indicates that farm income will decline nearly 

16 percent in 2023 from the 2022 level.29 Factors 

expected to reduce income include higher interest 

costs, production costs, and higher purchase costs for 

livestock and poultry, combined with lower commodity 

prices.30 Nonetheless, farm income is projected to 

remain 20.8 percent above the prior 20-year average.

23 See USDA, 2023 Farm Sector Income Forecast, February 7, 2023. The 2022 forecast will become an estimate with the USDA’s next forecast release scheduled for 

August 31, 2023.

24 According to the USDA, crop and livestock receipts increased $88.7 billion, while production expenses rose $52.6 billion in 2022. This was the largest nominal 

year-over-year increase in production expenses on record.

25 For example, wheat prices received by farmers increased 27 percent during the first five months of 2022. Corn and soybean price swings mirrored those of 

wheat. A decline in the sunflower supply pressures substitutes including soybeans. 

26 See the Climate-Related Financial Risk section of this report for more information on U.S. drought conditions in 2022.

27 A survey conducted in late 2022 by the Farm Bureau found that 61 percent of respondents reported selling off portions of their herd, with an average reduction 

of 33 percent. As of January 1, 2023, the USDA reports that cattle inventories declined 3.6 percent from a year earlier, the largest decline since 1986.

28 According to the USDA, 57.8 million birds were affected by bird flu in 2022, surpassing the previous record of 50.5 million in 2015. The outbreak has continued in 

2023, although at a slower pace, with an additional nearly 1 million birds affected from January 1, 2023, through the end of May 2023. As the bird flu outbreak has 

slowed, egg prices have declined in first quarter 2023, falling more than 20 percent from fourth-quarter 2022 levels. However, prices are still well above historical 

prices.

29 See USDA, 2023 Farm Sector Income Forecast. 

30 The USDA forecast suggests that rising interest rates will drive interest costs higher by 22.4 percent and that livestock and poultry purchase costs will increase 

13.6 percent. On an inflation-adjusted basis, production expenses are projected to increase $5.7 billion (1.3 percent) in 2023, following an 11 percent increase in 

2022. 

31 The land value summary is an annual report with the next release scheduled for August 2023.

Lower prices and higher input costs will likely tighten 

crop producer profit margins in 2023, particularly for 

those producers who rent a significant share of their 

farmland. Cattle ranchers, on the other hand, are 

likely to see margins expand because of price strength 

on the heels of 2022 herd liquidation combined 

with lower feed costs. Improved drought conditions 

throughout much of the United States during the first 

half of 2023 should also benefit the cattle sector.

Strong net farm income bolstered farm real estate 

(farmland) values in 2022 for a second consecutive 

year last year. Average U.S. farmland values increased 

an estimated 12.4 percent on an annual basis in 

2022, the largest year-over-year increase since 2006, 

according to the August 2022 USDA Land Values 

Summary report.31 Three midwestern states—Iowa, 

Kansas, and Nebraska—reported farmland value 

increases of more than 20 percent. Cropland values 

rose 14.3 percent, while pastureland values increased 

11.5 percent. First quarter agricultural condition 

surveys from various Federal Reserve Banks indicated 

farmland values continued to increase but at a much 

slower pace than in 2022.
2023 Risk Review | 25

$ Billions

Source: U.S. Department of Agriculture.

Note: Nominal dollars. Bars show category contribution to net farm income change, with horizontal stripe bars adding to income and vertical 

stripe bars subtracting from income. Receipt values include home consumption and inventory adjustments. 

CHART 13

Net Farm Income Increased in 2022 as Higher Revenues More Than Oset 

Higher Expenses

0

50

100

150

200

250

2021 Net

Farm Income

Crop

Receipts

Livestock

Receipts

Production

Expenses

Government

Payments

All Other

Factors

2022 Net

Farm Income

141

+28

+61 -53

-12

-2 163

Percent

Source: National Drought Mitigation Center (University of Nebraska Lincoln).

Note: Weekly data from January 4, 2000, to December 27, 2022. 

CHART 14

U.S. Drought Conditions Were Widespread in 2022, Nearing Conditions Recorded 

During the Historically Severe Drought of 2012 

0

10

20

30

40

50

60

70

80

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Share of U.S. in Moderate or Worse Drought
26 | 2023 Risk Review

The steep rise in farmland values during 2022 

outpaced the increase in rents charged to use 

farmland, causing the ratio of farmland value to rents 

to reach their highest levels for both cropland and 

pasture land since data collection began in 1998 (Chart 

15). These record ratios suggest that farmland rents 

may need to increase, thereby pressuring producer 

margins, in order to return the ratio closer to the 

historical level. Alternatively, farmland values may 

decline, weakening the collateral position of farm real 

estate loans.32

Loan growth and higher loan yields boosted farm 

bank earnings in first quarter 2023 following a 

down year in 2022. The median year-over-year total 

loan growth for farm banks increased to 8.6 percent 

in fourth quarter 2022 and 9.3 percent in first quarter 

2023. More specifically, agricultural loan growth at 

farm banks increased to 6.1 percent in first quarter 

2023 from 5.4 percent in fourth quarter 2022, with 

both agricultural production and farm real estate 

loans increasing (Chart 16). This marked the second 

consecutive quarter of annual growth in agricultural 

production loans following a decline in eight of the 

previous ten quarters. The growth in loans likely 

reflects increased financing for higher agricultural 

input costs and a decline in government support 

payments. Growth in farm loans contributed to an 

increase in the median agricultural loan to capital 

concentration ratio, which rose to 209 percent in first 

quarter 2023, up from 205 percent a year earlier but 

below the recent first quarter previous peak of 234 

percent in 2019. 

The median pretax return on assets (ROA) for farm 

banks for full-year 2022 declined 13 basis points from 

one year earlier to 1.17 percent on lower net interest 

margins (NIMs) and a decline in noninterest income. 

The median farm bank ROA for first quarter 2023 

improved to 1.29 percent, up 32 basis points from first 

quarter 2022. Improved NIM from the combination of 

loan growth and higher asset yields contributed to the 

rise in ROA.

32 For example, the ratio of cropland land values to cash rents was last near its current level in 2008; the following year, cash rent increased 15.8 percent, while 

values fell 4.3 percent.

33 Federal Reserve District Agricultural Credit Surveys for Chicago, Dallas, Kansas City, and Minneapolis Districts, as of first quarter 2023.

Despite recent declines, liquidity ratios at farm 

banks remained above the long-term average, 

even though farm banks reported deposit outflows 

in first quarter 2023. Loan growth contributed to 

lower on-balance sheet liquidity ratios at farm banks. 

Consistent with overall bank industry trends, deposits 

reported by farm banks expanded 3.3 percent in 2022 

before contracting nearly 1 percent from a year earlier 

in first quarter 2023. The combination of increased 

loan growth and declining deposits led the median 

on-balance sheet liquidity ratio to decline to 26.6 

percent, down from 33.6 percent a year ago. Despite 

the decline, liquidity ratios reported by farm banks 

remained above the long-term average of 25.5 percent 

as of first quarter 2023. 

Strong farm income helped improve farm balance 

sheets and asset quality, but higher interest rates 

may challenge the farm sector. The record incomes 

during 2022 allowed producers to replenish working 

capital and contributed to favorable agricultural 

asset quality at farm banks. According to surveys 

of agricultural credit conditions by several Federal 

Reserve banks, loan repayment rates on agricultural 

loans increased in 2022 compared to one year earlier.33

Consistent with these surveys, nearly half (45.3 

percent) of farm banks reported having no past-due 

agricultural loans, a slight improvement from 2021. 

Further, only 10 percent of farm banks reported 

agricultural loan net charge-offs in 2022, and the 

charge-off rate among these banks remained low. 

This favorable asset quality trend continued in first 

quarter 2023. Total agricultural loan past-due and 

net charge-off ratios remained low, with similar 

improvements in past-due ratios compared to a year 

earlier. Among farm banks that report agricultural 

loans that were past-due or in nonaccrual, the 

median agricultural loan past-due ratio declined 29 

basis points in first quarter 2023 compared to one 

year earlier and was historically low at 0.72 percent. 

However, interest rates on operating and real estate 

loans rose during 2022 and first quarter 2023, which 

may tighten producer profit margins and adversely 

affect asset quality of some farm banks this year. 
2023 Risk Review | 27

CHART 15

Land Value to Cash Rent Ratios Have Surpassed Their Prior Peaks

Source: U.S. Department of Agriculture.

Note: Data are annual through 2022.

Ratio Ratio

33

34

108

118

0

20

40

60

80

100

120

0

5

10

15

20

25

30

35

40

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Cropland Value to Cash Rent Ratio (Le Axis)

Pasture Value to Cash Rent Ratio (Right Axis)

CHART 16

Agricultural Loan Growth Rebounded in 2022 and Early 2023

Source: FDIC.

Note: Data are quarterly figures among farm banks through March 31, 2023.

Year-Over-Year Growth

Percent

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

Mar-19 Mar-20 Mar-21 Mar-22 Mar-23

Agricultural Production Loans

Farm Real Estate Loans

Total Agricultural Loans
28 | 2023 Risk Review

Commercial Real Estate

• Most commercial real estate (CRE) property types performed well in 2022, but some challenges continued 

into 2023, particularly for office properties.  

• Bank CRE lending grew and community bank lending remained important to the CRE industry. 

• Aggregate CRE asset quality metrics remained favorable, but higher interest rates and economic 

uncertainty pose risks to CRE loan portfolios.

34 Unless otherwise noted, CRE data are from CoStar as of first quarter 2023.

Four of the five major CRE property types ended 

2022 with sound fundamentals, while the office 

market faced increasing risks through first quarter 

2023. Industrial properties continued to benefit from 

strong demand for warehousing and distribution. Of 

the major property types, industrial had the highest 

rent and price growth, while the vacancy rate for 

industrial properties remained near an all-time low 

at the end of 2022.34 Conditions in the industrial 

market remained strong into 2023. But as economic 

conditions weakened and the pace of construction 

remained high, some industrial markets became 

saturated, with supply consistently exceeding demand. 

Demand for multifamily properties continued to 

benefit from the tight single-family housing market. 

Relatively low single-family home affordability kept 

many would-be first-time homebuyers in the rental 

pool. Still, elevated rent levels discouraged some 

potential renters, and rent growth slowed in late 2022 

and into first quarter 2023. Multifamily property price 

growth also continued to slow. 

Retail properties continued to perform well into 2023, 

supported by sustained consumer spending. Net 

absorption, the share of space leased net of space 

vacated, has remained positive for more than two 

Bank-held CRE loans reached more than $3.0 trillion by the end of first quarter 2023. 

Source: FDIC.

Note: U.S. territories are not included in the map; one bank in Guam with a concentration of CRE loans is not shown.

Regional Exposure to CRE Lending

Dots on map represent the 1,402 banks (30 percent of all banks) with a concentration of CRE loans, as defined above.

• Community banks hold 28 percent ($865 billion) of the CRE loans on bank balance sheets, a share that remains 

outsized compared to their holdings of 15 percent of total loans.

• Elevated concentrations in CRE lending persist; 30 percent of banks (1,402 banks) have an elevated 

concentration of CRE loans defined as exceeding 300 percent of capital (tier 1 capital and credit loss 

reserves for loans and leases) or construction and development (C&D) loans exceeding 100 percent of capital.

• All FDIC Regions saw a rise in the median CRE loan concentration level compared to a year earlier; exposure 

remained the heaviest in banks headquartered in the West and the Northeast.
2023 Risk Review | 29

years. The national vacancy rate on retail properties 

reached a 15-year low, and retailers opened more 

stores than they closed. Very little new space was 

added between 2018 and 2022, keeping the market 

relatively tight.

Consumers also contributed to recovery in the 

lodging sector. Unleashing pent-up demand for travel, 

consumers accepted rising hotel room rates. In March 

2023, average daily room rates were higher than 

the March 2019 level in 98 percent of U.S. markets. 

Similarly, revenue per available room exceeded the 

2019 level in 87 percent of markets.35

Unlike other major property types, office fundamentals 

weakened as the shift to remote work adversely 

affected office demand, particularly in some larger 

urban markets. Nationally, office rents remained near 

pre-pandemic levels in first quarter 2023 in contrast 

to higher rental rates for the other major property 

types (Chart 17). While the overall office rental rate 

35 CoStar, monthly data as of March 2023.

has been relatively stable through first quarter 2023, 

anecdotal evidence suggests that office property 

owners have decreased effective rents by increasing 

rent concessions, such as free rent and allowances 

for tenant improvements. The increased amount of 

subleased office space, space that is currently leased 

but offered by the original tenant for sublet, also has 

pressured office rents. The amount of office space 

offered for sublease rose as some companies reduced 

their office footprint before the expiration date of 

their existing lease agreement. Office space available 

for sublease, which is leased at rents discounted 

from the underlying lease agreement, has increased 

considerably in the nation’s largest office markets 

and exceeded levels during the Great Recession. San 

Francisco, with its concentration of tech firms, had the 

highest rate of sublease availability at 6.3 percent at 

the end of first quarter 2023, followed by Seattle at 

3.2 percent. 

CHART 17

Rents for Most Property Types Grew in 2022

Source: CoStar.

Note: Quarterly data through first quarter 2023. Hotel "rent" data are three-month moving averages of the Average Daily Rate, 

which is reported monthly.

Rent Index (4Q19=100)

60

70

80

90

100

110

120

130

140

2019 2020 2021 2022

Multifamily

Oice

Retail

Industrial

Hotel
30 | 2023 Risk Review

Office conditions also have been pressured by 

weakening net absorption of office space since the 

start of the pandemic. Net absorption has been mostly 

negative the past three years, which means that 

more office space has been vacated than has been 

newly leased from the start of the pandemic through 

March 2023. Negative net absorption contributed to 

an increase in the national office vacancy rate from 

9.6 percent in first quarter 2020 to 12.8 percent in 

first quarter 2023. Industry forecasts project further 

increases in the national office vacancy rate through 

2023. Low office attendance by workers suggests 

weakness in office properties. Access card swipes at 

a sample of U.S. office buildings indicates attendance 

was only one-half the pre-pandemic level in early 2023.36

Factors such as reduced occupancy and softening 

rents has weighed on office property values. Reports 

suggest that the value of some office properties 

declined considerably from the beginning of the 

pandemic through late 2022.37

Banks reported CRE loan growth, contributing to 

a rise in median CRE loan concentration levels. At 

first quarter 2023, 98 percent of banks held CRE loans 

and CRE was the largest loan category for almost half 

of all banks. CRE loans held by the banking industry 

have increased every quarter since first quarter 2013. 

CRE loans comprised a quarter of total loans held by 

the banking industry, similar to the last cycle peak 

in 2009. However, CRE loans were about 13 percent 

of total banking assets at year-end 2022 and through 

first quarter 2023; this is lower than the 14 percent 

reported in first quarter 2009. 

Growth occurred across all CRE loan types, as well 

as in unfunded CRE loan commitments, in the fourquarter period ending first quarter 2023. Loans for 

existing nonfarm nonresidential real estate properties 

made up the largest portion of the CRE loan portfolio 

at 58 percent.38 Multifamily loans remained the 

second-largest CRE loan category, despite a slight 

decline in first quarter 2023 after increasing in 2022. 

About 16 percent of the CRE loan portfolio consists 

of C&D loans, historically the highest risk CRE loan 

type. Unfunded CRE loan commitments decreased 

36 Kastle, “Back to Work Barometer,” as of May 22, 2023. 

37 Peter Grant, “Shrinking Office Building Values Are Becoming a Dilemma for City Budgets,” Wall Street Journal, December 13, 2022.

38 Nonfarm nonresidential real properties include business and industrial properties, offices, hotels, churches, and other similar properties.

39 CMBS data from Trepp as of May 2023. 

to $653 billion at first quarter 2023, after reaching a 

record high of nearly $675 billion at year-end 2022, 

but remain above the last cycle peak in 2007. The 

unfunded commitments are mostly made up of C&D.

Since first quarter 2022, the industry’s median ratio 

of CRE loans to capital grew from 185 percent to 194 

percent, with median concentrations rising across all 

FDIC Regions. Banks headquartered in the West had 

the highest median level of CRE loans to capital at 281 

percent, followed by banks in the Northeast at 241 

percent. 

Community bank lending continued to be 

important to the CRE industry. Community bank 

CRE loans rose 8 percent from first quarter 2022. 

Community banks held an outsized proportion of 

CRE loans: 28 percent of the banking industry’s 

CRE loans compared with only 15 percent of the 

banking industry’s total loans. Community banks 

headquartered in rural or smaller metropolitan areas 

held 64 percent of the CRE loan volume reported 

by banks headquartered in those areas, outpacing 

community banks in larger metropolitan areas, which 

held 24 percent of CRE loans reported by banks 

headquartered in those areas. More than 29 percent of 

community banks held an elevated concentration of 

CRE loans to capital, the highest share in more than 

12 years.

CRE asset quality metrics remained favorable as 

past-due CRE loans were generally low, but the 

outlook remains uncertain. In first quarter 2023, 

the median CRE past-due loan rate among banks was 

0.15 percent and was low across all FDIC Regions. The 

median past-due rate of 0.19 percent for the subset of 

1,402 banks with an elevated CRE concentration level 

also was historically low compared to previous years. 

Aggregate CRE loan charge-offs were within historic 

norms in 2022 and through first quarter 2023. 

A modest rise in delinquency rates of commercial 

mortgage-backed securities (CMBS) may signal 

a shift in CRE market performance.39 CMBS data 

provide insight into asset quality by property type 

that is not available from Call Report data. CMBS 
2023 Risk Review | 31

delinquency rates steadily improved well into 2022 

as retail and hotel loan performance stabilized and 

other property types showed little change. However, 

CMBS delinquency rates on office properties began 

to rise in 2023 (Chart 18). In addition, the share of 

CMBS loans that are not past due but are in special 

servicing, meaning loans that are not delinquent but 

exhibit other potential performance issues, increased 

particularly among office properties. The increase in 

CMBS delinquency rates, though small, and the rise in 

specially serviced CMBS could indicate an inflection 

point for overall CRE asset quality. Monitoring CMBS 

delinquency trends also is important as more than 

40 percent of banks hold CMBS securities, and CMBS 

holdings represent at least one-quarter of capital at 

more than 10 percent of banks.40

40 Defined as CMBS securities held by banks as a share of tier 1 capital plus credit loss reserves for loans and leases.

41 Board of Governors of the Federal Reserve System, Senior Loan Officer Opinion Survey on Bank Lending Practices, April 2023.

Higher interest rates and the prospect for weaker 

economic conditions may stress bank CRE 

portfolios and constrain loan growth. The high level 

of unfunded CRE loan commitments may suggest that 

CRE loans are poised to grow. However, according to 

an April 2023 survey by the Federal Reserve, bankers 

reported tighter lending policies and weaker demand 

for all types of CRE loans over the past year.41 They also 

expect to tighten lending standards in 2023 across all 

loan categories, including CRE. 

The office sector is particularly vulnerable to 

deterioration. With a structural decline in office 

demand and weak rent growth, some borrowers may 

have difficulty refinancing. Longer-term leases, which 

are prevalent in the office sector, helped to insulate 

CHART 18

Delinquency Rates Among CMBS Oice Loans Are Trending Upward

Source:Trepp.

Note: Data are monthly figures through May 2023, compiled from Trepp Loan Compendium Deal List.

Percent

0

5

10

15

20

25

30

Total

Multifamily

Oice

Retail

Industrial

Hotel
32 | 2023 Risk Review

office property owners from reduced occupancy as 

tenants continued to pay during 2022. However, the 

inability to renew expiring leases at viable rental 

rates, office value erosion, and higher loan-to-value 

ratios could make refinancing more difficult for some 

property owners without raising additional capital. 

A sample of leases in some of the nation’s largest 

markets shows a preponderance of expirations in 

the next few years (Chart 19). Even absent further 

economic slowdown, some borrowers may face 

potentially higher interest rates and debt servicing 

costs or encounter other challenges refinancing. 

Amid these evolving challenges for banks and their 

borrowers, strong risk-management practices are 

essential for operating sound CRE lending programs. 

Share of the Volume of Oice Loans/Leases Maturing in 2023–2025

Percent

Sources: Trepp (CMBS Loan Maturity) and CoStar (Lease Maturity and Availability Rate).

Note: Loan maturity data as of February 15, 2023, shown as a share of total maturities through 2033 for each MSA. Lease maturity data and 

availability rate as of first quarter 2023. Lease maturity data not available at the U.S. level. 

CHART 19

Several U.S. Markets With Substantial Available Space Have a High Share of Loans 

and Leases Maturing in the Next Few Years 

0

5

10

15

20

25

0

10

20

30

40

50

60

Chi SF Hou Atl LA Dal DC Bos NYC Sea U.S.

CMBS Loan Maturity (Le Axis)

Lease Maturity (Le Axis)

Availability Rate (Right Axis)
2023 Risk Review | 33

Consumer Lending

• Strong labor markets continued to support consumers, but a combination of factors including high 

inflation, rising interest rates, increased consumer debt, and stock market declines strained consumer 

balance sheets in 2022 and first quarter 2023. 

• Credit card loans led consumer loan growth at banks, while auto loan growth slowed.

• Asset quality measures for most consumer loan types were better than pre-pandemic levels through first 

quarter 2023 but showed early signs of weakening. Auto loan asset quality worsened, though net chargeoffs remained low.

Strong labor markets supported consumers, but high 

inflation and rising interest rates strained household 

budgets. As the unemployment rate hovered near 

historically low levels, strong labor markets helped 

support nominal income. The tight labor market 

contributed to stronger nominal wage growth, but 

wage gains did not keep up with inflation in 2022, 

causing real disposable personal income (DPI) to fall 

from a year earlier (Chart 20). The decline also reflected 

the end of government support programs, which had 

contributed to strong income growth in 2020 through 

first quarter 2021. Real DPI grew quarter over quarter 

in the second half of 2022 and first quarter 2023 as 

inflation moderated, and real DPI rose above the yearearlier level in the first quarter. Real consumer spending 

continued to grow in 2022 and first quarter 2023.

Higher inflation contributed to the decline in the 

household savings rate from the highs in 2020 and first 

quarter 2021 to near historic lows by the end of third 

quarter 2022 (Chart 21). In fourth quarter 2022 and 

first quarter 2023, the savings rate rose but remained 

below its 2019 pre-pandemic level. Higher inflation 

may have also contributed to increased consumer 

debt levels and a rise in the household debt-to-income 

ratio. In 2022, consumers were paying more for their 

Consumer loans held by FDIC-insured institutions totaled $2.0 trillion as of first quarter 2023. 

Source: FDIC.

Note: U.S. territories are not included in the map; three banks in Puerto Rico and one bank in Guam that have a concentration of consumer

loans are not shown.

Regional Exposure to Consumer Lending

Dots on the map represent the 221 banks (4.7 percent of all banks) with total consumer loans above 100 percent of capital.

• Community banks hold 4.1 percent ($84 billion) of total banking industry consumer loans.

• Concentration in the industry remains low. Only 4.7 percent of all banks (221 banks) hold a concentration

of consumer loans above 100 percent of capital (tier 1 capital and credit loss reserves for loans and leases),

including several credit card banks with concentrations above 300 percent.

• Sixty-seven percent of banks (148 banks) with a concentration of consumer loans are community banks.
34 | 2023 Risk Review

purchases even as they may have cut back on other 

spending. Mortgage debt also increased last year. 

Together, these factors contributed to an increase 

in the total household debt-to-income ratio. After 

declining during the pandemic, the ratio of household 

debt to income normalized in 2022, rising to prepandemic levels.

Stock market declines also stressed household 

balance sheets. The S&P 500 fell about 18 percent 

in 2022 and ended first quarter 2023 up 7.5 percent 

from the start of the year. Lower stock market value 

since 2021 contributed to a year-over-year decline in 

aggregate household assets in the second half of 2022 

and first quarter 2023. Higher debt and lower asset 

values caused household net worth to decline from a 

year earlier in the second half of 2022 and first quarter 

2023. 

42 Credit card loan balances are highly seasonal and rise from first quarter to fourth quarter, so we compare first quarter 2019 to first quarter 2023. 

43 Community banks hold a relatively small share, 6 percent, of total auto loan balances held by the banking industry.

Consumer loan balances at banks grew from a 

year earlier in 2022 and in first quarter 2023 led by 

strong credit card loan growth. Credit card loans 

are about half of all consumer loans held by banks; 

auto loans and other consumer loans make up the 

other half. Credit card loans rebounded strongly in 

2022 and first quarter 2023 after falling from second 

quarter 2020 through second quarter 2021 (Chart 22). 

Credit card loans surpassed their pre-pandemic level 

in second quarter 2022 and by first quarter 2023 were 

about 14 percent higher than in first quarter 2019.42

Growth of auto loan balances slowed for the banking 

industry overall in 2022 and first quarter 2023 but 

accelerated at community banks.43

CHART 20

Real Income Declined in 2022 Aer Growing Strongly in 2020 and 2021

Source: Bureau of Economic Analysis (Haver Analytics).

Note: Income and spending are seasonally adjusted at an annual rate. Quarterly data through first quarter 2023.

Real Income and Spending

$ Billions

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Real Disposable Personal Income

Real Personal Consumption Expenditures
2023 Risk Review | 35

Personal Savings as a Share of Disposable Income

Percent

Source: Bureau of Economic Analysis (Haver Analytics).

Note: Monthly data through March 2023. 

CHART 21

The Savings Rate Fell Close to Historical Lows in 2022 Aer Spiking

During the Pandemic 

0

5

10

15

20

25

30

35

2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023

CHART 22

Credit Card Loans Led Loan Growth at Banks in 2022

Source: FDIC.

Note: Quarterly data through first quarter 2023.

Year-Over-Year Growth

Percent

-15

-10

-5

0

5

10

15

20

Mar-2019 Mar-2020 Mar-2021 Mar-2022 Mar-2023

Consumer Loans Credit Card Loans

Auto Loans Other Consumer Loans
36 | 2023 Risk Review

CHART 23

Early-Stage Past-Due Rates Are Rising, Especially for Auto Loans

Source: FDIC.

Note: Quarterly data through first quarter 2023.

Early-Stage Past-Due Rate

Percent

Consumer Loans Credit Card Loans

Auto Loans Other Consumer Loans

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2017 2018 2019 2020 2021 2022 2023

Early signs of consumer loan performance problems 

emerged at banks, primarily among auto loans, but 

consumer loan asset quality measures generally 

remained favorable. Early-stage past-due rates—the 

share of loan balances 30 to 89 days delinquent—for 

auto and credit card loans rose throughout 2022 and 

fell in first quarter 2023 following seasonal trends 

(Chart 23). The early-stage past-due rate for credit 

cards in first quarter was about the same as the rate 

in first quarter 2019, while the rate for auto loans was 

above its first quarter 2019 level. In first quarter 2023, 

total consumer loans also exhibited similar trends for 

noncurrent rates—the share of loans more than 90 

days past due or in nonaccrual status.

While overall asset quality measures for total 

consumer loans remained favorable in 2022, auto loan 

delinquencies worsened. Both the early-stage pastdue rate and noncurrent rate for auto loans rose in first 

quarter 2023 to above their pre-pandemic levels. Net 

charge-offs for auto loans rose to their pre-pandemic 

level, even as high vehicle prices may have lessened 

losses from charged-off loans.

The trends in consumer loan performance could 

deteriorate in 2023 if the labor market or economic 

conditions soften. The concerning asset quality trends 

in auto loans may worsen if auto prices normalize. 
2023 Risk Review | 37

Energy

• Energy prices softened during second half 2022 as oil prices receded from earlier highs and were more 

stable through early 2023. 

• Despite the decline in prices, the energy industry remained profitable, supporting employment in energyconcentrated states.44

• Bank loan exposure to oil and gas firms continued to decline in 2022 from 2021 levels.  

• Community bank asset quality in energy-concentrated states continued to improve through first quarter 

2023. 

• Despite strength in 2022, the outlook for conditions in the energy sector weakened by year-end and 

remained uncertain in early 2023. 

44 For this analysis, energy-concentrated states are Alaska, Colorado, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, and Wyoming. Together, these 

states accounted for 78 percent of U.S. oil production and 66 percent of natural gas in December 2021.

45 Standard deviation was used to calculate oil price volatility, based on author’s calculations using Energy Information Administration/Thompson Reuters oil 

price data.

46 Mining and logging employment numbers for Delaware and Hawaii were omitted from the non-energy total because they were aggregated along with their 

construction employment numbers. Cross-referencing with detailed Quarterly Census of Employment and Wages jobs data from the Bureau of Labor Statistics 

indicates very little energy employment in those two states, however.

Oil markets were volatile in 2022, and oil prices 

rose on average before moderating in the second 

half of the year through early 2023. In 2022, daily 

West Texas Intermediate (WTI) oil prices were at their 

most volatile since 2014.45 The volatility reflected a 

sharp increase in prices early in 2022, followed by a 

sharp correction through the end of the year (Chart 

24). Oil prices averaged almost $95 per barrel in 2022, 

more than 39 percent higher than the year before, but 

averaged around $76 in January through May 2023. An 

observable sharp upward movement in WTI oil prices 

during the first half of 2022 can be attributable to 

disruptions in energy supplies caused by geopolitical 

tensions in Ukraine that began in late February 2022. 

Sanctions imposed by sovereigns on Russia and other 

independent corporate actions taken in response 

to Russia’s invasion of Ukraine also contributed to 

increased supply risks and higher oil prices. However, 

in the second half of the year, oil prices eased. 

According to the Energy Information Administration, 

crude oil prices were generally decreasing due to 

growing concerns around weakening global economic 

conditions. Uncertainties over the duration of China’s 

pandemic-related lockdowns in 2022 added to those 

concerns, and rapid withdrawals from the Strategic 

Petroleum Reserve helped relieve supply challenges 

and contributed to softening oil prices. 

In March and April 2023, Russia and several OPEC+ 

members announced oil production cuts of 1.7 million 

barrels per day (bpd) in addition to the 2 million bpd 

of cuts announced in October 2022. Overall, the cuts 

would take about 3 percent of the world’s petroleum 

production off the market beginning in May through 

the end of 2023. The decision to cut oil production 

could result in significantly higher oil prices. 

Despite the decline in oil prices, the industry 

remained profitable and employment growth 

in energy-concentrated states continued to 

outpace that of non-energy states. Strong demand 

sustained energy prices above breakeven rates for 

most companies. Economic conditions in energyconcentrated states are highly sensitive to changes 

in energy-related jobs. In 2022, energy-concentrated 

states had more than eight times the concentration of 

mining and logging employment than the rest of the 

nation. For the year ending first quarter 2023, nonfarm 

employment in energy states grew a combined 3.7 

percent, a full percentage point faster than the 2.7 

percent increase in employment growth for nonenergy states. Better performance for energy states 

during this period was due in part to job growth in 

the mining and logging sector. Aggregate mining and 

logging employment in energy states grew more than 

twice as fast (9.8 percent) as that of non-energy states 

(4.2 percent).46 Energy states continued to receive a 

boost from higher energy prices, which stimulate 
38 | 2023 Risk Review

West Texas Intermediate Oil Price

$ per barrel

Source: Energy Information Administration. Note: Data are daily for the year 2022 through May 22, 2023.

CHART 24

Geopolitical Concerns Caused Oil Prices to Rise Sharply in the First Half of 2022

Before Falling in the Second Half Due to Recession Fears 

Jan 3, 2022,

Mar 08, 2022,

$75.99

$123.64

May 22, 2023,

$71.81

60

70

80

90

100

110

120

130

Jan-22 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23

domestic energy production and demand for energyrelated employment. Energy segments that benefited 

from higher prices were liquefied natural gas, refining, 

and renewable energy.

Bank lending to the oil and gas industry declined 

in 2022, continuing a trend since the start of the 

pandemic; however, current exposure to the 

industry exhibits relatively modest credit risk, given 

strength in the oil and gas industry during the year.

Results of the 2022 Shared National Credit (SNC) 

review indicate that loan commitments to the oil and 

gas sector declined almost 16 percent from year-end 

2019 through 2022, with most of the decline occurring 

in 2021.47 As global demand for oil plummeted in 2020, 

the share of oil and gas loans in the SNC program that 

were rated special mention or adversely classified 

reached 23.3 percent.48 Banks responded to weaker 

conditions in the energy industry by reducing credit 

allocations and, in some cases, by exiting entirely 

due to asset quality and environmental, social, and 

governance-related concerns. 

47 Oil and gas sector lending is not available at the bank level in Call Report data. However, the Shared National Credit (SNC) Program, which reviews large, 

syndicated loans by industry sectors that are held by banks, may serve as a proxy for bank loan exposure to the oil and gas industry. The SNC Program assesses 

risk in complex credit loan commitments to borrowers in excess of $100 million that are shared by multiple regulated financial institutions. SNC reports can be 

found at https://www.occ.treas.gov/publications-and-resources/publications/shared-national-credit-report/index-shared-national-credit-report.html.

48 According to the Energy Information Administration, global oil consumption declined 9.3 percent in 2020, far more than any period on record since 1974.

After the decline in 2020, oil demand began to 

strengthen in 2021 and 2022 as industry profits jumped 

and oil and gas firms reduced debt. Among 11 industry 

sectors represented in the S&P 500, the S&P Energy 

Index’s performance ranked first in 2021 and 2022. 

In 2022, losses exceeded 18 percent across the S&P 

500, but the Energy Index gained almost 66 percent. 

Other than a small gain in the utility sector, energy 

was the only sector to record a gain over the year. The 

sector’s strong equity performance was the result 

of higher prices combined with a collective focus on 

selectively funding new projects and returning excess 

cash flow to shareholders. Consistent with improved 

industry conditions, the share of oil and gas loans in 

the SNC program that received special mention and 

adverse classifications declined sharply to 3.9 percent. 

A continuing trend of declining oil prices during the 

first five months of 2023 compressedthe favorable gap 

between oil prices and breakeven rates, which could 

moderate the strength in the oil and gas industry in 

early 2023.
2023 Risk Review | 39

Asset quality of community banks in energyconcentrated states continued to improve, 

reflecting stronger conditions in the sector. While 

community banks generally do not lend directly 

to the energy sector, these banks are often active 

lenders and providers of banking services in energyconcentrated areas. Asset quality improvement in 

community banks in energy-concentrated states was 

similar to that of community banks in other states. 

The total past-due loan rate for community banks 

headquartered in energy-concentrated states was 0.70 

percent in first quarter 2023, excluding governmentguaranteed Paycheck Protection Program loans, down 

from 0.84 percent one year earlier and only slightly 

higher than the 0.63 percent for community banks 

not headquartered in energy-concentrated states 

(Chart 25). The total past-due rate for commercial 

and industrial loans for community banks in energyconcentrated states improved modestly in first quarter 

2023 from a year earlier and was near its historical low 

since data collection began in 1984. Still, the past-due 

rate remained more than double the near-historic low 

rate of community banks in other states.

49 Short Term Energy Outlook, U.S. Energy Information Administration, June 2023, p 29. 

50 OPEC, “33rd OPEC and Non-OPEC Ministerial Meeting,” press release, October 5, 2022. 

Despite strength in 2022, the outlook for the energy 

industry weakened through early 2023. Softening 

macroeconomic conditions, geopolitical events, and 

the potential for future supply disruptions will make it 

challenging to sustain the 2022 favorable trends in the 

energy sector. Several elements of uncertainty suggest 

oil market volatility could continue in 2023, including 

weak or recessionary prospects for the domestic 

and global economy, potential changes in Russian 

oil production, and the redistribution effects of oil 

and gas supply lines amid sanctions and oil import 

bans. According to the June 2023 Energy Information 

Administration Short-Term Energy Outlook, prices 

are forecast to soften further but are expected to 

remain above $70 per barrel by fourth quarter 2023.49

Additional pressure on supply side fundamentals 

is also evident with the moves by OPEC+ to reduce 

production to stabilize global markets.50 These factors 

should help support economic and banking conditions 

in states reliant upon employment in the energy sector. 

Past-Due Loans

Median, percent

Source: FDIC.

Note: Includes all community banks as defined by the December 2012 FDIC Community Banking Study. Past-due loans exclude Paycheck 

Protection Program loans. Energy-concentrated states are Alaska, Colorado, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, 

and Wyoming. Data are quarterly through March 31, 2023.

CHART 25

Despite Extreme Oil Price Volatility, Community Bank Past-Due Loans Have 

Remained Low and Stable in Energy-Concentrated States 

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

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

Energy-Concentrated States Other States
40 | 2023 Risk Review

Housing

• The housing market continued to slow from pandemic highs as mortgage rates rose sharply from 2022 lows 

and remained elevated through first quarter 2023.

• With higher mortgage rates and uncertain economic conditions, the pace of home price appreciation 

slowed considerably from mid-2022 peaks through first quarter 2023. Home prices remain high, supported 

by a historically low supply of homes for sale.

• Mortgage originations fell as the housing market weakened, but banks reported higher residential loan 

balances early in 2023 and increased residential construction and development (C&D) lending.

• While residential mortgage loan asset quality and underwriting remained favorable through first quarter 

2023, early signs of potential credit deterioration emerged. 

51 Mortgage Bankers Association. 

52 Census Bureau and Bureau of Economic Analysis, annual permits and real private residential fixed investments data through 2022. 

Sharply higher mortgage rates in 2022 contributed 

to a slowdown in the housing market later in the 

year that continued into first quarter 2023. After 

declining to historically low levels, the average rate 

on a 30-year fixed-rate mortgage rose sharply in 2022. 

Between January and October 2022, the weekly rate 

increased from 3.52 percent to 7.16 percent, the 

largest increase in one year since 1994. By March 2023, 

the 30-year fixed-rate mortgage had eased to 6.40 

percent but remained relatively high.51

As mortgage rates rose sharply in 2022, residential 

construction declined as home sales weakened and 

home price gains slowed nationwide. Real private 

residential fixed investment fell 10.6 percent in 2022, 

the largest annual decline since 2009.52 Residential 

Residential loans held by banks totaled $2.78 trillion as of first quarter 2023. 

Source: FDIC.

Regional Exposure to Residential Lending

Dots on the map represent the 604 banks (12.9 percent of all banks) with total 1–4 residential loans above 300 percent of capital.

• Of the $2.78 trillion in residential loans, community banks hold 17 percent ($474.6 billion).

• Almost 13 percent of all banks (604) hold a concentration of residential loans above 300 percent of capital 

(tier 1 capital and credit loss reserves for loans and leases).

• Slightly more than 40 percent of community banks (1,777) report that residential mortgage loans are the largest 

lending segment by dollar volume within their loan portfolio.

• Exposure to the residential market, in terms of total residential loans to total loans, is highest in the Northeast.
2023 Risk Review | 41

construction continued to decline in first quarter 2023. 

Sales of new and existing homes also began to decline 

in 2022, but new home sales listings edged up in first 

quarter 2023 as builders offered incentives, such as 

rate buy-downs, to attract potential buyers. Existing 

home sales continued to decline in first quarter 2023. 

With higher mortgage rates and uncertain economic 

conditions, the pace of home price appreciation 

slowed considerably from mid-2022 through first 

quarter 2023. After increasing at double-digit rates 

from first quarter 2021 to fourth quarter 2022, home 

price growth slowed nationally to single-digits during 

first quarter 2023 (Chart 26).53 During the pandemic 

when home prices increased rapidly across the 

country, metro areas including Boise and Phoenix 

experienced peak home price appreciation of more 

than 30 percent.54 Appreciation rates have since 

slowed from recent highs, but prices remained well 

above pre-pandemic levels as of first quarter 2023. 

As of March 2023, home price growth had slowed the 

53 Federal Housing Finance Agency, quarterly home price data through first quarter 2023.

54 S&P CoreLogic Case-Shiller, quarterly home price data through March 2023.

55 S&P CoreLogic Case-Shiller, monthly home price data through March 2023.

56 Ibid.

57 An affordability index above 100 signifies more than enough income to qualify for a mortgage loan on a median priced home with a down payment of 20 

percent. An index above 100 is deemed to be affordable, while an index below 100 is deemed to be unaffordable. 

most among more expensive markets in the West, 

such as Seattle and San Francisco, where remote work 

options led to out-migration, which pushed home 

prices noticeably below their peak. Since reaching 

peak levels, home prices have fallen faster than the 

nation in nine of the nation’s 20 largest markets, 

according to S&P CoreLogic Case-Shiller.55 In contrast, 

Tampa and Miami led the nation in home price gains 

from pre-pandemic levels through first quarter 2023 

as in-migration into the Southeast supported home 

price appreciation in these markets where home prices 

remain near their recent highs.56

Despite easing home price appreciation in the second 

half of 2022 through first quarter 2023, housing 

affordability remained well below pre-pandemic levels 

for the nation. The National Association of Realtor’s 

Housing Affordability Index was 108.1 in first quarter 

2023, much lower than its pre-pandemic level of 178.4 

and below the historical average of 143.3.57

Home Price Index (HPI)

Year-over-year percent change

Sources: S&P DowJones Indices, Federal Housing Finance Agency, and National Bureau of Economic Research (Haver Analytics).

Note: Data are quarterly seasonally adjusted figures through first quarter 2023.

CHART 26

U.S. Home Price Growth Slowed in Mid-2022 and Trended Lower Through 

First Quarter 2023 

-25

-20

-15

-10

-5

0

5

10

15

20

25

2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023

Recession

FHFA HPI

S&P/Case-Shiller HPI
42 | 2023 Risk Review

Total Mortgage Origination Volumes 

$ Billions

Source: Mortgage Bankers Association (Haver Analytics).

Note: Data are annual through 2022 for 1-4 unit family loans expressed in billions.

CHART 27

Mortgage Origination Volumes Dropped Sharply in 2022 Following Elevated 

Levels the Prior Two Years 

0

1

2

3

4

5

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

Refinances Purchases

Housing prices remained high supported in part by 

a limited supply of homes for sale. Housing supply, 

which includes existing homes and new homes for 

sale, has been relatively tight following the decline 

in the construction of single-family homes after the 

large excess supply of new home construction during 

the housing cycle in the late-2000s.58 Housing supply 

edged up in 2022 but remained lower than the prepandemic level through May 2023.59 Existing homes 

for sale represent the largest share of single-family 

housing supply; however, the sharp rise in mortgage 

rates has hindered the inventory of existing homes. 

Anecdotal evidence suggests homeowners with low 

fixed-rate mortgages, which make up a large share 

of homeowners, have been reluctant to list their 

homes for sale.60 The share of new homes for sale also 

declined since late 2021 through early 2023 after rising 

early in the pandemic. 

58 Existing homes represent nearly 90 percent of homes for sale nationally. Existing homes for sale increased from a record low of 1.6 months in January 2022 to 

2.9 months in December 2022 as demand softened due to higher mortgage rates and increased economic uncertainty.

59 National Association of Realtors. 

60 Lotfi Karoui, Vinay Viswanathan, and Ronnie Walker, “Inventory Is Tipping the Scales,” Goldman Sachs, May 31, 2023.

61 Mortgage origination volume estimates include only single-family (1-4 unit), closed-end, first lien, home purchase or refinanced loans that were originated 

through the retail, consumer direct, broker wholesale, or non-delegated correspondent production channels. The estimates exclude subordinate liens, HELOCs 

and home equity loans, and purchased loans (i.e., loans originated through the delegated correspondent channel to avoid double counting loans). 

Residential mortgage activity slowed in 2022 

following rapid gains the previous two years. For 

the year ending 2022, mortgage origination volume 

across all types of mortgage lenders decreased 49 

percent from a year earlier, according to the Mortgage 

Bankers Association.61 After spiking in 2020 and 2021, 

origination of new mortgages to purchase a home in 

2022 returned closer to levels before the pandemic. 

Mortgages originated for refinancing declined in 2022, 

reaching a record low, as many existing homeowners 

had already locked into historically low fixed-rate 

mortgages (Chart 27). In first quarter 2023, mortgages 

to purchase a home decreased 30 percent year over 

year and approached the first quarter 2020 level, and 

refinancings continued to decline.
2023 Risk Review | 43

Although residential mortgage originations 

declined, the banking industry reported higher 

residential loan balances through first quarter 

2023, including loans for residential C&D.62 Banks 

reported residential loans totaling $2.78 trillion as 

of first quarter 2023, up 9.5 percent from one year 

earlier and the highest amount since 2008. These loans 

were the largest loan segment for nearly half of all 

62 Federal Deposit Insurance Corporation, Call Reports. Total residential loans include real estate loans secured by 1–4 family residential properties (home equity 

lines of credit plus all other 1–4 family residential residential real estate loans).

63 Federal Deposit Insurance Corporation, Call Reports. Call Report data for total residential loans are in dollars.

banks.63 Both community banks and noncommunity 

banks reported an increase in residential loans from 

a year earlier. One-to-four family residential loans, 

which represent 90 percent of total residential 

mortgage loans, drove the increase; home equity loans 

accounted for most of the remainder. Balances of 

home equity lines of credit (HELOCs) increased 3.3 

Adjustable-Rate Mortgages

$ Billions

30-Year Fixed-Rate Mortgage Rate

Percent

Sources: FDIC and Freddie Mac (Haver Analytics).

Note: Data are quarterly through first quarter 2023. Weekly mortgage interest data have been converted by Haver to quarterly data.

CHART A

The Volume of Adjustable Rate Mortages Declined in First Quarter 2023 

as Mortgage Rates Eased 

0

1

2

3

4

5

6

7

8

9

0

200

400

600

800

1,000

1,200 Adjustable-Rate Mortgages (Le Axis)

30-Year Fixed-Rate Mortgage Rate (Right Axis)

Adjustable-Rate Mortgages (ARMs) Rose as Long-Term Mortgage Rates Increased

As fixed mortgage rates rose sharply during 2022, demand for ARMs increased. Aggregate bank 

holdings of ARMs rose from 28 percent of total residential mortgage loans to 33 percent during 2022. 

As long-term mortgage rates eased in early 2023, the ARM share at banks declined slightly in first 

quarter 2023 to 30 percent (Chart A). Banks headquartered in states that experienced the highest home 

price appreciation rates reported a larger share of ARMs to total residential loans during the period. 

For example, ARMs as a share of total residential loans were 58 percent for banks headquartered in 

California and 50 percent for banks headquartered in Florida, traditionally among the highest in the 

nation, and well above the national average. Despite the increase, the share of ARMs remained lower 

than in the early 2000s housing cycle, and industry studies indicate that underwriting is stronger for 

ARMs in this cycle. 
44 | 2023 Risk Review

percent in first quarter 2023 on an annual basis. Both 

noncommunity banks and community banks reported 

an increase in HELOCs. 

Mortgage balances rose as banks may have retained 

them on their balance sheets rather than selling them. 

During first quarter 2023, residential mortgage loans 

sold declined nearly 24 percent from the previous 

quarter and 69 percent from a year earlier. In contrast, 

residential mortgage loans sold rose at a quarterly 

average of 3.1 percent before the pandemic.64 During 

first quarter 2023, bank mortgage portfolios included 

long-term fixed rate mortgages originated when 

mortgages rates were lower, reducing their market 

value as interest rates rose. A greater share of longerterm fixed rate mortgages with lower yields could 

challenge net interest margins (see the Net Interest 

Margins and Interest Rate Risk Section of this report for 

more information).

A higher volume of total residential mortgage loans 

contributed to a rise in the ratio of residential 

mortgage loans to capital to 133 percent as of first 

quarter 2023, up from 122 percent one year earlier 

but below the pre-pandemic median of 138 percent 

in fourth quarter 2019. Nearly 13 percent of all banks 

reported total residential loans to capital above 300 

percent, up moderately from last year but below the 17 

percent peak reached in 2011. 

Although construction of new homes has slowed, 1–4 

family residential C&D loans reached $105.4 billion in 

first quarter 2023, up 14 percent from a year earlier 

and the highest balance since third quarter 2009. 

Both community banks and noncommunity banks 

reported an increase in 1–4 family residential C&D loan 

balances last year. While funded amounts increased, 

the amount of unfunded C&D commitments declined 

by 6 percent to $95 billion in first quarter 2023 but 

remained higher than the pre-pandemic level. Nearly 

97 percent of banks with high C&D concentrations 

are community banks, consistent with the long-term 

trend.65

64 In this reference, the pre-pandemic period refers to first quarter 2015 through fourth quarter 2019.

65 High concentration is defined as banks with 1-4 residential C&D loans greater than 50 percent of capital. 

66 Federal Deposit Insurance Corporation, Call Reports. Noncurrent 1–4 family residential loans are those secured by 1–4 residential properties 90 days or more 

past due and in nonaccrual status. Excluding Government National Mortgage Association (GNMA) noncurrent balances, the noncurrent rate reported by the 

banking industry declined from 1.35 percent to 0.93 percent. Thirty-four percent of the decline in 1–4 residential noncurrent loans was due to lower rebooked 

GNMA noncurrent balances, which fell 21 percent from the year-earlier level.

While residential mortgage loan asset quality 

remained favorable through first quarter 2023, 

early signs of potential credit deterioration 

emerged. After peaking in fourth quarter 2020 

following the onset of the pandemic, asset quality 

measures for residential mortgage loans remained 

favorable in first quarter 2023. The aggregate total 

residential mortgage loan past-due rate declined to 

1.93 percent in first quarter 2023 from 2.40 percent one 

year earlier, and the noncurrent rate declined to 1.35 

percent. These measures remained below the prepandemic levels and well below peak rates following 

the housing downturn a decade ago. However, the 

early-stage past-due rate on residential mortgage 

loans ticked up to 0.58 percent in first quarter 2023, 

slightly higher than a year earlier (Chart 28).66 

The total past-due rate on 1–4 family residential 

C&D loans rose to 0.69 percent in first quarter 2023, 

up from one year earlier and the previous quarter 

but below the pre-pandemic level of 0.97 percent in 

fourth quarter 2019. Similar to trends for residential 

mortgage loans, the early-stage past-due rate on 1–4 

family residential C&D loans rose to 0.50 percent 

in first quarter 2023 from 0.38 percent the previous 

quarter but remained lower than the pre-pandemic 

level. The noncurrent rate on 1–4 family residential 

C&D loans also remained low at well below 1 percent. 

While overall residential mortgage loan asset quality 

measures remained low by historical standards as of 

first quarter 2023, slight increases in past-due rates 

on residential mortgage loans and residential C&D 

loans could indicate potential weakness among some 

mortgage borrowers.
2023 Risk Review | 45

Percent

Source: FDIC.

Note: Data are quarterly through first quarter 2023.

CHART 28

Residential Mortgage Asset Quality Remained Favorable in 2023, but the 

Early-Stage Delinquency Rate Moved Slightly Higher Over the Previous Year

0

2

4

6

8

10

12

Residential 30-89 Days Past-Due Loan Rate

Residential Noncurrent Past-Due Loan Rate

Bank residential mortgage lenders may face 

increased headwinds in 2023 if housing market 

conditions deteriorate further, but low delinquency 

rates and relatively sound underwriting are likely to 

help those lenders. Forecasts for home price trends 

vary; some forecasts indicate that home prices may 

decline in 2023 or continue to appreciate at a slower 

pace than in 2022.67 The housing outlook remains 

challenged by economic uncertainty with a prospect 

of a recession, high inflation and interest rates, supply 

constraints, and sharp changes in net in-migration 

patterns. Even with weaker housing activity, many 

industry forecasts suggest that home prices nationally 

will remain above their pre-pandemic level in the 

absence of a severe recession. 

Despite early signs of deterioration, the total pastdue rate on residential mortgages reported by the 

banking industry remained favorable in first quarter 

67 CoreLogic Case-Shiller, Federal Housing Finance Agency, and S&P Dow Jones (Moody’s Analytics) annual home price forecast data through 2023 ; Goldman 

Sachs, “Why The Global Housing Market Has Further to Slide,” March 22, 2023; CoreLogic, “U.S. Home Price Insights – May 2023,” May 2, 2023; Zillow, “Zillow 

Home Value and Sales Forecast: June 2023,” June 12, 2023.

68 Board of Governors of the Federal Reserve System, Senior Loan Officer Opinion Survey on Bank Lending Practices, April 2023.

69 New York Fed Consumer Credit Panel/Equifax. As of first quarter 2023, 60.7 percent of all mortgages were originated to borrowers with a credit score of 760 or 

higher, compared with 30.7 percent reported in first quarter 2008.

2023, and industry reports suggest that residential 

mortgage underwriting remained relatively sound. 

According to an April 2023 Federal Reserve survey, in 

response to weakening conditions, a growing share of 

bank respondents tightened underwriting standards 

on residential real estate loans in first quarter 2023.68

A larger share of current residential mortgages 

outstanding is to borrowers with high credit scores, 

nearly 61 percent, almost double the share reported 

during the Great Recession.69 However, banks with less 

diversified business models that have relied heavily 

on residential mortgage activity may face increased 

risk should the decline in the housing market and 

mortgage originations that occurred last year become 

more severe.
46 | 2023 Risk Review

Leveraged Lending and Corporate Debt

• Corporate borrowers continue to face challenges of high inflation, rising interest rates, and an economic 

slowdown.

• Corporate bond and leveraged loan markets have experienced stress; prices and issuance declined, while 

spreads have increased through early 2023.

• Defaults and distress ratios rose through early 2023 but remained low relative to past stress periods.

• Banks remained exposed to corporate debt through both direct credit risk exposure and investment 

banking activities, and indirectly through changes in macroeconomic conditions.

70 Bureau of Labor Statistics and the Board of Governors of the Federal Reserve System.

71 ICE BofA High Yield Index option-adjusted spread and ICE BofA U.S. Corporate Index option-adjusted spread.

72 PitchBook Leveraged Commentary & Data (LCD).

73 Board of Governors of the Federal Reserve System, Senior Loan Officer Opinion Survey on Bank Lending Practices.

74 PitchBook LCD.

75 Ibid.

76 Board of Governors of the Federal Reserve System, Financial Accounts of the United States; Bureau of Economic Analysis.

77 PitchBook LCD.

Corporate borrowing conditions deteriorated 

in 2022 and through first quarter 2023 amid 

rising interest rates, high inflation, and growing 

expectations of a possible recession. U.S. price 

inflation rose to the highest level in decades in late 

2021 and into 2022, prompting the Federal Reserve 

to rapidly increase interest rates, which pushed up 

interest rates for corporate borrowers.70 Spreads on 

corporate debt widened amid concerns about the 

adverse effects of inflation and the outlook for an 

economic recession, further pushing up borrowing 

costs.71 While spreads moved markedly higher from 

2021 levels in 2022 and at the start of 2023, they 

remained well below levels reached during the crisis 

periods of the early months of the pandemic and the 

Great Recession. Leveraged loan distress ratios and 

default rates also rose from the low levels in 2021 but 

likewise remained well below previous crisis periods 

through early 2023 (Chart 29).72 Bank business lending 

conditions tightened beginning in the second half of 

2022 and through first quarter 2023, with net lending 

standards tightening significantly for both commercial 

and industrial (C&I) and commercial real estate (CRE) 

loans.73 Secondary market loan prices declined and 

market price volatility increased in 2022. Price declines 

were more pronounced for lower-rated borrowers. 

Loan prices stabilized in early 2023 but remained 

below 2021 levels.74

Corporate debt issuance slowed sharply, especially 

for lower-rated and more highly leveraged 

borrowers. Corporate bond issuance declined as 

well, with investment grade issuance falling nearly 

15 percent and high-yield issuance falling almost 80 

percent to its lowest level since 2008.75 Despite lower 

debt security issuance, growth in corporate loans was 

robust, leading to an increase in total corporate debt 

in 2022. However, the increase was slower relative to 

growth in GDP and corporate profits through the end 

of 2022, reducing the corporate debt-to-GDP ratio to 

below 2020 and 2021 levels and the corporate debt-toprofits ratio to the lowest point since 2015 (Chart 30).76

Total issuance in the leveraged loan market, a subset 

of the corporate debt market, sharply declined in 2022 

and into first quarter 2023 to pre-pandemic levels, 

normalizing from the record issuance in 2021 (Chart 

31). Leveraged loan issuance fell by nearly half in 2022, 

driven by a sharp decline in institutional leveraged 

loans, which are generally sold to insurers, pension 

funds, collateralized loan obligations (CLOs), and other 

types of investors. Merger and acquisition activity, 

which typically drives growth for leveraged loans, 

peaked in 2021 but was depressed in 2022 and first 

quarter 2023, reducing institutional leveraged loan 

issuance to a 12-year low.77
2023 Risk Review | 47

Leveraged Loan Default Rate

Percent

Leveraged Loan Distress Ratio

Percent

Source: PitchBook Leveraged Commentary & Data.

Note: Default rate is lagging 12-month rates. Distress ratio is the share of loans priced below 80 (par is 100). Monthly data through April 2023.

CHART 29

Leveraged Loan Distress and Default Rates Rose in 2022 and Early

2023 but Remain Below the Levels Reached in Past Stress Periods 

0

10

20

30

40

50

60

70

80

90

0

1

2

3

4

5

6

7

8

9

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023

Default Rate (Le Axis)

Distress Ratio (Right Axis)

Nonfinancial Corporate

Debt-to-GDP Ratio

Nonfinancial Corporate

Debt-to-Profit Ratio

Sources: Federal Reserve Board and Bureau of Economic Analysis (Haver Analytics).

Note: Nonfinancial corporate debt includes loan and debt security liabilities. Nonfinancial corporate profit is quarterly before tax

and includes inventory valuation adjustment at a seasonally adjusted annual rate. Quarterly data through fourth quarter 2022.

CHART 30

Corporate Debt Relative to GDP and Corporate Profits Moderated in 2022 

Relative to 2020 and 2021 Levels 

0

4

8

12

16

20

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Nonfinancial Corporate Debt-to-GDP (Le Axis)

Nonfinancial Corporate Debt-to-Profit (Right Axis)
48 | 2023 Risk Review

Issuance

$ Billions

Source: PitchBook Leveraged Commentary & Data.

Note: Annual data from 2012 through 2022. 

CHART 31

High-Yield Corporate Bond Issuance Fell to Decade Low, While Leveraged Loan 

and Investment-Grade Bond Issuance Moderated

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Investment-Grade Bonds High-Yield Bonds Leveraged Loans

Leveraged Loans Maturing

$ Billions

CHART 32

Leveraged Loan Borrowers Extended Maturities Into the Late 2020s, 

Reducing Near-Term Refinancing Risks

0

100

200

300

400

500

600

2023 2024 2025 2026 2027 2028 2029 2030

As of Dec. 31, 2020 As of Dec. 31, 2021 As of May 12, 2023

Source: PitchBook Leveraged Commentary & Data.

Note: Based on yearly data through May 2023.
2023 Risk Review | 49

Banks face direct and indirect exposure to 

corporate debt and leveraged lending markets.

The banking industry has direct exposure to risks in 

corporate debt through holdings of debt securities, 

bilateral loans, participation in syndicated loans, and 

lending to originators of private credit transactions. 

The highest risk segment of corporate debt is typically 

loans to companies with higher debt levels called 

leveraged loans. Leveraged loans are typically floating 

rate, so credit risk is the primary risk to banks from 

direct loan holdings, while holdings of fixed-rate 

corporate bonds expose banks to interest rate risk and 

credit risk.78 Bank holdings of syndicated loans, which 

include leveraged loans, rose to more than $1.36 

trillion in fourth quarter 2022, up more than 20 percent 

from year-end 2021.79 In addition, bank holdings of 

CLOs, which contain leveraged loans, increased to at 

least $174 billion in first quarter 2023, up 13 percent 

from the end of 2021. CLO holdings are concentrated 

in the largest banks, with the top four banks by assets 

accounting for 72 percent of estimated bank-held CLOs 

and the top 20 banks by CLO holdings accounting 

for 97 percent of total CLO holdings.80 While banks 

typically hold the higher-rated parts of CLOs, they 

also have a variety of exposures to nonbank financial 

institutions that hold or arrange CLO securities. These 

interconnected risks may expose banks to stress in 

the underlying leveraged loan market in ways that are 

difficult to measure. 

Banks also earn noninterest income from underwriting 

and arranging corporate bond and leveraged loan 

issuances, making them susceptible to reduced 

revenue from these activities when issuance volumes 

fall. These types of underwriting activities are 

primarily confined to the largest banks.

While direct exposures to corporate debt markets 

through lending activities and securities holdings are 

typically concentrated in larger banks, the banking 

industry faces indirect exposures through the effects 

78 Banks may hedge a portion of this credit risk through use of credit derivatives such as credit default swaps. For more information on the amount of credit 

derivatives held by FDIC-insured banks, see FDIC Quarterly Banking Profile Table VI-A.

79 Board of Governors of the Federal Reserve System, Financial Accounts of the United States—Enhanced Financial Accounts.

80 Federal Deposit Insurance Corporation, Call Reports. CLO data are reported only by banks with at least $10 billion in assets, so these numbers do not include 

any holdings by banks below that threshold.

81 PitchBook LCD.

82 S&P Global, “U.S. Weekly Economic Commentary: 2023 Recession;” The Conference Board, “December Economic Update 2022.”

83 Board of Governors of the Federal Reserve System, “Summary of Economic Projections,” December 14, 2022.

84 Deutsche Bank, “Default Study—2023: Return of the Boom-Bust Cycle,” May 31, 2023.

85 S&P Global Ratings, “Credit Conditions North America Q2 2023,” March 28, 2023; Deutsche Bank, “Return of the Boom-Bust Cycle.” 

of corporate debt distress on economic conditions. 

Significant corporate debt distress could exacerbate 

an economic downturn by forcing firms to pull back 

on investment and lay off employees. This reduction 

in employment and business activity could lead to 

increased delinquencies and defaults for bank C&I, 

CRE, and other loans.

Slowing economic growth and continued high 

interest rates could weigh on corporate debt 

markets and pose credit risk for the banking 

industry, while limited near-term corporate debt 

maturities should mitigate some risks. Corporations 

extended their debt maturities between 2020 and 

2022, taking advantage of lower interest rates in 

the early part of the pandemic and thereby limiting 

refinancing needs in 2023 and 2024, which could help 

to mitigate default risk in the near term (Chart 32).81

However, an uncertain economic outlook, including 

the possibility of a recession, could lead to lower 

corporate profitability, which could adversely affect 

repayment and increase refinancing risks across 

some issuers, particularly those in adversely affected 

industries.82 In addition, borrowing costs could 

continue to rise further through 2023 if benchmark 

interest rates, such as Treasuries, continue to rise or if 

the market perceives higher credit risk in the corporate 

debt market, which could translate into increased 

spreads on corporate debt relative to Treasury 

rates.83 These factors could constrain the ability of 

corporations to service their debt.84 Rising corporate 

defaults would affect holders of corporate debt 

securities, including banks. Analysts expect corporate 

defaults to increase through 2023 but remain at or 

below long-term averages before increasing further in 

2024, in line with past default cycles.85 Corporations 

facing financing constraints could pull back on 

employment and investment, propagating their 

distress into other parts of the economy.
50 | 2023 Risk Review

Nonbank Financial Institution Lending

• As the nonbank financial sector has continued to expand, so has lending by banks to nonbank financial 

institutions (NBFIs). 

• Loans to NBFIs remained concentrated among the largest banks, and funded balances continued to rise 

through first quarter 2023. 

• Community bank exposure to NBFIs remained small, and outstanding loans to these institutions contracted 

through first quarter 2023. 

• While credit quality measures on NBFI loans remained favorable, bank exposure to risks of nonbank 

business activities has increased. 

86 Loans to nonbank financial institutions were first reported on Call Reports in first quarter 2010.

87 The eight U.S. GSIBs are Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street Corporation, and 

Wells Fargo. 

88 Capital is defined as tier 1 capital and credit loss reserves for loans and leases.

89 Financial Stability Oversight Council, 2022 Annual Report.

The banking industry continued to increase 

lending to nonbanks through first quarter 2023.

The nonbank financial sector continued to expand, 

with direct bank lending to NBFIs growing in tandem. 

Banks held $761 billion in funded loan commitments 

to NBFIs in first quarter 2023, a record high.86 During 

first quarter 2023, a quarter of relatively tepid overall 

total loan growth in the banking industry, the yearover-year growth rate in NBFI lending continued to 

outpace growth rates in all other major loan portfolios 

(Chart 33).

Banks lend to many different types of NBFIs, including 

investment firms, financial vehicles, nonbank real 

estate lenders, insurers, transaction processors, and 

other entities. Banks provide credit-line commitments 

to these firms, and NBFIs rely on these lines as a key 

source of liquidity for day-to-day operations and for 

funds to lend or to invest.

Loans to NBFIs are concentrated among global 

systemically important banks (GSIBs) and 

represented a considerable share of GSIB capital 

in first quarter 2023. GSIBs represent more than 60 

percent of loans to NBFIs at insured institutions. GSIBs 

reported 9.2 percent growth in funded NBFI balances 

year over year in first quarter 2023.87 Funded NBFI 

loan concentrations at GSIBs reached 50.9 percent of 

capital in first quarter 2023, up from 39.5 percent at 

year-end 2019 (Chart 34).88 In addition to credit-line 

commitments, GSIBs issue term loans, asset-based 

loans, and other facilities to nonbanks. While GSIBs 

lend to a wide variety of nonbank entities, their largest 

commitments tend to be to investment firms and 

financial vehicles.

Community bank exposure to nonbank entities has 

declined through first quarter 2023. Only 8.8 percent 

of community banks had funded commitments to 

nonbanks, and their loan commitments to NBFIs 

declined 18.6 percent from year-end 2021. These loans 

account for a small portion—0.95 percent—of total 

community bank lending. Supervisory observations 

suggest that most lending to NBFIs by community 

banks is through warehouse lines of credit to nonbank 

mortgage companies. As mortgage origination 

declined amid rising interest rates, many nonbank 

mortgage companies reduced their credit-line usage at 

banks. 

The nonbank mortgage industry was challenged by 

a decline in housing activity that occurred in late 

2022 as mortgage rates rose. Nonbank mortgage 

companies could come under further pressure in a 

potential recession and sustained high interest rate 

environment. Some nonbank mortgage lenders 

loosened underwriting standards and offered new 

products to maintain origination volume while 

maintaining limited loss-absorbing capacity. Nonbank 

mortgage servicers could face acute liquidity pressures 

in the event of widespread delinquencies as some 

servicers have to repurchase distressed mortgages 

while maintaining investor payments.89
2023 Risk Review | 51

Annual Loan Growth Rate

Percent

Source: FDIC.

CHART 33

Growth in Nonbank Financial Institution Lending Outpaced Other Major 

Loan Categories 

18.3

16.3 15.4

13.9

5.0

12.0

-15

-10

-5

0

5

10

15

20

25

30

35

Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023

Commercial and Industrial

Consumer

Agriculture

Commercial Real Estate

1–4 Family

Funded Loans to Nonbank Financial Institutions

Funded Nonbank Financial Institution Loans to Tier 1 Capital Plus Credit Loss Reserves for Loans and Leases

Percent

Source: FDIC.

Note: Quarterly data through first quarter 2023.

CHART 34

GSIBs Have the Highest Concentration of Loans to Nonbank 

Financial Institutions 

0

5

10

15

20

25

30

35

40

45

50

55

60

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

GSIB Loans to Nonbanks

Noncommunity Bank Loans to Nonbanks (Excluding GSIBs)

Community Bank Loans to Nonbanks

Total Industry Bank Loans to Nonbanks
52 | 2023 Risk Review

Despite current favorable credit risk metrics, bank 

exposures to nonbanks pose potential future risks. 

While asset quality measures remained favorable 

on bank loans to NBFIs through first quarter 2023, 

some NBFIs do not have access to stable funding 

sources, making them vulnerable to credit distress 

during periods of market disruptions and economic 

weakness. In exchange for higher yield, some NBFIs 

that extend credit may assume higher credit and 

liquidity risks than those typically borne by banks. 

Bank lending to riskier NBFIs can thus indirectly 

transmit increased credit and liquidity risks to their 

own balance sheets. Similarly, some research has 

found that compared with banks, NBFIs serve riskier 

borrowers and limit lending more during financial 

shocks.90 For example, some research suggests that 

NBFI loan origination during the Great Recession 

declined 96 percent compared with 26 percent for 

banks. During the pandemic, NBFI loan originations 

declined 85 percent, while bank lending increased.91

NBFIs could experience defaults from their borrowers 

or losses due to weakened investments, which would 

affect their ability to repay debt. 

90 Iñaki Aldasoro, Sebastian Doerr, and Haonan Zhou, “Nonbank Lending During Crises,” Bank for International Settlements and Princeton University, June 2023.

91 Quirin Fleckenstein, Manasa Gopal, German Gutierrez Gallardo, and Sebastian Hillenbrand, “Nonbank Lending and Credit Cyclicality,” NYU Stern School of 

Business, June 2020.

92 The NBFI utilization of lines of credit is defined as funded loans to NBFIs as a percent of total funded and unfunded commitments to bank and nonbank entities 

(RC-L.1.e.(2)).

In addition to higher delinquencies or defaults, a 

drawdown by NBFIs on credit lines in a time of stress 

could translate into liquidity pressures at banks that 

extend credit to NBFIs. At the onset of the pandemic in 

early 2020, NBFIs drew down their lines at banks amid 

increased economic uncertainty. In first quarter 2020, 

funded NBFI loans surged $86.1 billion (17.6 percent) 

from the prior quarter, while unfunded commitments 

to these institutions shrank $44.0 billion (10.3 percent). 

The utilization rate on NBFI lines of credit, defined 

as total funded commitments to NBFIs provided by 

banks as a percentage of total funded and unfunded 

commitments, increased to 60 percent, up from 53 

percent in fourth quarter 2019 before the start of the 

pandemic.92 While the utilization rate on credit lines 

to NBFIs was approximately 54 percent in first quarter 

2023, relatively unchanged from year-end 2022 and 

down from the 2020 high, the banking industry’s loan 

exposure to nonbanks has increased since before the 

pandemic, both in terms of dollar amount and as a 

share of capital.
2023 Risk Review | 53

Small Business Lending

• High inflation and labor market shortages challenged small businesses in 2022. Small business conditions 

varied across industries as consumer spending patterns shifted toward services.

• Community banks remained an important source of small business lending. 

• Commercial and industrial (C&I) loan asset quality, a proxy for small business loan performance, remained 

relatively sound through first quarter 2023, but uncertain small business conditions may be a source of 

credit risk.

93 Despite overall growth in 2022, PCE growth was down considerably from 2021 and declined during the last two months of 2022. Weakness during the end of 

2022 could signal future challenges for small businesses. See U. S. Bureau of Economic Analysis, Table 2.3.6U, Real Personal Consumption Expenditures by Major 

Type of Product and Major Function, accessed January 31, 2023. 

94 NFIB Small Business Optimism Index, May 2023.

Small businesses have faced higher inflation and 

labor market shortages since 2021 and experienced 

a shift in consumer spending patterns that 

benefited some businesses more than others.93

The National Federation of Independent Business 

(NFIB) reported that labor market shortages and 

inflation remained a top concern for small businesses 

in May 2023. Twenty-five percent of owners reported 

inflation as their single most important business 

problem, up from 2021 levels but down from a peak 

of 37 percent in July 2022. About the same share of 

respondents reported quality of labor a concern, and 44 

percent of owners reported they had job openings that 

were hard to fill.94

Recent trends in consumer spending may affect 

conditions for small businesses and the formation 

of new small businesses across industries. While real 

personal consumption expenditures (PCE) growth 

slowed from strong levels in 2021, it remained closer 

to pre-pandemic rates through first quarter 2023. After 

broad gains in consumer spending across industries 

Small business lending is a key component of many bank lending portfolios nationwide. 

Source: FDIC.

Note: U.S. territories are not included in the map. Three banks in Guam and one bank in the Federated States of Micronesia with a concentration 

of small business loans are not shown.

* Small business loans data are reported only in second quarter and fourth quarter of the year.

Regional Exposure to Small Business Lending

Dots on the map represent the 1,865 banks (40 percent of all banks) with small business loans above 75 percent of total C&I loans at

the end of fourth quarter 2022.

Almost 40 percent of banks (1,865) have total small business loans greater than 75 percent of total commercial 

and industrial (C&I) loans as of December 31, 2022.* Small business loans are defined as C&I loans less than 

$1 million.
54 | 2023 Risk Review

in 2021, consumer spending shifted from goods to 

services in 2022. Services spending was led by growth 

in recreation, transportation, and food services and 

accommodation, such as restaurants and take-out 

services. The decline in goods expenditures was led 

by reduced spending on motor vehicles and parts 

and food and beverages in 2022 that improved in first 

quarter 2023.95 Consistent with the shift from goods to 

services consumption since 2021, new applications for 

small businesses rose for service-based businesses, 

such as accommodation and food services, and 

declined for retail trade and transportation and 

warehousing (Chart 35).96

Banks reported a continued slowdown in small 

business lending in 2022, reflecting the winding 

down of Paycheck Protection Program (PPP) 

lending. Small business loans are defined as C&I loans 

less than $1 million and are reported in Call Reports 

semiannually on June 30 and December 31. The 

banking industry’s small business lending portfolio 

also includes Small Business Administration lending. 

95 The food and beverage category is solely for purchases for off-premise consumption.

96 U.S. Census Bureau, “Business Formation Statistics Monthly Data Release,” press release, May 12, 2023. 

97 Banks report C&I loans less than $1 million semiannually as of June 30 and December 31, and these measures do not include delinquency rates. Lines of credit, 

CRE loans, and other types of loans that may not be separately identified in Call Report data.

After rising in 2020 primarily due to the introduction of 

the PPP program, small business lending declined for 

both community and noncommunity banks in 2022, 

reflecting in part the forgiveness and repayment of 

most PPP loans. The amount of small business loans 

outstanding normalized to the 2019 level by year-end 

2022 (Chart 36).97

Community banks remained an important source 

of small business lending. Community banks 

maintained an outsized share of the banking industry’s 

total small business loans in 2022 at 23.6 percent, 

despite holding only 14.7 percent of total industry 

loans. This share is significantly higher than the 

community bank share of total C&I loans, which was 

9.5 percent at year-end 2022. Total small business 

loans at community banks declined by $50.9 billion 

from 2020 through year-end 2022, reflecting in part the 

decline in PPP loans outstanding. While the amount 

of PPP loans held by community banks that meet the 

small business loan definition is not available, 

CHART 35

Business Applications Have Increased for Certain Service Industries Since 2021

Source: Census Bureau (Haver Analytics).

Note: Monthly data through April 2023.

Index (2018 = 100)

0

5

10

15

20

25

30

Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23

Total

Accommodation & Food Services

Professional Services

Retail Trade

Transportation & Warehousing

Health Care & Social Assistance
2023 Risk Review | 55

$ Billions

Source: FDIC.

Note: Annual data from 2018 to 2022. Small business loans include loans made under the Paycheck Protection Program. 

CHART 36

Small Business Loans Have Declined in Recent Years, Returning to 

Pre-Pandemic Levels

0

50

100

150

200

250

300

350

400

450

2018 2019 2020 2021 2022

Noncommunity Bank Small Business Loans

Community Bank Small Business Loans

by year-end 2022 only $2.2 billion in total PPP loans 

was outstanding at community banks as the program 

ended, down from $105.2 billion at year-end 2020. 

While small business loans held by community banks 

declined in 2022, community banks continued to make 

business loans. Annual C&I loan growth, net of PPP 

loans, reported by community banks was 18.0 percent 

in fourth quarter 2022. C&I loan growth slowed in first 

quarter 2023 to 0.7 percent, reflecting bank concerns 

about economic uncertainties.

The community bank early-stage past-due and 

noncurrent rate on C&I loans remained relatively 

low through first quarter 2023. In the absence 

of asset quality data reported by banks for small 

business loans, loan performance measures for 

banking industry C&I loans have historically been a 

good proxy for small business loan performance. The 

C&I early-stage past-due rate and the noncurrent rate 

reported by community banks declined at the onset 

of the pandemic and remained favorable through 

98 NFIB Small Business Optimism Index, May 2023.

99 Net numbers reflect the difference between respondents who report a positive belief or position and those who report a negative belief or position, meaning 

negative numbers represent more negative than positive responses. 

first quarter 2023. Both rates were below levels 

reported by noncommunity banks. C&I asset quality 

of noncommunity banks also remained below the prepandemic averages as of first quarter 2023 (Chart 37). 

Small businesses reported weaker conditions in 

early 2023, which may be a source of credit risk 

for banks. Small business owners reported concerns 

about conditions in the near term. The May 2023 NFIB 

survey reported that the Optimism Index remained 

low at 89.4, down from 2021 levels.98 Further, a net 

negative 50 percent of survey respondents said they 

believed that business conditions will improve over 

the next six months, according to the survey.99 The 

last net positive survey response for this measure was 

in November 2020. Higher interest rates combined 

with weaker business conditions may make it more 

difficult for small business owners to meet their debt 

repayment requirements and may pressure asset 

quality of bank loans to small businesses in 2023. 
56 | 2023 Risk Review

Percent

Source: FDIC.

Note: Quarterly data through first quarter 2023. 

CHART 37

Community Bank Commercial and Industrial Loan Early-Stage Past-Due and 

Noncurrent Rates Are Lower Than Noncommunity Bank Rates

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Community Bank Noncurrent Rate

Community Bank Early-Stage Past-Due Rate

Noncommunity Bank Noncurrent Rate

Noncommunity Bank Early-Stage Past-Due Rate