their profit levels were slightly lower than those for larger community banks prior to the crisis, but they performed similarly until 2015, when banks of this size showed a decline in profits not experienced by any other size grouping of community banks. time will tell whether this is an anomaly or the beginning of a pattern. - 6looking at the smallest community banks, those with less than $ 100 million in assets, gives some hints for why their numbers have declined. the average roa for the smallest banks ( in purple, with circles ) has been consistently lower than that for the nextsmallest class of banks since 1995. the already lower level of profits for the smallest banks began to decline further in 2006. since 2009, profits for the smallest banks have increased slightly but remain below their levels of profitability prior to the recession and below the roa levels for larger banks. 5 data on nonperforming loans ( npls ) show a mixed picture. 6 a breakdown of community banks by size indicates that the ratio of npls to total loans peaked for every size category in 2010 ( figure 8 ). prior to 2007, the smallest community banks consistently had a higher ratio of npls than did larger community banks ; but from 2007 until 2013, their npl rate was below that of larger community banks. in the past two years, npls on the balance sheets of the smallest banks have declined more slowly than for larger banks so that banks with less than $ 100 million in assets once again have the highest npl ratio. let me turn now to consider changes in the number of community banks over the past 20 years at a more local level. for purposes of this discussion, i define local banking markets as counties in rural areas and as metropolitan statistical areas in urban areas. the patterns for return on equity ( roe ) are similar to those for roa, although community banks as a whole had negative roe in both 2009 and 2010. the largest community banks, with $ 1 billion to $ 10 billion in assets, suffered much greater negative returns on equity in these years than did smaller community banks. midsize community banks, with $ 300 million to $ 1 billion in assets, fared better than their larger and smaller counterparts. the smallest community banks showed an unusual pattern in their roes. ( it should be noted that, for banks of this size, roe can be a questionable measure of profitability because such banks tend to be either privately held or very thinly traded. ) these banks were in

not been concentrated in any particular section of the country, and urban markets have been slightly more likely to lose community banks over the past 20 years than rural areas. one might ask, what factors have led some markets to lose community banks while others gained community banks or saw no change? because of the importance of community banks as a source of small business lending and other retail services, we have explored this question but do not yet have any definitive answers. we considered the possibility that underlying demographic characteristics were driving the observed changes in the number of banks in a local market area. perhaps the size of the labor force or the population density, the racial and ethnic mix of the population, or changes in any of these factors might explain the outcome. we also considered whether economic conditions such as the unemployment rate, the median household income, the number of business establishments, or changes in any of these measures might be useful in predicting which markets would lose community banks over time. taking into account all of these variables in a regression framework did not yield much explanatory power. this analysis has not led us to a clear story regarding the determinants of changes in the number of community banks serving a local market area, but we intend to continue our research efforts and hope that they will ultimately yield some valuable insights. we - 9can take some comfort from the fact that the number of local markets that either maintained or increased the number of community banks serving their residents and small businesses is much larger than the number of markets that saw a decline in the number of community banks. that said, we recognize that the loss of community banks may have caused some communities to suffer adverse economic consequences. so, what do we take away from this review of bank numbers and performance? first, the decline in the number of community banks is not a recent phenomenon - - it has been a constant theme over at least the past 20 years. second, it has occurred almost exclusively among the smallest community banks - - those with less than $ 100 million in assets. however, i want to emphasize that the long - trending decline in the number of very small community banks does not mean that these banks do not play an important role in our financial system. almost all newly chartered banks fall into this category, and many of these banks thrive and, ultimately, outgrow the smallest size category. thus, banks with less than $ 100 million in assets should be viewed as a key source of dynamism and competition within the banking sector. third,