FDIC Quarterly - 2016 Volume 10, Number 4

The FDIC Quarterly released today includes two feature articles:

Core Profitability of Community Banks, 1985–2015 — The relatively low profitability reported by community banks since the 2008 financial crisis has sparked concerns about the core profitability of the community banking model. This paper constructs an econometric model using 31 years of data to estimate the impact of macroeconomic shocks on industry average pretax return on assets (ROA). After accounting for macroeconomic factors, the remaining unexplained variation is considered to be the core component of profitability. Core ROA is found to have been relatively stable between 1985 and 2015. It trended downward over the 1990s, but the effect of the financial crisis on industry composition has led to a reversal and a modest increase in core profitability. More than 80 percent of the post-crisis decline in profitability can be explained by negative macroeconomic shocks. 

Mutual Institutions: Owned by the Communities They Serve — Mutual institutions—savings banks and savings and loans owned by their depositors—are a unique type of community bank. This paper provides an overview of mutual institutions and their place in the U.S. financial system. They generally earn lower returns on assets than stock community banks, but have higher-quality assets. Mutuals also failed less often between 2008 and 2014 than did stock community banks. From their 19th-century origins as providers of small-denomination savings accounts and the means of pooling funds to finance homeownership, to their dominance of U.S. mortgage finance for much of the 20th century, and to their strong performance during the recent financial crisis, mutuals remain an important segment of the community banking sector. 

This issue of the FDIC Quarterly also includes third quarter 2016 industry results from the Quarterly Banking Profile, which was released on November 29, 2016.