U.S. Community Banks: Holding up Well with Strong Asset Quality Despite CRE Exposures

Community banks, numbering over 4,100, represent 90% of banks operating in the U.S. while accounting for approximately 11% of all FDIC-insured banking assets and 15% of loans. While small in size, community banks play an important role in the U.S. banking system and economy.

Key Highlights
-- For Q2 2024, community banks (as defined by the FDIC) reported solid net income equating to an aggregate 0.95% ROA and 9.60% ROE.

-- Asset-quality metrics remain strong and better than pre-pandemic levels, despite generally high levels of commercial real estate.

-- While the majority of community banks continue to report unrealized losses on securities available for sale and held to maturity, these losses have improved from Q1 2024 and Q2 2023 levels.

According to John Mackerey, Senior Vice President, Sector Lead, North American Financial Institution Ratings, "In Q2 2024, community bank performance remained solid, reporting an aggregate 0.95% ROA and 9.60% ROE, aligned with the previous quarter, although weaker compared with the year earlier quarter. Moreover, 93% of banks in this grouping were profitable in Q2 2024, a slight improvement from the linked quarter."