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Community banks report improved revenues as Q4'17 earnings season continues

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Community banks report improved revenues as Q4'17 earnings season continues

Corporate tax reform may be temporarily knocking profitability down in the fourth quarter, but community banks are so far reporting a year-over-year median 10.3% growth in operating revenues — the sum of net interest income before provision expenses and total noninterest income.

Operating expenses have also dropped; as of Feb. 2, the median efficiency ratio for the 269 major exchange-traded community banks studied was 61.15% in the fourth quarter, down 111 basis points year over year.

Among banks with less than $1 billion in assets, Philadelphia-based Prudential Bancorp Inc. posted the highest year-over-year increase in operating revenue at 63.6%. According to the bank's Jan. 23 press release, the company saw a $3.5 million year-over-year increase in its net interest income, largely reflecting its acquisition of Polonia Bancorp Inc. on Jan. 1, 2017.

Of the 57 banks in the category that reported earnings as of Feb. 2, only nine reported declines in operating revenue, with Rancho Cordova, Calif.-based American River Bankshares posting the largest decline at 7.3%. In its Jan. 25 press release, American River stated that its noninterest income decline was a result of a decrease in its other real estate owned loans income to zero in the fourth quarter of 2017 from $173,000 in the same quarter in 2016. Also, its average yield on earning assets declined to 3.58% from 3.73% because of additions of new loans at the current market rate.

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For banks with between $1 billion and $5 billion in assets, McLean, Va.-based Southern National Bancorp of Virginia Inc. led the pack with a 140.4% year-over-year increase in operating revenue, thanks largely to the company's acquisition of Glen Allen, Va.-based Eastern Virginia Bankshares Inc. on June 23, 2017.

Two other companies in this asset class — Dallas-based Veritex Holdings Inc. and Bar Harbor, Maine-based Bar Harbor Bankshares — also reported 100%-plus increases in operating revenue due to M&A. Only eight companies in this category reported year-over-year declines, led by a 19.3% drop at Atlanta-based Fidelity Southern Corp. In its Jan. 18 press release, Fidelity attributed its 38.7% fall in noninterest income to a mortgage servicing rights impairment of $1.5 million, a $14.6 million change from its recovery of $13.1 million in the fourth quarter of 2016.

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Among the largest banks in the analysis, those between $5 billion and $10 billion in assets, Irvine, Calif.-based Pacific Premier Bancorp Inc. reported the highest year-over-year increase in operating revenue at 87.9%, helped by two acquisitions. The bank's interest income from loans almost doubled during the period to $80.1 million from $43.0 million in the final quarter of 2016.

Irvine, Calif.-based Opus Bank posted a 26.4% decrease in operating revenue year over year, the largest decline among all banks and thrifts under $10 billion assets. In the bank's Jan. 22 earnings release it noted a drag on loan interest income from a "rapid pace" of planned loan exits. "We expect that headwind to meaningfully lessen in 2018 and for our yields on loans and cash and investment securities to benefit from the anticipated Fed rate increases," CEO and President Stephen Gordon said in the release.

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