A continued rise in interest rates could spell trouble for community banks and thrifts, the Federal Deposit Insurance Corp. said in a report released Tuesday.

Though many small banks posted record earnings in the first quarter, the FDIC said that more interest rate hikes, combined with the steady increase in cost of funds, could squeeze net interest income in coming quarters. The agency concluded that earnings at institutions with less than $1 billion of assets - which rely far more on interest income than their larger counterparts - are "more vulnerable" to rising interest rates than at any time in the past five years.

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