Spotlight: Banking Outlook Conference |
Spotlight: Net Interest Margin Performance, Part II |
State of the District |
National Banking Trends
On a national level, banks ended 2012 in better condition than 2011. Uncertainty about the fiscal climate affected banks on a regional basis as loan growth slowed in the Southeast but accelerated on a national level. On an aggregate basis, return on average assets (ROAA) in the last quarter of 2012 declined slightly from the prior quarter (see the chart).
Fourth quarter declines are typical given that banks attempt to charge off any remaining asset quality issues at year-end and typically have higher noninterest expenses. The ROAA was significantly better than at the end of the last two years, which indicates that 2012 was a true turning point for the industry. The earnings story remains centered on cost containment. Net interest margin (NIM) declined again as interest rates have been effectively held down on loans while deposit repricing has reached its apparent bottom. At the same time, the provision expense also continues to decline which helps improve earnings (see the chart).
Overall asset quality continues to improve. While charge-offs increased in the fourth quarter as expected, noncurrent loans have stayed below 4 percent of total loans for most of 2012 and are nearly 200 basis points below their peak in the fourth quarter of 2009. Reflecting the uncertainty of small businesses, loan growth continues to be sporadic for banks with assets of less than $1 billion (see the chart).
In the fourth quarter, the loan portfolio for this group of banks shrank at an annualized rate of nearly 5 percent while loan growth for banks with assets greater than $1 billion continued an upward trend.