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Banking

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Introduction | Spotlight: Housing Market Overview: Challenges to the Housing Recovery | Spotlight: A Guide to Trust Preferred Securities | Spotlight: Conference Looks Ahead to Banking's Next Chapter | State of the District | National Banking Trends

National Banking Trends

Banks became increasingly optimistic toward the end of 2013. Measures of asset-quality problems, such as noncurrent loans to total loans, were approaching historical norms. At the same time, banks are encouraged about loan growth as the amount of loans on their balance sheets grew in the fourth quarter, with more loans still in the pipeline. For banks with assets between $1 billion and $10 billion, loan growth remained strong throughout most 2013, capping off the year with a nearly 12 percent increase in annualized loan growth (see the chart).

Growth has come from a variety of sources, including automobile, construction, and consumer loans. Although loan growth appears to be returning, it has not necessarily resulted in an increase to return on average assets (ROAA). The net interest margin has remained relatively stable, up 5 basis points from the prior quarter but down 6 basis points from the prior year. Community banks are much more reliant on loans to drive income, while the large banks have continued to find other revenue sources (see the chart).

The level of noninterest income helps explain why large banks had a better ROAA despite lower annualized loan growth (see the chart).

The lack of growth in ROAA has kept community banks in a cost-cutting mode. Going forward in 2014, banks will not only have to determine the right level of expenses that are necessary to generate growth, but they will have to remain vigilant about not trading too much future interest rate risk for current net margin growth.