ViewPoint: National Business Trends

Introduction | Spotlight: Net Interest Margin Performance | Spotlight: TAG Program | State of the District | National Banking Trends

National Banking Trends

In the third quarter of 2012, return on average assets (ROAA), on an aggregate basis, continued to trend higher for community banks. ROAA reached 1.09 percent for all commercial banks in the third quarter. Net interest margin declined for the fourth quarter. This decline was offset by a decline in provision expense. Some banks believe asset quality has improved to the point where they are starting to release reserves and lower their provision expense to near zero (see the chart).

While asset quality has improved, charge-offs have also increased, and banks may be reducing their allowance prematurely. The pace of loan growth, however, declined in the third quarter of 2012 (see the chart).

Annualized loan growth declined from 5.7 percent to 3.7 percent. While loan growth is positive for all commercial banks, banks with assets of less than $1 billion actually saw loan growth turn negative in the third quarter.

Another concern is the impending expiration of the Transaction Account Guarantee (TAG) program, which guarantees unlimited insurance on noninterest-bearing transaction accounts and covers roughly $1.6 trillion in deposits. Many of those deposits are held by community banks, which have been able to improve their liquidity and improve their margins with the influx of deposits. Now, with the expiration of the program, many of those deposits may disappear, which could hurt community banks' liquidity, margins, and ultimately capital.