Federal Reserve Bank of San Francisco

First Glance 12L: Third Quarter 2011

Author(s):

November 2011

First Glance 12L

The First Glance 12L provides a first look at the financial performance of 12th District banks each quarter. The latest report, subtitled “Positive Momentum Amid Challenging Banking Conditions” details various metrics that point to incrementally improving conditions among District banks. The average return on average assets remained weak at 0.52% in 3Q11, but this is the highest this metric has been in 14 quarters. Reduced provisions for loan losses drove much of the recent improvement, but core earnings rates also have improved modestly during the year. While further deterioration may still occur in CRE income property loan portfolios, overall asset quality metrics continue to improve with delinquency rates and net charge-off rates moderating. The percentage of banks rated CAMELS 3, 4, or 5 dropped further to 54% across the District from a peak of 60% a few quarters ago, while the percentage of banks with unsatisfactory consumer or CRA ratings has risen in recent quarters to 13% and 2.4% of all District banks respectively. The report again highlights a few “Banks Supervisors’ Hot Topics”: 1) Banks reducing ALLL, 2) Weak housing market & impact, 3) CRE income property loan quality and vulnerability, 4) Interest rate risk – lengthening of asset maturities, 5) Expansion into unfamiliar lending areas; and 6) Other areas of concern – European debt crisis, Ag lending, Capital planning.

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