Second Quarter 2015: District Conditions Were Solid Prior to August Market Rout
District jobs, housing permits, and loan portfolios expanded strongly through 2Q15 and further reductions in noninterest expenses and historically low provision expenses helped lift bank earnings. Although higher, bank profits remained constrained by narrow net interest margins. Residential and commercial real estate prices increased further, but the pipeline of new apartment construction may weaken vacancies and/or rents modestly in several District markets. Drought became an increasing concern in the Pacific Northwest and International developments during 3Q15 may pose challenges for some institutions. While District asset quality measures improved further, Federal Reserve surveys noted relatively loose underwriting in some segments, which could lead to rising delinquencies over time. Increased exposures to longer-term assets and potentially fickle non-maturity deposits may mute the otherwise beneficial effects of a rising interest rate environment on District net interest margins.
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