Federal Reserve Bank of San Francisco
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Third Quarter 2016: District Growth Was Solid but Showed Signs of Slowing

November 18, 2016

First Glance 12L provides a quarterly look at economic and banking conditions within the 12th District. Data from 3Q16 shows overall District bank performance continued to improve. The report, “District Growth Was Solid but Showed Signs of Slowing,” notes that District job markets continued to expand at an above-average, albeit slightly slower pace, and demand for real estate remained strong. At District banks, annual loan growth was brisk, credit conditions remained sound, and profitability improved. Some signs of slowing emerged: quarterly loan growth decelerated a bit more than expected and the pace of increase in unfunded loan commitments also eased. Similar to prior quarters, annual loan growth outpaced other balance sheet segments, contributing to year-over-year declines in on-balance sheet liquidity and risk-based capital ratios. Although real estate prices climbed higher, the pipeline of new commercial construction may increase vacancy rates among some markets and property types. Also, recent volatility in bond markets pushed up long- and short-term interest rates, which could weigh on property values and increase debt service burdens. On the plus side, rising interest rates may lift bank net interest margins. The report also summarizes several other “Hot Topics” that bank supervisors are monitoring closely.

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