First Glance 12L provides a quarterly look at economic and banking conditions within the 12th District. The fourth quarter report notes that the Tax Cuts and Jobs Act of 2017 boosted business and commercial real estate investor optimism, but also prompted deferred tax asset write-downs and one-time bonuses at many banks. Despite fourth quarter earnings challenges, full-year profits were sufficient to lift average regulatory capital ratios year-over-year. Meanwhile, liquidity tightened modestly as banks shifted assets away from temporary instruments and securities towards loans, and noncore funds usage picked up. Although rising interest rates helped to lift bank net interest margins because of “sticky” deposit pricing, they also placed upward pressure on borrower debt service requirements and may dampen future demand for credit. Job and loan growth remained relatively strong, but increasingly tight labor and housing availability may constrain future growth, especially in high-cost markets. Residential and commercial real estate continue to bear watching given elevated property prices and District bank loan concentrations. Of note, the absorption of commercial space may slow in some markets and property types prospectively according to third-party forecasters. The report also discusses several other “Hot Topics.”
