First Glance 12L

December 11, 2020

Third Quarter 2020: Not Yet Out of the Woods

First Glance 12L provides a quarterly look at banking and economic conditions within the Federal Reserve System’s Twelfth District. During 3Q20, quarterly loan growth among District banks slowed sharply as Paycheck Protection Program (PPP) activity tapered. Meanwhile, the average quarterly return on average assets ratio improved slightly as declines in credit loss provisions and noninterest expense ratios more than offset net interest margin compression. Still, performance was well below 2019 levels. Problem loan ratios were generally stable given continued, albeit reduced, levels of loan modification activity and PPP denominator dilution. However, credit metrics will likely deteriorate once forbearance and government programs expire.

Although employment in the District continued to recover through October, the pace of hiring slowed and a subsequent surge in COVID-19 cases led to renewed operating restrictions in several states. Home price gains, permit volumes, and builder optimism all strengthened through the Fall, supported by low interest rates and limited for-sale inventories. Commercial real estate performance continued to be mixed, with occupancy and rental rates deteriorating across most property sectors, but prices holding somewhat steady amid subdued transaction volumes. The pandemic has impacted the District’s states, sectors, and income groups unevenly, and banking operations have been affected in both temporary and permanent ways, as noted in this quarter’s “Spotlight” feature.

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