Second Quarter 2014: District Banks Have Largely Recovered, But Earnings Remain Under Pressure


Federal Reserve Bank of San Francisco

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September 11, 2014

The First Glance 12L provides a first look at the financial performance of 12th District banks each quarter. The report has undergone a redesign this quarter and “small,” “mid-sized,” and “large” bank groups have been redefined to better align with accepted definitions of community ($50B) banks. The large bank group covers nationwide banks (a larger statistical population was needed), while the other two groups cover 12th District banks.

The 2Q14 report subtitled “District Banks Have Largely Recovered, But Earnings Remain Under Pressure” shows that conditions in the District continued to improve. Though trends are positive, a return to “normalcy” by pre-crisis standards has not yet materialized. The report focuses on pretax profitability rates, which continued to edge higher. Improved noninterest expense ratios and the continued decline in credit loss provisions drove the improvement. However, dragging down profitability, noninterest income rates decreased and NIMs remained severely depressed. Asset quality continued to improve strongly, with the most dramatic improvement at banks under $10B in size. District banks overall experienced strong growth in loan portfolios, up 11% YoY on average. In aggregate, C&LD, multifamily, and consumer loan growth were strong. Maturities on loans and securities continued to lengthen, while non-maturity deposits increased to the highest level over assets in over 10 years. These measures are watched as indicators of potential interest rate risk. Capital and balance sheet liquidity measures remained strong. The percentage of District banks with adverse CAMELS ratings (3, 4 or 5) continued to fall to 26% from a peak of 60%, but this is still well above normal non-recession levels.