First Quarter 2019: District Growth Solid but Slowing amid Rising Trade Tensions

May 31, 2019

First Glance 12L provides a quarterly look at banking and economic conditions within the 12th District. Net interest margin expansion at District banks began to slow as funding costs increased at an annual rate not seen since the 2004-06 rate tightening cycle. Seasonal declines in asset yields were also a factor. Earnings retention amid moderate balance sheet growth lifted smaller banks’ capital positions, while elevated dividend payouts limited capital accretion at mid-sized and large banks. Annual growth in District bank loans and nonmaturity deposits continued to slow. Some banks turned to borrowings and time deposits, adding to funding cost pressures. Overall loan delinquency and net chargeoff ratios continued at low levels; although, past-due rates edged up among some loan types. Meanwhile, District job growth ticked lower, converging with the national pace of hiring for the first time since 2012. Although a decline in long-term rates during 1Q19 boosted demand for housing and residential mortgages, home price appreciation continued to slow across most District states. Business and investor sentiment perked up during the quarter, but most surveys were performed prior to the escalation in trade tensions in May. This quarter’s Spotlight feature discusses the District’s potential economic exposure to rising tariffs.