Second Quarter 2021: Recent Virus Transmission May Weigh on the Recovery

September 9, 2021

First Glance 12L provides a quarterly look at banking and economic conditions within the Federal Reserve System’s Twelfth District. Paycheck Protection Program forgiveness accelerated during the quarter, overshadowing other loan growth. Consequently, net new lending trailed deposit growth, contributing to additional on-balance sheet liquidity. Economic improvements and better-than-expected asset quality enabled low—and in some cases negative—credit loss provisions, which helped boost bank profits. Problem loan ratios remained tame given stimulus-related relief and improved economic activity during the quarter. By mid-July, District payrolls had improved to 95.1% of pre-pandemic (February 2020) levels, from a trough of 85.5% in April 2020. But the national employment picture for August suggests that the Delta variant-fueled surge in virus cases in the summer may have chilled optimism and economic activity. Home prices continued to increase at double-digit annual rates in most District states amid low interest rates, tight for-sale inventories, and demographic factors. Although investors and third-party forecasts suggest stable-to-improving conditions for commercial real estate markets, the office sector remains an area of lingering uncertainty. The report recaps several hot topics related to cyber, regulatory compliance, fintech, drought, and various lending and funding risks, and takes a closer look at fraud trends.

First Glance 12L 2021Q2 Feature Graphic