The First Glance 12L provides a first look at economic performance and the financial condition of banks headquartered within the 12th Federal Reserve District. The 1Q15 report, subtitled “Banking Recovery Continues but Headwinds Remain,” reveals that 12th District job, permit, and loan growth remained relatively strong through 1Q15, outpacing the nation. Further improvements occurred in bank credit quality with the average nonperforming assets ratio dropping to less than 0.9%, lower than the comparable national metric for the first time since 2007. Stronger credit quality contributed to lower noninterest and provision expenses and helped buoy net income at banks. Yet, profitability remained constrained by thin and narrowing net interest margins. Continued economic expansion has fueled lending in the District (12% year-over-year average loan growth rate), although some growth may have come at the expense of looser underwriting, per the Fed’s Senior Loan Officer Surveys. Prospectively, a strong dollar and extreme drought pose challenges to borrowers who export or distribute goods, rely on foreign visitor activity, or engage in farming-related or other water-intensive industries. With interest rates likely to rise over the next few quarters, bank loan yields and net interest margins generally should benefit. However, rising rates could also present challenges to banks through outflows of non-maturity deposits, depreciation within investment portfolios, rising credit risk among variable-rate loans, and the potential for adverse impacts on real estate values.