The First Glance 12L provides a first look at the financial performance of 12th Federal Reserve District banks each quarter. The latest report is subtitled “Better Than Expected Performance; Will Positive Momentum Continue?” Noncurrent loan rates and net charge-off rates dropped more than expected in 4Q11 as a potential weakening of CRE income property loan quality did not occur. And, earnings were better than expected — in down credit cycles, banks typically take higher loss provisions and charge-offs in 4th quarters to clean up their balance sheets for the new year — this 4th quarter cyclical effect was all but absent as the average ROA remained essentially flat from the prior quarter. Nonetheless, earnings and loan quality at District banks remained weak, compared to historical averages and to banks nationally. Additionally, the improved earnings from the prior year was almost entirely due to reduced loan loss provisions. Core earnings ratios have not seen improvement with depressed net interest margins and high overhead expense ratios. But overall, banks are clearly in recovery mode, and 2012 should see further slow recovery for most banks. The First Glance 12L report again highlights a few “Banks Supervisors’ Hot Topics”: 1) Banks reducing ALLL, 2) Weak housing market & impact, 3) CRE income property loan quality and vulnerability, 4) Interest rate risk – lengthening of asset maturities, 5) Expansion into new or unfamiliar lending areas; and 6) Other areas of concern – European debt crisis, Capital planning and Stress Testing.