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First Glance 12L (2Q16)
Strong Growth: A Double-Edged Sword?
August 20, 2016
Authors: Judy Plock, Martin Karpuk, Michael Nimis, Colin Perez, Ken Wang
Editors:Carolyn Bates, Cynthia Course, David Doyle, Sarah Mangi, Gary Palmer, Ron Pavlick, Wallace Young
This report is based upon preliminary data from 2Q16 and prior Condition & Income Reports as well as other examination and economicsources. Data has been prepared primarily for bank supervisors and bankers. The opinions expressed in this publication are those of theauthors. Opinions are intended only for informational purposes, and are not formal opinions of, nor binding on, the Federal Reserve Bankof San Francisco or the Board of Governors of the Federal Reserve System.
Data Inquiries: please contact [email protected] Inquiries: please contact Media Relations at http://www.frbsf.org/our-district/press/
First Glance 12L: http://www.frbsf.org/banking/publications/first-glance-12l/
Financial Performance of Banks in the 12th Federal Reserve District (“12L”)
Table of ContentsHighlights: 12th District Overview and Hot Topics 3 – 7
Section 1: Economic ConditionsJob and Real Estate Price Gains Continued 8 – 17
Section 2: Commercial Bank Performance
EarningsMargins Strengthened as Earning Asset Growth Centered in Loans
Provisions and Loan Loss ReservesProvision Expenses Were Flat-to-Higher but Undershot Loan Growth
Loan Growth and UnderwritingLoan Growth Remained Strong and Accelerated Modestly
Credit QualityCredit Metrics Improved Further, Helped in Part by Robust Growth
Liquidity and Interest Rate RiskLoan Growth Pressured Liquidity; Investment Portfolios Appreciated
CapitalGrowth in Higher Risk-Weighted Assets Hampered Risk-Based Ratios
18
19 – 21
22 – 23
24 – 28
29 – 31
32 – 36
37 – 38
Section 3: Commercial Bank Regulatory Ratings and Trends 39 – 43
Appendix 1/2: Summary of Institutions / Technical Information 44 – 45
12-Month Trend
Jun-16
OR 3.40%
UT 3.32%
ID 3.19%
WA 3.10%
AZ 2.94%
CA 2.87%
NV 2.51%
HI 2.14%
AK -0.45%
Nation 1.77%
Year-Over-Year Change in Nonfarm Jobs (%)**
(Based on 3-Month Moving Average, Seasonally Adj.)
Growth in the District’s economy and among banks continued into 2Q16, posing both opportunities andthreats. Aggregate 12th District job growth of 2.9% continued to outpace the nation (1.8%). Districtwide,the education/health, professional/business services, leisure/hospitality, government, and constructionsectors drove two out of every three new jobs. Subdued energy prices were a continued drag on growthin Alaska, the District’s only state to report net job losses year-over-year (see table at right).Notwithstanding job growth, the number of unemployed people increased in all of the District’s statesexcept Idaho, lifting the districtwide unemployment rate to 5.3%, up from 5.2% in March.
House price increases stimulated additional homebuilding, albeit at a slowing pace, and alsocompounded housing affordability strains. Nationally, commercial real estate (CRE) prices resumed theirupward march as investors shrugged off fears of a global economic slowdown. However, third-partyforecasters expect appreciation returns to come under pressure in the coming quarters while incomereturns hold steady. Debt market volatility, which hampered the commercial mortgage-backed securities(CMBS) market earlier in the year, calmed during the quarter. Although spreads tightened modestly,CMBS issuance volumes languished and finished the first half of the year 44% below the same period in2015. The prospect of new risk-retention rules in December dampened volumes and raised concernsabout refinancing risks for the upcoming “wall of maturities”, a vestige of heavy pre-crisis CMBS activity.So far, commercial banks have helped compensate for lackluster CMBS issuance volumes.
Economic challenges abroad and foreign currency weakness weighed on first half export volumes in theDistrict. Britain’s unexpected vote to exit the E.U. in June amplified weakening of the Pound Sterling vis-à-vis the U.S. dollar (see chart below). However, the U.K. accounted for a modest 4% of aggregate 12th
District exports (mainly gold-related exports from Utah), limiting trade-related “Brexit” risks.
12th District Overview“Strong Growth: A Double-Edged Sword?”
9.0%6.5%
3.1% 2.6% 1.8% 0.0%
-0.4% -0.7%-4.9%
-10%-5%0%5%
10%
U.K. Mexico China EU Canada HongKong
So.Korea
Taiwan Japan
3-Month Change in Avg. Foreign Currency / $US, Jul-16 (%)*
3
FRB-SF
*Federal Reserve via Haver Analytics**BLS via Haver Analytics
U.S. Exports Became More Expensive
U.S. Exports Became Cheaper
% of Banks with Component or Composite Rating 3, 4, 5
12th District Overview, Continued
Avg. District Credit Metrics*
12.5%
7.1%
9.0%27.9%
13.1%
9.9%
7.7%
0% 10% 20% 30%
Composite
Sensitivity
Liquidity
Earnings
Management
Asset Quality
Capital
Nation12th Dist.
*Trimmed Means
13%
-7%
0%
7%
14%
21%
28%
0%
2%
4%
6%
8%
10%
Jun-
02
Jun-
04
Jun-
06
Jun-
08
Jun-
10
Jun-
12
Jun-
14
Jun-
16
Deliquencies (left)YTD Net C/O (left)Net Ln. Growth (right)
FRB-SF
*Delinquent=30+ days past-due or nonaccrual; C/O= chargeoff (year-to-date annualized); trimmed means
Favorable banking conditions continued during the quarter, with strong loan growth both helpingand hurting several metrics. At 13%, the District’s average annual net loan growth rate wasmore than 80% higher than the national average. Construction and land development (C&LD)and multifamily mortgages once again ranked as the most rapidly-growing, albeit smaller, creditsegments. Although loan performance improved overall, oil and gas sector stress continued toweigh on commercial and industrial (C&I) loan performance at larger banks. Overall ratios forloan delinquencies and credit losses remained at historic lows, partly because newer loans are“unseasoned” and less likely to default (see chart at left).
The April 2016 Senior Loan Officer Survey suggested modestly tighter underwriting among asmall net fraction of lenders for C&I, CRE, and consumer auto loan categories, continuing anearlier trend. Tightening, to the extent it is occurring, has come on the heels of several years ofpost-crisis easing. Concerns remain that lenders have become reliant on loan-to-value ratios tomitigate risks posed by weaker covenants, longer maturities, and other concessions. The rapidrun up in CRE prices over the past few years has left collateral values vulnerable to shifts ininvestor appetite and credit availability, potentially leaving lenders exposed.
As with prior quarters, earnings at most banks improved modestly. During the quarter, assetyields drifted higher while funding costs held steady, continuing a trend from the first quarter. Inpart, the increase reflected shifts into higher-yielding loans and away from lower-yieldinginvestments, part of a cyclical and seasonal trend. Overhead cost containment continued.Because expenses have not kept pace with asset growth for several years, there is growingconcern that internal controls also may have lagged risks. Meanwhile, provision expense ratiosticked up, especially at larger banks, but remained low by historical standards. As newer loansseason and/or economic growth slows, provision expense burdens will likely increase,especially among those banks that fueled prior growth through looser underwriting.
Strong loan growth also adversely affected liquidity and capital measures. Loan-to-asset ratiosincreased, reducing on-balance sheet liquidity. The shift also caused risk-weighted asset growthto outpace equity formation, dampening risk-based capital ratios. To accommodate assetgrowth, banks mildly increased their reliance on noncore funds, including potentiallyvolatile/costly brokered deposits and borrowings.
Safety and soundness and consumer compliance ratings continued to improve. Roughly 87% ofDistrict banks were rated satisfactory or strong for safety and soundness, compared with 92%nationally (see chart at left). In addition, 95% or more were rated satisfactory or better forconsumer compliance and/or Community Reinvestment Act (CRA). 4
We have identified the following as areas of higher concern within the 12th District, basedon risk exposures and metrics of Federal Reserve-supervised institutions:
• Cyberthreats. Attacks continue to evolve in both complexity and frequency and exposeinstitutions to financial, operational, reputational, legal, and compliance risks. Databreaches can originate in multiple ways, and, according to data from Symantec, notalways from outside of the organization (see chart at right). For institutions outsourcingcore banking operations and/or security administration, vendor management programsremain critical to managing and mitigating cyberthreats. Inherent risks can increasefrom a variety of factors, such as system complexity, services, and visibility. For anoptional tool to help assess Cybersecurity vulnerabilities, see SR letter 15-9(http://www.federalreserve.gov/bankinforeg/srletters/sr1509.htm).
• Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) compliance. Although mostbanks in the District have satisfactory BSA compliance programs, BSA/AML continuesto be a significant “hot topic” due to the District’s gateway location and the array andstrategic focus of institutions we supervise. BSA/AML-related criticisms noted at bankexaminations most often relate to internal controls (e.g., institutional risk assessments;customer due diligence, including customer risk assessments; and suspicious activitymonitoring programs). Concerns related to scarce compliance resources and ineffectiveindependent tests are also emerging as examination themes.
• Quality of loan growth. The District’s average annual net loan growth continued tooutpace the national average with Nevada, California, Hawaii, and Utah leading theway. Economic expansion played a role, as did commercial property price appreciation.Notwithstanding signs of recent tightening in the Federal Reserve’s Senior Loan OfficeSurvey, banks had eased underwriting for several years post-crisis. Credit performancehas been good. Still, now is a critical time in the credit and economic cycle for bankersto maintain their lending discipline and enhance their credit risk management practices.
• Lengthening asset maturities. In prior years, banks increased their holdings of longer-term assets, driven by low short-term interest rates and a relatively steep yield curve(see chart at right). This trend recently reversed somewhat with a flattening of the yieldcurve. In a rising interest rate environment, higher concentrations in longer-datedassets could mute asset repricing and margin expansion and/or lead to mismatches inrate-sensitive assets and liabilities, if not appropriately managed.
Hot Topics: Areas We are Monitoring Most Closely
Average Loans & Securities Repricing > 3 Yrs. / Assets*
5
Top Causes of Data Breach% of Incidents Across All Industries
2015*
Attackers47%
InsiderTheft10%
Theft/Loss of Computer
Drive21%
AccidentallyMade Public
23%
27%
43%
32%
45%
20%
25%
30%
35%
40%
45%
Jun-
02
Jun-
04
Jun-
06
Jun-
08
Jun-
10
Jun-
12
Jun-
14
Jun-
16
12th Dist. Nation
*Symantec, Internet Security Threat Report, April 2016
*Trimmed means FRB-SF
FRB-SF
Additionally, the following issues are drawing heightened attention:
• Nonmaturity Deposit (NMD) risk management. NMDs (traditionally viewed as “core” deposits) havebecome an increasingly important source of funding for most institutions. While these productsproved inexpensive in a low-rate environment, these funds may disintermediate or transition tohigher-cost deposit products in a rising interest rate environment. During the last economicexpansion and rate tightening cycle (2004-2006), the mix of bank funding shifted away from NMDsand toward higher-cost time deposits and borrowings as growth in core deposits lagged loans.
• Balancing overhead expense pressures with risk management requirements. Asset growth has led tosome economies of scale and improved efficiency ratios have helped boost profitability. Still, somebanks may not be devoting sufficient resources to back-office operations, internal controls, andcompliance programs commensurate with their increasing size and complexity.
• Commercial real estate lending concentrations. CRE (i.e., nonfarm-nonresidential, multifamily,C&LD, and unsecured CRE-purpose) loan concentrations to capital declined during the recession,but have edged higher since 2013 and remained above average in most District states (see table atright). Loan concentration levels and trends, combined with prior competitive easing of underwritingstandards and recent signs of property price pressure, elevate regulatory concern. A potentially risinginterest rate environment could negatively impact debt service coverage ratios on variable-ratecommercial mortgages and weaken commercial property values. Given the increasing risks, lendersshould review the recent Interagency Policy Statement (SR letter 15-17,http://www.federalreserve.gov/bankinforeg/srletters/sr1517.htm) which reiterates important CRE riskmanagement considerations.
• Redlining. While not new, this is an area of renewed focus across the Federal banking agencies.Redlining, a form of illegal discrimination in which a financial institution makes it more difficult forcustomers to access credit based on the racial or ethnic composition of a neighborhood, could resultin Department of Justice fines, public regulatory enforcement actions, and downgrades to consumercompliance/CRA examination ratings.
• Financial technology (fintech) opportunities and threats. Increasingly, depository institutions arepartnering with fintech companies, in particular marketplace lenders. Given the different originationand underwriting methods that fintech lenders may use, banks should closely evaluate transactionsfor credit risk, fair lending, and unfair/deceptive acts or practices. Because credit decisions may usenontraditional data sources, it will be important to ensure that this does not lead to disparatetreatment or have disparate impact on a prohibited basis. 6
*Trimmed means; includes owner-occupied collateral**June of each year
Hot Topics: Areas We are Monitoring Most Closely
2006-16** Jun-16
NV 418.8%
OR 387.3%
CA 372.4%
AZ 358.1%
WA 350.6%
AK 302.1%
ID 256.2%
UT 224.1%
HI 185.7%
Nation 195.8%
Average Commercial Real Estate Loans /
Total Capital* (%)
481%
491%
550%
482%
323%
358%
405%
230%
231%
438%
7
FRB-SF*Based upon UBS survey of 28,000 consumers in 24 countries; VC = venture capital; PE = private equity; Sources: UBS (Is Fintech a Threat or an Opportunity?, July 2016); KPMG International and CB Insights (data provided by CB Insights) (The Pulse of Fintech, 2016Q2 and 2016Q1, August 2016 and May 2016).
Peer-to-Peer (P2P) lenders and other fintech firms (many based in the District) have experienced explosive growth in recent years, fueled in part by VC and PE funding. Recently, VC/PE volumes have waned (see chart below) and some fintech firms have disclosed serious internal control issues. Still, fintech continues to disrupt and evolve, revealing both vulnerabilities and possibilities for traditional banks. Per UBS, threats are especially acute in the U.S., where potential fintech adoption rates are high (see table at left). Given consumer demand and fintechfunding challenges, banks have begun partnering with these firms, bringing operational and consumer compliance challenges.
$1.6 $1.8 $2.2
$4.7
$7.8
$4.1$3.0
244
438
238 210
0
150
300
450
600
$0.0
$2.5
$5.0
$7.5
$10.0
2011 2012 2013 2014 2015 1H 15 1H 15
$Bils (Left) # Deals (Right)
U.S. VC Invested and Deal Flow – Fintech, 2011-16
CA51%
Mon
ey T
rans
.
Mob
ile P
mts
.
P2P
Lend
ing
Web
Pm
ts.
Rob
o Ad
vise
r
Australia 15 14 9 55 9
Canada 12 12 9 43 7
France 10 9 6 11 7
Italy 13 20 25 57 11
Japan 8 8 6 40 7
Netherlands 10 9 3 52 6
Spain 11 17 14 56 12
Sweden 13 12 6 50 6
U.K. 13 12 10 50 7
U.S. 14 23 17 44 15
UBS Survey: Share of Respondents Likely to Use Non-Bank Service Provider in Next
12 Months (%)*
Geo
g. M
ix
2015
-1H
16
Hot Topics: Spotlight on Fintech
RestOf
U.S.49%
8
Job Growth
Housing Market Metrics
Commercial Real Estate Market Conditions
International Trade
Section 1 - Economic Conditions
For more information on the national economy, see:FRBSF FedViews
(http://www.frbsf.org/economic-research/publications/fedviews/)FOMC Calendar, Statements, & Minutes
(https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm)
9
3.3% 3.0%
-5.5%
2.9%
-1.3%
1.8%
-4.1%
1.8%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
Jun-
00
Jun-
01
Jun-
02
Jun-
03
Jun-
04
Jun-
05
Jun-
06
Jun-
07
Jun-
08
Jun-
09
Jun-
10
Jun-
11
Jun-
12
Jun-
13
Jun-
14
Jun-
15
Jun-
16
District Nation
Year-Over-Year Nonfarm Job Growth
Based on average nonfarm payroll levels over trailing three months; Source: Bureau of Labor Statistics via Haver Analytics.
Job Growth Plateaued in the District and Slowed Nationally
FRB-SF
Education/Health, Professional/Business, Leisure, Government, and Construction Sectors Led Job Growth
10
Based on average nonfarm payroll levels during 2Q of each year; because of data limitations, “Construction” includes mining in Hawaii and “Information” excludes Hawaii and Nevada; “Other Private” includes logging and mining (other than Hawaii) plus private industries in 2-digit NAICS code 81 category; Source: Bureau of Labor Statistics via Haver Analytics.
10-Year Trend 2Q 2016
Education & Health Services 4.02% 20.38% 14.82%Professional & Business Services 3.49% 17.53% 14.62%Leisure & Hospitality 3.66% 15.02% 11.98%Government 1.97% 10.89% 15.81%Construction 6.33% 10.61% 5.01%Retail Trade 2.43% 9.17% 10.85%Financial Activities 2.99% 5.37% 5.20%Transportation & Utilities 3.33% 4.09% 3.57%Wholesale Trade 2.51% 3.61% 4.14%Information 3.38% 3.05% 2.62%Manufacturing -0.23% -0.61% 7.62%Other Private 0.69% 0.91% 3.76%
Total 2.89% 100.00% 100.00%
Sector
12th District Sector Profile of Job Growth - 2Q 2016Year-Over-Year %
Change Mix of New Jobs
Mix of Overall
JobsFRB-SF
11
Annual Home Price Gains Cooled in California and Washington, but Held Steady or Improved in Other District States
Source: Core Logic Home Price Index (includes all detached and attached homes).
Year-Over-Year Change in Home Prices
FRB-SF
3.3%
5.8%
5.9% 6.
8% 7.7% 8.
6% 8.8%
10.9
%
11.5
%
6.4%
0%
2%
4%
6%
8%
10%
12%
14%
AK AZ CA HI ID UT NV OR WA US
Jun-15 Mar-16 Jun-16441
165
84 87100
51 49
0
50
100
150
200
250
300
350
400
450
500
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Jun-
15Ju
n-16
Single Family 2+ Family
12
Housing Starts – West (Thousands Of Units, Not Seasonally-Adjusted)
YTD = year-to-date; West=12th District plus CO, MT, NM, and WY; Source: Census Bureau via Haver Analytics.
First Half Housing Start Growth in the West Decelerated for Single-Family and Turned Negative for 2+ Unit Buildings
FRB-SF
Year-Over-Year %Change
West Nation
2015 YTD2016 2015 YTD
20161-Family 13.9% 3.7% 10.3% 12.5%
2+ Family 11.4% -3.9% 11.8% -3.8%
------------------------------------------ Annual Data ----------------------------------------------- ---YTD---
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
21.0%
Jun-
03
Jun-
05
Jun-
07
Jun-
09
Jun-
11
Jun-
13
Jun-
15
Jun-
17
Weighted Average Vacancy or Availability — 12th District
Office
-15.0%
-12.0%
-9.0%
-6.0%
-3.0%
0.0%
3.0%
6.0%
9.0%
Jun-
03
Jun-
05
Jun-
07
Jun-
09
Jun-
11
Jun-
13
Jun-
15
Jun-
17
Average Annual Rent Growth —12th District
Office
13
According to Third-Party Forecasts, Vacancy Rates May Tick up and/or Rent Growth May Decelerate in Most Sectors
FRB-SF
Based on aggregates across 15-16 large metropolitan areas; apartment data based upon number of units; other property types based upon square footage; Source: CBRE-Econometric Advisors.
Industrial
RetailApartment
Industrial
Retail
Apartment
Fore
cast
Fore
cast
14
80
100
120
140
160
180
200
220
240
260
280
Jun-
01
Jun-
04
Jun-
07
Jun-
10
Jun-
13
Jun-
16
Indust.
Apt.
Office-CBD
Retail
Office-Suburb.
National Real Estate Prices*(Indexed, December 2000 = 100)
*Based on repeat sales indices; CBD = central business district (downtown); Sources: Moody’s/RCA (Commercial Property Price Indices), Core Logic (Home Price Index).
CRE Price Appreciation Resumed After Slowingin the First Quarter, But For How Much Longer?
FRB-SF
Single-Family
Property Type 10 Years
5 Years
Apartment 57% 95%
Office - CBD 78% 85%
Retail 8% 65%
Industrial 22% 60%
Office - Suburban 4% 55%
Single-Family -2% 38%
Cumulative Change inNational CommercialProperty Price Indices
-22%
7%
-17%
10%
-24%
7%
-23%
9%
4%0%
5%
1% 2%
0%
4%
-1%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
2007
2009
2011
2013
2015
2017
2019
2007
2009
2011
2013
2015
2017
2019
2007
2009
2011
2013
2015
2017
2019
2007
2009
2011
2013
2015
2017
2019
Apartment Retail Office Industrial
Actual Forecast
CBRE-EA Price Appreciation Return and Baseline Forecast – Nation
15
CBRE’s Baseline Forecast Anticipates Slowing Price Appreciation Over the Next Few Years
FRB-SF
Source: CBRE-Econometric Advisor’s Investment Outlook (baseline forecast as of 1Q 2016).
$0
$25
$50
$75
$100
$125
$150
$175
$200
$225
$250
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
4Q3Q2Q1Q
Quarterly Dollar Volume of CMBS Issuance ($Mils.)
16
CMBS Issuance Remained Subdued In Spite ofCurrent Sound CRE Market Conditions
FRB-SF
Sources: Commercial Mortgage Alert, Trepp.
Commercial mortgage-backed securities (CMBS) credit spreads narrowed in the second quarter, CRE fundamentals remained healthy, and prices increased. However, CMBS issuance finished the first half of 2016 down 44% year-over-year. Securitizers remained wary of risk-retention rules on the horizon; thus, conditions favored portfolio lenders. A large volume of loans backing pre-crisis CMBS are set to mature but have had some difficulty refinancing into new CMBS. According to Trepp, CMBS delinquencies moved higher for the fifth straight month in July after another uptick in maturity defaults.
17
0%
5%
10%
15%
20%
AK AZ CA HI ID NV OR UT WA 12thDist.
Rest of WorldGermanyU.K.TaiwanHong KongSo KoreaJapanCanadaMexicoChina
Exports / Gross State Product (%)*
*Based on 2015; Sources: Bureau of Economic Analysis (GSP); WISER (Exports) via Haver Analytics.
Overall District Exports Declined Year-Over-Year;Effects of “Brexit” on the District Should be Limited
1H11-
1H16
Yr./Yr. Change
China -11%
Mexico -12%
Canada -11%
Japan -9%
So. Korea -7%
Hong Kong -8%
Taiwan -7%
U.K. 2%
Germany -23%
All Other -3%
$ Value of Aggregate 12th District Exports by
Destination
FRB-SF
WA exports are dominated by high-
ticket aircraft
UT’s exports to U.K. center in
gold
18
Earnings
Provisions and Loan Loss Reserves
Loan Growth and Underwriting
Credit Quality
Liquidity and Interest Rate Risk
Capital
See also “Banks at a Glance,” Bank Profiles by State:http://www.frbsf.org/banking/publications/banks-at-a-glance/
Section 2 Commercial Bank Performance
Note: Bank size groups are defined as very small (<$1B), small ($1B-$10B) mid-sized ($10B-$50B), and large (>$50B) banks. The large bank group covers nationwide banks (a larger statistical population), while the other three groups cover 12th District banks.
19
Earnings: First Half Earnings Strengthened Year-Over-Year, Led by Wider Net Interest Income and Lower Overhead Ratios
FRB-SF
Based on commercial banks, excluding De Novos; year-to-date (YTD) annualized trimmed means; preliminary 6/30/16 data; for comparability, pretax ROAAs are adjusted on a tax-equivalent (TE) basis to assume taxes are paid on income from tax-free municipal loans and securities.
Update for 2Q16
2.13%
-1.20%
1.30% 1.30%1.35%
1.58%
0.59%
1.24% 1.24%1.29%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Jun-
15
Jun-
16
District
Nation
Avg. YTD Pretax Return on Average Assets
Earnings Component
Jun-15
Jun-16
Interest Income 3.91 3.98
Interest Expense (0.29) (0.28)
Net Int. Income 3.61 3.68
Nonint. Income 0.63 0.58
Nonint. Expense (3.13) (2.99)
Provision Expense (0.03) (0.06)
Avg. YTD % of Average Assets
12th District
Net Interest Margins Were Buoyed by a Second Quarter Seasonal Lift and Rising Short-Term Rates
Based on 12th District commercial banks, excluding De Novos; quarterly annualized trimmed means; preliminary 6/30/16 data; data are presented on a tax-equivalent (TE) basis; average 3-month constant maturity U.S. Treasury (UST) Rate from Federal Reserve via Haver Analytics.
6.83%
5.80%
7.60%7.69%
4.20% 4.25%
1.77%
1.04%
2.35%3.03%
0.30% 0.30%
5.04% 4.98%4.76%5.30%
3.88%3.92%
0.00%
2.00%
4.00%
6.00%
8.00%
Jun-
02
Jun-
03
Jun-
04
Jun-
05
Jun-
06
Jun-
07
Jun-
08
Jun-
09
Jun-
10
Jun-
11
Jun-
12
Jun-
13
Jun-
14
Jun-
15
Jun-
16
Avg. 3-Month U.S. Treasury Rate Interest Income / Avg. Earn. Assets Interest Expense / Avg. Earn. Assets Net Interest Income / Avg. Earn. Assets
Average Quarterly Annualized Rate – 12th District
Dots denote second quarters
20
FRB-SF
1.50%
2.00%
2.50%
3.00%
3.50%
Jun-
10Ju
n-12
Jun-
14Ju
n-16
Jun-
10Ju
n-12
Jun-
14Ju
n-16
Jun-
10Ju
n-12
Jun-
14Ju
n-16
Assets< $1B
Assets$1B-$10B
Assets$10B-$50B
District Nation
21Based on commercial banks, excluding De Novos; expense ratios based on year-to-date (YTD) annualized trimmed means; average growth rates not merger-adjusted; preliminary 6/30/16 data.
Avg. Noninterest Exp. / Avg. Assets
At Smaller Banks in the District, Overhead Expenses Have Not Kept Pace With Asset Growth, Reducing Relative Cost Burdens
FRB-SF
-5.0%
0.0%
5.0%
10.0%
15.0%
Jun-
10Ju
n-12
Jun-
14Ju
n-16
Jun-
10Ju
n-12
Jun-
14Ju
n-16
Jun-
10Ju
n-12
Jun-
14Ju
n-16
District< $1B
District$1B-$10B
District$10B-$50B
YTD Nonint. Exp. Total Assets
Avg. 1-Year Growth – 12th Dist.
FRB-SF
23%
18%
11%
23% 37%
36%
0%
10%
20%
30%
40%
50%
60%
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Dec
-10
Dec
-11
Dec
-12
Dec
-13
Dec
-14
Dec
-15
Jun-
15
Jun-
16
Negative Zero
% of 12th District Banks with YTD Provision Expense that was:
22Based on commercial banks, excluding De Novos; based on year-to-date (YTD); preliminary 6/30/16 data.
Loan Loss Reserves: Fewer Banks Avoided Provision Expenses, Especially Large Banks
FRB-SF
Average Provision Expense / Average
Assets (%)
Bank Size Jun-2015
Jun-2016
DistrictVery Small
(<$1B)0.04% 0.05%
District Small($1B-$10B)
0.03% 0.07%
District Mid-Sized
($10B-$50B)
0.02% 0.07%
Nation Large
(>$50B)0.14% 0.23%
2.73%
1.64%1.50%
5.44X
4.61X
1.26%1.80%
1.43% 1.36%
2.91X
1.08X
2.57X
0.00
1.00
2.00
3.00
4.00
5.00
6.00
Jun-
07
Jun-
08
Jun-
09
Jun-
10
Jun-
11
Jun-
12
Jun-
13
Jun-
14
Jun-
15
Jun-
16
Jun-
07
Jun-
08
Jun-
09
Jun-
10
Jun-
11
Jun-
12
Jun-
13
Jun-
14
Jun-
15
Jun-
16
ALLL / Loans Not HFS ALLL / Noncurrent
District
Nation
Average ALLL Coverage of Loans not HFS (%) and Noncurrent Loans (X)
23
Growth in Loans Outpaced ALLL, but Reserves Increased as a Share of (Declining) Noncurrent Loans
FRB-SF
Based on commercial banks, excluding De Novos; trimmed means; preliminary 6/30/16 data; ALLL = allowance for loan and lease losses; HFS = held for sale; noncurrent = loans past due 90+ days or on nonaccrual status. 24
Based on commercial banks, excluding De Novos, by headquarters; trimmed means (not merger-adjusted); preliminary 6/30/16 data; SF Bay = San Francisco-San Jose Consolidated Statistical Area (CSA); So. CA = Los Angeles CSA + San Diego Metropolitan Statistical Area; Other CA = all other California counties.
Loan Growth: Average Net Loan Growth Outpaced theNation Throughout Much of the District
FRB-SF
U.S. = 7.1%District = 12.9%
Avg. Year-Over-YearNet Loan Growth, Jun-16
>= 10.0%
7.5% to 10.0%
5.0% to 7.5%
< 5.0%
SF Bay = 15.0%So. CA = 17.3%
Other CA = 13.1%
Average Year-Over-Year Net Loan Growth (%)
26%20%
12% 8% 10%
-30%
-20%
-10%
0%
10%
20%
30%
Jun-
08
Jun-
12
Jun-
16
Jun-
08
Jun-
12
Jun-
16
Jun-
08
Jun-
12
Jun-
16
Jun-
08
Jun-
12
Jun-
16
Jun-
08
Jun-
12
Jun-
16
Construction &Land Dev.
(C&LD)
Multifamily Nonfarm-Nonresidential
Commercial &Industrial
1-4 FamilyMortgages
District Nation
Average Year-Over-Year Loan Growth Rate
25
Growth Still Fastest Among C&LD and Multifamily Portfolios; Larger Loan Categories Also Expanded Faster than the Nation
FRB-SF
Based on commercial banks, excluding De Novos; trimmed means (not merger-adjusted); preliminary 6/30/16 data.
District 6% 5% 45% 15% 14%Nation 5% 2% 24% 13% 25%
Memo: Average Share of Total Loans, Jun-16
(30%)(20%)(10%)
0%10%20%30%40%50%
Jul-1
4
Jul-1
5
Jul-1
6
Jul-1
4
Jul-1
5
Jul-1
6
Jul-1
4
Jul-1
5
Jul-1
6
Jul-1
4
Jul-1
5
Jul-1
6
Commercial &Industrial
CommercialReal Estate
(CRE)
1-4 FamilyMortgages*
Consumer
Small Borrowers
Non-Traditional/Non QM-Jumbo*
Nonfarm-Nonresid.
Multifamily
C&LD
LargeBorrowers
Credit CardPrime/GSE
Eligible*
Auto
Net Percentage Reporting Tighter (Easier) Standards Relative to 3 Mos. Ago
26
Standards Tightened Further for Commercial andCRE Loans and Shifted for Auto Lending
FRB-SF
Recent “tightening” has come on the heels of several years of post-crisis loosening. Notwithstanding changes in the last year, loans underwritten during the prior period of easing remain within the portfolio. Performance will be important to watch if collateral prices come under pressure, broader credit availability tightens further, and/or the economy slows.
Based on a sample of loan officers at 70+/- domestic banks (number varies by period and loan type); C&LD = construction and land development; *beginning January 2015, two categories were replaced with six based on GSE eligibility, qualifying mortgage (QM) status, and size (making comparisons imperfect); Source: Federal Reserve Senior Loan Officer Opinion Survey (http://www.federalreserve.gov/BoardDocs/snloansurvey/).
4.44
%4.
85% 5.51
%5.
31%
4.99
%
1.43
X1.
49X
1.58
X1.
70X
1.41
X
73%
70%
67% 73
%71
%
2011 8 8 6
0
20
40
60
80
0.00
1.50
3.00
4.50
6.00
Apar
tmen
tIn
dust
rial
Hot
elO
ffice
Ret
ail
Apar
tmen
tIn
dust
rial
Hot
elO
ffice
Ret
ail
Apar
tmen
tIn
dust
rial
Hot
elO
ffice
Ret
ail
Apar
tmen
tIn
dust
rial
Hot
elO
ffice
Ret
ail
Interest Rate(%, Left)
Debt ServiceCoverage(X, Left)
Loan-to-Value(%, Right)
Term(Years, Right)
Permanent Financing Terms – Nationwide*
27
Per RealtyRates.com, Lending Criteria Vary by CRE Collateral Type, and Tend to Favor Apartment Loans
FRB-SF
*Based upon average response as of 1Q 2016; Source: Robert G. Watts/Realty Rates Investor Survey.
443%
349%308%
226%
141%
34%
231%196%
149%120%
60% 29%0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
Jun-
08
Jun-
10
Jun-
12
Jun-
14
Jun-
16
Jun-
08
Jun-
10
Jun-
12
Jun-
14
Jun-
16
Jun-
08
Jun-
10
Jun-
12
Jun-
14
Jun-
16
All CRE Nonowner-Occupied CRE C&LD
District
Nation
Average Commercial Real Estate Concentrations to Total Capital
28
Although CRE Holdings Remained Well Below Prior Peak, Underwriting Remained Critical Given CRE Concentrations
FRB-SF
Based on commercial banks, excluding De Novos; trimmed means; preliminary 6/30/16 data; All CRE= multifamily, nonfarm-nonresidential (NFNR), construction and land development (C&LD), and other CRE-purpose loans; Nonowner-Occupied CRE excludes owner-occupied NFNR.
Average % ofTotal Capital – 12th District
Jun-08 Jun-16
1-4 Fam C&LD 43% 10%
Other C&LD 88% 22%
1.44%
0.16% 0.39%
4.54%
0.51%0.58%
0.83%
0.00%
0.75%
1.50%
2.25%
3.00%
3.75%
4.50%
Jun-
07Ju
n-08
Jun-
09Ju
n-10
Jun-
11Ju
n-12
Jun-
13Ju
n-14
Jun-
15Ju
n-16
Jun-
07Ju
n-08
Jun-
09Ju
n-10
Jun-
11Ju
n-12
Jun-
13Ju
n-14
Jun-
15Ju
n-16
Past Due 30-89 Days* Past Due 90+ Days or Nonaccrual
District
Nation
Average Past Due or Noncurrent Loans / Gross Loans & Leases
29
Credit Quality: Past-Due Loan and Lease Ratios Edged Down and Remained Below the National Average
FRB-SF
Based on commercial banks, excluding De Novos; trimmed means; preliminary 6/30/16 data; *delinquent but still accruing interest.
0.0%
1.0%
2.0%
3.0%
4.0%
Jun-
14
Jun-
15
Jun-
16
Jun-
14
Jun-
15
Jun-
16
Jun-
14
Jun-
15
Jun-
16
Jun-
14
Jun-
15
Jun-
16
Jun-
14
Jun-
15
Jun-
16
Construction &Land Dev.
(C&LD)
Commercial &Industrial (C&I)
Nonfarm-Nonresidential
1-4 FamilyMortgages
Consumer
District Very Small (<$1B) District Small ($1-$10B) District Mid-Sized ($10-$50B) Nation Large (>$50B)
Average % Past Due by Loan Type and Bank Size
30
Commercial and Industrial Loan Delinquencies Drifted Higher at Large Banks; Mortgage Past-Dues Up at Mid-Sized Banks
FRB-SF
Based on commercial banks, excluding De Novos; trimmed means; preliminary 6/30/16 data; past due = loans 30+ days past due or on nonaccrual status.
Oil and gas sector stress lifted C&I delinquencies
Large banks suffered prolonged hangover from the
housing crisis
31
0.11%
2.15%
0.02%0.00%0.01%
0.72%
0.10%
0.00%
0.40%
0.80%
1.20%
1.60%
2.00%
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Dec
-10
Dec
-11
Dec
-12
Dec
-13
Dec
-14
Dec
-15
Jun-
15Ju
n-16
District
Nation
Avg. YTD Net Chargeoffs / Avg. Loans and Leases
Based on commercial banks, excluding De Novos; year-to-date (YTD) annualized trimmed means; preliminary 6/30/16 data; C&I = commercial and industrial loans.
On Average, First-Half Net Loan Losses Remained Negligible; Increased Among District’s Small and Nation’s Large Banks
FRB-SF
Average YTD Net Chargeoffs
(Recoveries) /Avg. Loans (%)
Bank Size Jun-2015
Jun-2016
District Very Small
(<$1B)0.00% 0.00%
District Small
($1B-$10B)(0.02%) 0.02%
District Mid-Sized
($10B-$50B)0.06% 0.05%
Nation Large
(>$50B)0.24% 0.29%
68%
77%
64%
69%
63%
67%
59%
64%
50%
55%
60%
65%
70%
75%
80%
Jun-
04
Jun-
06
Jun-
08
Jun-
10
Jun-
12
Jun-
14
Jun-
16
District
Nation
FRB-SF
32
Avg. Net Loans and Leases / TA
Liquidity: On-Balance Sheet Liquidity Tightened FurtherAs Assets Shifted Towards Loans
27%
17%
29%26%
32%
28%
35%
31%
10%
15%
20%
25%
30%
35%
40%
Jun-
04
Jun-
06
Jun-
08
Jun-
10
Jun-
12
Jun-
14
Jun-
16
District
Nation
Avg. Securities & Liquid Invest. / TA
Based on commercial banks, excluding De Novos; trimmed means; preliminary 6/30/16 data; TA = total assets; Liquid invest. = cash, due from balances, and Federal funds sold & securities purchased under agreements to resell.
27%
12%10%2%
-50%
-25%
0%
25%
50%
75%
Jun-
04
Jun-
06
Jun-
08
Jun-
10
Jun-
12
Jun-
14
Jun-
16
Brokered CDs Borrowings Total Assets Jumbo CDs
Avg. 1-Year Growth Rate – 12th Dist.
33
Based on commercial banks, excluding De Novos; trimmed means (not merger-adjusted); preliminary 6/30/16 data; *net noncore funds dependence is sum of borrowings (Fed funds purchased, repurchase agreements, and other borrowed money), foreign and brokered deposits, and jumbo CDs (defined here as > $100K), less short-term investments, divided by long-term assets.
Continued Growth in Brokered Deposits and Recent Increases in Borrowings Nudged Up Noncore Funds Dependence
FRB-SF
14%
30%
8%
20%
11%
0%
5%
10%
15%
20%
25%
30%
Jun-
04
Jun-
06
Jun-
08
Jun-
10
Jun-
12
Jun-
14
Jun-
16
District Nation
Avg. Net Noncore Funds Dependence*
FRB-SF
The Share of Assets Funded by Nonmaturity DepositsRemained Elevated but May Shift With Interest Rates
Deposit data based on commercial banks based in the 12th District, excluding De Novos; trimmed means; preliminary 6/30/16 data; *nonmaturity includes demand, money market, and savings accounts; Constant Maturity (CM) U.S. Treasury (UST) Rate from Federal Reserve via Haver Analytics. 34
56%
42%
65%
0.93%
5.12%
0.26%0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
35%
40%
45%
50%
55%
60%
65%
70%
Jun-
03
Jun-
04
Jun-
05
Jun-
06
Jun-
07
Jun-
08
Jun-
09
Jun-
10
Jun-
11
Jun-
12
Jun-
13
Jun-
14
Jun-
15
Jun-
16
Nonmaturity Deposits (Left Axis)
3-Mo. UST Rate (Right Axis)
Avg. Nonmaturity Deposits* / Total Assets –12th District
Qtly. Avg. 3-Month U.S. CM Treasury Rate
FRB-SF
14.5%
10.0%
19.0%
12.4%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%Ju
n-04
Jun-
05
Jun-
06
Jun-
07
Jun-
08
Jun-
09
Jun-
10
Jun-
11
Jun-
12
Jun-
13
Jun-
14
Jun-
15
Jun-
16
Assets Nonmaturity Deposits
Average Year-Over-Year Growth Rate – 12th District
35
During the 2004-06 Rate Hike Period, Nonmaturity Deposits Grew at a Decelerating Rate and Lagged Asset Increases
FRB-SF
Deposit data based on commercial banks based in the 12th District, excluding De Novos; trimmed means (not merger-adjusted); preliminary 6/30/16 data; *nonmaturity includes demand, money market, and savings accounts.
Additional Declines in Long-Term Interest Rates LiftedInvestment Portfolio Values and AOCI
Based on commercial banks, excluding De Novos; trimmed means; preliminary 6/30/16 data; *accumulated other comprehensive income is comprised mainly of net unrealized gains and losses on available-for-salesecurities; Constant Maturity (CM) Treasury Rate from Federal Reserve via Haver Analytics.
-1.59%
1.53%
-0.76%
0.73%
5.15%
1.65% 1.49%1.00%
1.60%
2.20%
2.80%
3.40%
4.00%
4.60%
5.20%
5.80%
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
Jun-
05D
ec-0
5Ju
n-06
Dec
-06
Jun-
07D
ec-0
7Ju
n-08
Dec
-08
Jun-
09D
ec-0
9Ju
n-10
Dec
-10
Jun-
11D
ec-1
1Ju
n-12
Dec
-12
Jun-
13D
ec-1
3Ju
n-14
Dec
-14
Jun-
15D
ec-1
5Ju
n-16
AOCI (Left Axis) 10-Yr. UST Rate (Right Axis)
Avg. Accumulated Other ComprehensiveIncome (AOCI)* / Tier 1 Cap. – 12th District
End-of-Period 10-YearU.S. CM Treasury Rate
36
FRB-SF
11.0%
14.4%15.6%
10.5%
15.5%16.7%
5%
7%
9%
11%
13%
15%
17%
Jun-
08
Jun-
12
Jun-
16
Jun-
08
Jun-
12
Jun-
16
Jun-
08
Jun-
12
Jun-
16
Tier 1 Leverage Tier 1 Risk-Based Capital Total Risk-Based Capital
District
Nation
Average Regulatory Capital Ratios
37
Capital: Regulatory Capital Ratios Moderated and the Gap Between District and Nationwide Risk-Based Ratios Widened
FRB-SF
Based on commercial banks, excluding De Novos; trimmed means; preliminary 6/30/16 data; new risk-based capital reporting became effective March 2014 for advanced approach adopters and March 2015 for others.
77%
86%
72%
76%
68%
72%
65%
69%
60%
65%
70%
75%
80%
85%
Jun-
04
Jun-
05
Jun-
06
Jun-
07
Jun-
08
Jun-
09
Jun-
10
Jun-
11
Jun-
12
Jun-
13
Jun-
14
Jun-
15
Jun-
16
District Nation
FRB-SF
38
Average Risk-Weighted Assets* / Total Assets
Risk-Weighted Asset Growth Outpaced Capital Formation Mainly Because of a Further Shift in Assets Towards Loans
Based on commercial banks, excluding De Novos; trimmed means; preliminary 6/30/16 data; *assets risk weighted according to regulatory risk-based capital rules in effect as of the report filing date (weights generally reflect perceived credit risk).
Higher ratio for the District reflects the area’s above-average
loan-to-asset ratios and high concentrations in CRE loans
(needed to boost margins to clear higher cost of doing business)
39
Section 3 – Regulatory Ratings and Trends
Focusing on trends in safety and soundness, consumer
compliance, and Community Reinvestment Act
examination ratings assigned by regulatory agencies to
commercial banks headquartered within the
12th Federal Reserve District.
-2.9%
5.8%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Dec
-12
Jun-
13
Dec
-13
Jun-
14
Dec
-14
Jun-
15
Dec
-15
Jun-
16
% Upgrades
% Downgrades
40
Percentage of 12th District Exams that Resulted in CAMELS Composite Rating Upgrade or Downgrade (downgrades shown as negative percentages)
Includes any change in composite CAMELS rating for commercial banks; quarterly data based on examination completion dates (mail dates); preliminary second quarter 2016 data updated through 08/10/16.
Regulatory Ratings: As Banking Conditions Stabilized, Fewer Examinations Resulted in Rating Changes
FRB-SF
23%
32%
8%
0%
10%
20%
30%
40%
50%
60%
Jun-
92
Jun-
94
Jun-
96
Jun-
98
Jun-
00
Jun-
02
Jun-
04
Jun-
06
Jun-
08
Jun-
10
Jun-
12
Jun-
14
Jun-
16
12th Dist. - Composite "3"
12th Dist. - Composite "4"
12th Dist. - Composite "5"
Nation - Composite "3", "4", "5"
60%
13%
39%
Percentage of Banks Rated Composite 3, 4, or 5
41Trends for all commercial banks based on examination completion dates (mail dates); preliminary second quarter 2016 data updated through 08/10/16.
FRB-SF
The Share of District Banks with Composite Ratings of 3, 4, or 5 Moderated Further
2.7
3.2
3.4
2.42.5
2.9
1.5
2.0
2.5
3.0
3.5
Jun-
08
Jun-
09
Jun-
10
Jun-
11
Jun-
12
Jun-
13
Jun-
14
Jun-
15
Jun-
16
Average CAMELS Component Ratings for 12th District Banks (1: strong; 2: satisfactory; 3-5: less-than-satisfactory)
Recession
2.3 Earnings
1.9 Asset Quality1.9 Capital2.0 Sensitivity*
1.8 Liquidity
Earnings and Management continued to garner weaker ratings compared with other component areas—even before the financial crisis.
42Trends for all commercial banks based on examination completion dates (mail dates); preliminary second quarter 2016 data updated through 08/10/16; *Sensitivity to Market Risk.
Earnings and Management Remained Weakest Components; Sensitivity Concerns Have Been Slow to Recede
FRB-SF
2.1 Management
43Trends for all commercial banks based on examination completion dates (mail dates); CRA = Community Reinvestment Act; preliminary second quarter 2016 data updated through 08/10/16.
27%
13%
3%
13%
1%0%
5%
10%
15%
20%
25%
Jun-
92
Jun-
94
Jun-
96
Jun-
98
Jun-
00
Jun-
02
Jun-
04
Jun-
06
Jun-
08
Jun-
10
Jun-
12
Jun-
14
Jun-
16
Percentage of 12th District Banks with Less-than-Satisfactory Ratings
Consumer
CRA
Very Few Banks Earned Less-Than-Satisfactory Consumer Compliance or CRA Ratings
FRB-SF
1. Summary of Institutions
2. Technical Information
Appendices
44
Area Commercial Banks(De Novos)
Industrial Banks
(De Novos)
Savings Institutions (De Novos)
Jun-15 Jun-16 Jun-15 Jun-16 Jun-15 Jun-16
AK 4 (0) 4 (0) - - 1 (0) 1 (0)
AZ 19 (0) 17 (0) - - 1 (0) 1 (0)
CA 186(1) 170 (0) 4 (0) 3 (0) 12 (0) 12 (0)
GU 2 (0) 2 (0) - - 1 (0) 1 (0)
HI 5 (0) 5 (0) 1 (0) 1 (0) 2 (0) 2 (0)
ID 11 (0) 11 (0) - - 1 (0) 1 (0)
NV 10 (0) 9 (0) 4 (0) 4 (0) 2 (0) 2 (0)
OR 22 (0) 22 (0) - - 3 (0) 3 (0)
UT 31 (0) 30 (0) 18 (0) 15 (0) 4 (0) 2 (0)
WA 45 (0) 42 (0) - - 12 (0) 10 (0)
12L 335 (1) 312 (0) 27 (0) 23 (0) 39 (0) 35 (0)
US 5,441 (10) 5,210 (2) 29 (0) 25 (0) 874 (2) 819 (1)
This report focuses on the financial trends and performance of commercial banks headquartered within the 12th Federal Reserve District (“12L”). 12L includes 9 western states: AK, AZ, CA, HI, ID, NV, OR, UT, and WA, as well as Guam. NV data excludes credit card and zero loan banks. Industrial banks and savings institutions, which have different operating characteristics, are excluded from graphics (other than the table to the left).
De Novos: Many of the charts exclude “De Novo” banks, or banks less than five years old.
Groups by Asset Size: “Small”, and “Mid-Sized” bank groups are based on 12th District community banks (<$10B) and regional banks ($10B-$50B), respectively. The “Large” bank group is based on nationwide banks with assets >$50B because a larger statistical population was needed to construct trimmed means.
Trimmed Mean (also referred to as “average”): Many of the charts present trends in ratio averages, adjusted for outliers. The method used is to eliminate or “trim” out the highest 10% and the lowest 10% of ratio values and average the remaining values.
Aggregate: In some cases, the trimmed mean method is not appropriate (e.g., when many banks have zero values for a particular ratio or for some growth rates where there may be many highly positive and highly negative values). In these cases, District aggregates sometimes are computed (i.e., summing numerator values across all District banks and dividing by the sum of all denominator values), as opposed to averaging individual bank ratios. When an aggregate is used, it is indicated on the chart.
45Based on preliminary 6/30/16 data.
Appendix 1: Summary of Institutions
Appendix 2: Technical Information
