first glance 12l (1q15)€¦ · first glance 12l (1q15) banking recovery continues but headwinds...

First Glance 12L (1Q15)

Banking Recovery Continues but Headwinds Remain

May 27, 2015

Authors: Judy Plock, Colin Perez, Martin Karpuk, Grant LaCorte

Editors: Eva Chow, Josephine Chan, Cynthia Course, David Doyle, Michael Nimis, Gary Palmer, Kenneth Wang

This report is based upon preliminary data from 1Q2015 and prior Condition & Income Reports as well as other examination andeconomic sources. Data has been prepared primarily for bank supervisors and bankers. The opinions expressed in this publication arethose of the authors. Opinions are intended only for informational purposes, and are not formal opinions of, nor binding on, the FederalReserve Bank of 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/

Financial Performance of Banks in the 12th Federal Reserve District (“12L”)

Table of ContentsHighlights: 12th District Overview 3 - 4

Section 1: Economic Conditions 5 – 13

Section 2: Commercial Bank Performance

EarningsHot Topic – Net Interest Margins Flat to Lower

Provisions and Loan Loss Reserves

Loan Growth and UnderwritingHot Topic – Loan Growth Driven in Part by Loosening Standards?

Credit Quality

Liquidity and Interest Rate RiskHot Topic – Non-maturity Deposits, Asset Maturities, AOCI

Capital

14

15 – 22

23 – 25

26 – 31

32 – 34

35 – 40

41 – 42

Section 3: Commercial Bank Regulatory Ratings and Trends 43 – 47

Appendix 1/2: Summary of Institutions / Technical Information 48 – 49

Appendix 3: Regulatory Hot Topics 50

Dec-14 Mar-15

3.2% 4.0%

3.2% 3.3%

3.1% 3.3%

2.3% 3.2%

3.4% 3.2%

3.1% 3.1%

2.1% 2.6%

0.3% 0.9%

0.7% 0.6%

2.1% 2.3%

Year-Over-Year Changein Nonfarm Jobs

Increases in District jobs, residential permits, and property prices continued to outpace the nation.The District’s aggregate job growth rate accelerated to 3.1% in first quarter, compared with 2.3%nationally. Also, fourth quarter job growth was revised upward substantially during the annualbenchmarking process. The District’s aggregate unemployment rate declined to 6.1% by March2015, down from a year-earlier figure of 7.2%. Although Districtwide unemployment was stillabove the national level of 5.5%, state-level jobless rates were better than average in Utah(3.4%), Idaho (3.8%), Hawaii (4.1%), and Oregon (5.4%). Leading index data from thePhiladelphia Federal Reserve suggests growth will accelerate in Washington, Arizona, California,and Nevada, slow modestly in four other District states, and turn negative in Alaska.

Economic headwinds remain. In particular, economic slowing overseas and a strengthening dollarvis-à-vis other currencies have, among other things, dampened demand for U.S. exports. Theimpact on first quarter trade flows was compounded by the West Coast port labor dispute. Also,risks associated with the intensifying drought in the West continue to accumulate. Of particularconcern are agricultural products in California’s San Joaquin and Sacramento Valley growing areas,which are important contributors to the state’s and nation’s farm economy. In response, somegrowers have fallowed land and others have pumped groundwater, but groundwater levels havedeclined, contributing to land subsidence and degraded water quality in some areas.

In tandem with economic expansion, banking conditions improved. Loan growth accelerated, creditproblems eased further, and earnings ticked higher year over year, despite continued marginpressures. Liquidity and capital measures remained solid, albeit moderating.

12th District Overview“Banking Recovery Continues but Headwinds Remain”

3.61 3.32

0.63 0.04

1.04 0.73

3.57 3.18

0.61 0.03

1.21 0.82

0.0%

1.0%

2.0%

3.0%

4.0%

Net InterestIncome (TE)

NoninterestExpense

NoninterestIncome

ProvisionExpense

Pretax NetIncome

Net Income

Mar-14 Dec-14 Mar-15

Avg.* Year-to-Date Annualized, % of Average Assets - 12th District Banks

3

NV

UT

WA

CA

OR

AZ

ID

AK

HI

Nation

FRB-SF*Trimmed Means

Banks with Component/ Composite Rating 3, 4, or 5

Average District net loan growth continued to accelerate, increasing to 12.1% in the year-ending March 31st. State-level average net loan growth outpaced the national average of7.5% in all but Alaska, Nevada, and Washington. Construction and land development andmultifamily loan portfolios (and specialty lending at larger banks) registered rapid segment-level growth rates, but larger loan categories such as commercial and industrial andnonfarm-nonresidential tended to be larger contributors to overall loan growth in dollarterms. Senior Loan Officer Survey data suggested modest net loosening of loan standards,largely in response to intense competition. A key lesson learned from the Financial Crisishas been the importance of sound underwriting throughout the credit cycle.

Asset quality continued to improve, reducing the District’s average nonperforming assetratio (the ratio of noncurrent loans and foreclosed real estate to assets) to 0.86%, thelowest first quarter level since 2007 and slightly better than the national average.Seasoning among rapidly-expanding portfolios could eventually lift problem loan levels.Variable-rate credits, which are common among commercial loan segments, remainvulnerable to rising debt service burdens should interest rates increase. Higher interestrates could also lift commercial real estate capitalization rates and dampen property values.

Ongoing shifts in balance sheet maturities also pose risks in a rising interest rateenvironment. Exposures to longer-duration loans and securities drifted higher and relatedvaluations may decline more severely than short-term assets should interest rates increase.Net unrealized gains/losses on available-for-sale investment securities could affectregulatory capital ratios among banks using advanced approaches to risk-based capital.These banks have designated an increasing share of securities as held-to-maturity to limitregulatory capital impacts. Meanwhile, reliance on non-maturity deposits drifted higher,leaving banks vulnerable if depositors shift their behavior with an increase in interest rates.

Examination ratings continued to improve. Roughly 79% of District banks had satisfactoryor strong examination composite ratings, up from 74% one year ago. While the District’sshare of banks rated 3, 4, or 5 remained above the national average, the proportion waswell below the 60% peak in late 2010. Earnings, management, and asset quality remainedthe most frequently criticized component areas.

12th District Overview, Continued

Average Nonperforming Assets/Assets (%)

FRB-SF

1.38

1.01

0.91

1.36

1.17

0.86

0.84

0.71

0.86

0.92

0.0%

0.4%

0.8%

1.2%

1.6%

12thDist.Small

(< $10B)

12thDist.Mid-

Sized($10-$50B)

NationLarge

(> $50B)

12thDist.Total

NationTotal


4

20.6%

13.0%

12.2%

37.1%

22.3%

21.4%

14.5%

0% 10% 20% 30% 40%

Composite

Sensitivity

Liquidity

Earnings

Management

Asset Quality

Capital

Nation

12th Dist.

5

On the Bright Side:

Job Growth

State Leading Index

Housing Market Metrics

Commercial Real Estate Market Conditions

On the Downside:

International Trade

Drought Conditions

Section 1 - Economic Conditions

6

3.6%

-1.7%

3.1%

-6.7%

3.1%

2.8%2.1%

-4.9%

2.3%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

Mar

-95

Mar

-96

Mar

-97

Mar

-98

Mar

-99

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

District Nation

Year-Over-Year Nonfarm Job Growth

Based on average nonfarm payrolls over trailing three months; Source: Bureau of Labor Statistics via Haver Analytics.

On the Bright Side: District Job Growth Continued toOutpace the Nation

FRB-SF

The District’s fourth quarter job growth, originally estimated at 2.3%,

was later revised upward to 2.9%

7

4.9

2.11.7

3.54.2

2.1

0.30.8

1.5 1.2

4.13.4 3.2 3.1 3.0

2.6

0.7 0.7

-3.0

1.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

OR WA AZ UT ID CA NV HI AK Nation

Dec-14 Mar-15Leading Index Measure by State

The Leading Index Measure Suggests Continued Near-Term Growth in All But Oil-Exposed Alaska

FRB-SF

The Leading Index predicts the 6-month growth rate of state's coincident economic index (also calculated by the Philadelphia FRB). Inputs include state-level nonfarm payroll jobs, average hours worked in manufacturing, unemployment rate, wages and salaries, 1-4 family permits, and initial unemployment claims, as well as national manufacturing delivery times and the 3-mo. vs. 10-yr. Treasury yield spread; Source: Federal Reserve Bank of Philadelphia via Haver Analytics

8

Home Price Appreciation Continued, but At a Slower Pace

Source: Core Logic / Federal Reserve Bank of New York; CBSA = Core-Based Statistical Area

Home Price Index – Year-Over-Year Change by CBSA (%)

Alaska 1.9% 4.0%

Arizona 10.7% 4.4%

California 17.9% 6.3%

Hawaii 12.8% 5.0%

Idaho 6.5% 6.5%

Nevada 16.1% 7.6%

Oregon 11.7% 6.5%

Utah 9.0% 5.5%

Washington 10.3% 7.0%

Nation 10.7% 5.9%

State Mar-14 Mar-15

Year-Over-Year Change in Home Prices

March 2014

March 2015

FRB-SF

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

Single Family

2+ Family

9

Year-Over-Year Change in 12-Mo. Housing Starts - West (%)

Based on average new privately owned housing units started in trailing 12 months (seasonally adjusted); West: 12th District plus CO, MT, NM and WY; Source: Census Bureau via Haver Analytics

Growth in Housing Starts Accelerated Modestly Despite Slower Home Price Gains

FRB-SF

PropertyType West Nation

Single-Family 9.1% 6.5%

2+ Family 17.7% 15.4%

2.8%

7.2%

4.5%

11.2%

18.8%

13.6%

5.4%

11.8%10.2%

7.5%

12.9%

7.9%

2.0%

6.0%

10.0%

14.0%

18.0%

Mar

-01

Mar

-03

Mar

-05

Mar

-07

Mar

-09

Mar

-11

Mar

-13

Mar

-15

Mar

-17

Forecast

10

Aggregate Vacancy & Availability Rates – 12th District

FRB-SF

Commercial Vacancy Rates May Improve Further Among Retail and Office Properties

Office

Industrial

Retail

Apartment

Availability rates (retail and industrial) and vacancy rates (office and apartment) are aggregates across 15-16 large metropolitan areas; Source: CBRE-Econometric Advisors

22%

-30%

23%

-7%-8%

9%4%

-11%

14%

-10%

16%

-30%

-20%

-10%

0%

10%

20%

30%

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

US$ vs. OITP Currencies

US$ vs. Major Currencies

11

Major: Euro Area, Canada, Japan, United Kingdom, Switzerland, Australia, and Sweden; OITP (Other Important Trading Partners): Mexico, China, Taiwan, Korea, Singapore, Hong Kong, Malaysia, Brazil, Thailand, Philippines, Indonesia, India, Israel, Saudi Arabia, Russia, Argentina, Venezuela, Chile and Colombia; 12th Dist. Ports include Anchorage (AK), Nogales (AZ), Los Angeles/San Diego/San Francisco (CA), Honolulu (HI), Columbia-Snake (OR), and Seattle (WA); Sources: Federal Reserve, Census Bureau, and Bureau of Economic Analysis via Haver Analytics

Year-Over-Year Change

On the Downside: A Strong Dollar, Economic Slowing Abroad, and West Coast Port Disruption Hurt Export Volumes

FRB-SF

Exports through12th District Ports

Nationwide, net exports trimmed 1.25 percentage points from estimated 1st qtr. 2015 GDP growth. Some drivers were transitory (West Coast labor dispute), but the effects of economic weakness abroad and dollar strength may linger. Exporters, trade distribution businesses, and foreign visitor destinations (e.g., HI & NV) face challenges.

12Sources: U.S. Drought Monitor (Nat’l. Drought Mitigation Center at the Univ. of Nebraska-Lincoln/U.S. Dept. of Agriculture/National Oceanic and Atmospheric Administration); California Dept. of Water Resources

Drought is Extensive Throughout the West, Especially in California; Groundwater Pumping is Only a Partial Offset

FRB-SF

AbnormallyDry

ModerateDrought

Severe Drought

Extreme Drought

ExceptionalDrought

Drought conditions are extreme or worse in two-thirds of CA, nearly half of NV, and one-third of OR. Groundwater pumping in CA (40%+ of water supply in state) can lead to depleted wells/ streams, land subsidence, and water quality issues.

Change in CA Groundwater(2011-2014)

May 3, 2011 >>>>>>>>>>>> May 5, 2015

The San Joaquin and Sacramento Valleys are home to 2/3 of CA ag.

receipts** and roughly 8% of statewide bank deposits***.

13

Growing Region counties: San Joaquin Valley is Fresno, Kern, Kings, Madera, Merced, San Joaquin, Stanislaus, and Tulare; Sacramento Valley is Butte, Colusa, Glenn, Sacramento, Solano, Sutter, Tehama, Yolo, and Yuba; Sources: *USDA 2012 Census of Ag.; **CA Co. Ag. Commissioners' Report; ***FDIC Summary of Deposits; +Bureau of Economic Analysis; ++UC Davis (2009), ^USDA 2013 Farm Income & Wealth Statistics

Agriculture in California’s Key San Joaquin and Sacramento Valleys is at Particular Risk From Extreme Drought

Alaska 0.0% 0.0%Arizona 1.1% 0.6%California 11.6% 1.2%Hawaii 0.2% 0.7%Idaho 2.1% 6.1%Nevada 0.2% 0.2%Oregon 1.2% 1.1%Utah 0.5% 0.5%Washington 2.5% 1.3%

12th District Ag. at a Glance

State

% of 2012 Gross State

Product (GSP)+

% of 2013 Total U.S.

Farm Cash Receipts^

Farming directly contributes 1.2% of CA’s Gross State Product+—6.5% including indirect effects++. CA is a major agricultural producer nationally.

Map: Market Value of Agricultural Products Sold (2012)* 1 Dot = $30 million

Fruit & Nut45%

Veg.8%

Field Crop15%

Mix of San Joaquin & Sacramento Valley Growing Region Receipts (2011-12)**

Seed & Nursery

2%Livestock &

Products30%

FRB-SF

14

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-supervision/publications/banks-at-a-glance/

Section 2 Commercial Bank Performance

Note: Bank size groups are defined as small (<$10B), mid-sized ($10B-$50B), and large (>$50B) banks. The large bank group covers nationwide banks (a larger statistical population), while the other two groups cover 12th District banks.

15

2.13%

-1.20%

1.17% 1.04%1.21%

1.58%

0.59%

1.20% 1.14% 1.21%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Mar

-14

Mar

-15

District

Nation

Earnings: Pretax Profitability Edged Higher

FRB-SF

Annualized Pretax Return on Average Assets (TE)

Based on commercial banks, excluding De Novos; year-to-date annualized trimmed means; preliminary 3/31/15 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 16

1.78%

1.36%1.28%

1.08% 1.07% 1.05% 1.03%0.90% 0.87%

1.21% 1.21%

0.00%

0.30%

0.60%

0.90%

1.20%

1.50%

1.80%

UT AK CA NV* ID OR AZ WA HI 12thDist.

Nation

Mar-14 Mar-15

Annualized Pretax Return on Average Assets (TE) by State

Based on commercial banks, excluding De Novos; year-to-date annualized trimmed means; preliminary 3/31/15 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; *NV: excludes credit card and zero-loan banks

Average Pretax ROAAs in Most District States Improved Year-Over-Year

FRB-SF

17

-1.25%

1.13% 1.01%1.17%

2.67%

0.61%

1.65% 1.51% 1.75%

2.13%

-0.05%

1.40%1.37% 1.35%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Mar

-14

Mar

-15

District Small (< $10B) District Mid-Sized ($10B-$50B) Nation Large (> $50B)

Pretax Return on Average Assets (TE) by Bank Size

FRB-SF

Mid-Sized Banks Notched Higher Pretax Earnings thanNationwide Large Banks and District Small Banks

Based on commercial banks, excluding De Novos; year-to-date annualized trimmed means; preliminary 3/31/15 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

Earnings Improved in Spite of OngoingNet Interest Margin Pressures

18

5.08% 5.21%

3.87% 3.84% 3.80%4.33%

3.76% 3.70% 3.69%

2.00%

3.00%

4.00%

5.00%

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Mar

-14

Mar

-15

District

Nation

Based on commercial banks, excluding De Novos; year-to-date annualized trimmed means; preliminary 3/31/15 data; for comparability, net interest income is adjusted on a tax-equivalent (TE) basis to assume taxes are paid on income from tax-free municipal loans and securities

Net Interest Income (TE) / Average Earning Assets

FRB-SF

HOTT O P I C

Based on commercial banks, excluding De Novos; quarterly annualized trimmed means; preliminary 3/31/15 data; for comparability, income is adjusted on a tax-equivalent (TE) basis to assume taxes are paid on income from tax-free municipal loans and securities

3.87

%

3.92

%

3.84

%

3.37

%

3.37

%

3.23

%

2.83

%

2.76

%

2.62

%

0.00%

1.00%

2.00%

3.00%

4.00%

Mar

-14

Jun-

14

Sep

-14

Dec

-14

Mar

-15

Mar

-14

Jun-

14

Sep

-14

Dec

-14

Mar

-15

Mar

-14

Jun-

14

Sep

-14

Dec

-14

Mar

-15

District Small(< $10B)

District Mid-Sized($10B-$50B)

Nation Large(> $50 Billion)

Qtly. Interest Income (TE) and Expense / Average Earning Assets by Size

19

Quarterly Margin Compression Was DrivenIn Many Cases by Declining Asset Yields

FRB-SF

Interest Income

(TE)

Interest Expense

Net InterestMargin

HOTT O P I C

Based on commercial banks, excluding De Novos; quarterly annualized trimmed means; preliminary 3/31/15 data; for comparability, income is adjusted on a tax-equivalent (TE) basis to assume taxes are paid on income from tax-free municipal loans and securities

5.41

%

5.45

%

5.28

%

4.83

%

4.74

%

4.53

%

3.87

%

3.86

%

3.64

%

2.21

%

2.12

%2.

10%

2.39

%

2.16

%2.

19%

2.14

%

2.12

%2.

08%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Mar

-14

Jun-

14

Sep

-14

Dec

-14

Mar

-15

Mar

-14

Jun-

14

Sep

-14

Dec

-14

Mar

-15

Mar

-14

Jun-

14

Sep

-14

Dec

-14

Mar

-15



Nation Large(> $50 Billion)

Qtly. Asset Yields to Average Earning Assets by Size

20

Loans and Securities Repriced DownwardAcross Bank Sizes

FRB-SF

Loans (TE)

Securities (TE)

HOTT O P I C

0.87%

0.63%0.61%

0.75%

0.57%0.58%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

0.90%

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Mar

-14

Mar

-15

District

Nation

Declines during the crisis were partially due to net

losses on the sale of foreclosed real estate

21Based on commercial banks, excluding De Novos; year-to-date annualized trimmed means; preliminary 3/31/15 data

Noninterest Income / Average Assets

Lower Overhead Ratios Have Led Profits HigherBut Trend May Not Be Sustainable

FRB-SF

3.41%

3.53%

3.24%3.32%

3.18%

3.02%

2.91%2.88%

2.83%2.70%

2.80%

2.90%

3.00%

3.10%

3.20%

3.30%

3.40%

3.50%

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Mar

-14

Mar

-15

District

Nation

Noninterest Expense / Average Assets

66¢

83¢

73¢76¢

73¢

63¢

72¢ 70¢ 71¢ 69¢

25¢

35¢

45¢

55¢

65¢

75¢

85¢

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Mar

-14

Mar

-15

District

Nation

22

Efficiency ratios improved year-over-year across banks of all sizes.

Efficiency MeasuresCost to Produce $1 of Revenue

Based on commercial banks, excluding De Novos; year-to-date annualized trimmed means; preliminary 3/31/15 data; efficiency measure = overhead / (net interest income + noninterest income)

Efficiency Ratios Benefited from Reduced Noninterest Expenses Despite Margin and Fee Income Challenges

Average Efficiencyby Bank Size

Bank Size Mar-2014

Mar-2015

District Small(<$10B) 76.6¢ 74.2¢

District Mid-Sized

($10B-$50B)58.6¢ 53.2¢

Nation Large(>$50B) 68.3¢ 63.9¢

FRB-SF

50% 47%

11% 13%

0%

10%

20%

30%

40%

50%

60%

70%

Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Mar-14 Mar-15

Negative

Zero

Percent of District Banks with Year-to-Date Provision Expense of:

23Based on commercial banks, excluding De Novos; year-to-date; preliminary 3/31/15 data

Loan Loss Reserves: Earnings Also Continued to Benefit from Zero or Negative Provision Expense Levels at Most Banks

FRB-SF

Provision Exp./ Avg. Assets District Nation

Mar-14 0.04% 0.07%Mar-15 0.03% 0.06%

1.5%

2.7%

1.7%

3.1X

7.4X

0.7X

2.8X

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

0.0%

0.4%

0.8%

1.2%

1.6%

2.0%

2.4%

2.8%

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

ALLL / Loans (Left) ALLL / Noncurrent Loans (Right)

24Based on commercial banks, excluding De Novos; trimmed means; preliminary 3/31/15 data; ALLL = allowance for loan and lease losses

ALLL / Total Loans (%)

Low Provisioning Led to Further Declines in ALLL-to-Loan Ratios, but Coverage of Noncurrent Loans Marched Higher

FRB-SF

ALLL / Noncurrent Loans (X)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Mar

-14

Jun-

14S

ep-1

4D

ec-1

4M

ar-1

5

Mar

-14

Jun-

14S

ep-1

4D

ec-1

4M

ar-1

5

Mar

-14

Jun-

14S

ep-1

4D

ec-1

4M

ar-1

5

Mar

-14

Jun-

14S

ep-1

4D

ec-1

4M

ar-1

5

Mar

-14

Jun-

14S

ep-1

4D

ec-1

4M

ar-1

5

Construction &Land Dev.

Consumer Commercial &Industrial**

CommercialReal Estate

ResidentialReal Estate

12th District ($1B-$50B)

Nation ($1B-$50B)

Allowance for Loan and Lease Losses / Total Evaluated* Loans and Leases

25

Reserves Trailed Loan Growth AcrossMost Loan Segments, Similar to National Trends

FRB-SF

Based on aggregate data for commercial banks with assets between $1 billion and $50 billion (smaller banks are not required to report this information); preliminary 3/31/15 data; *evaluated excludes loans accounted for at fair value or held for sale; **C&I also includes “all other” loan types not specified above

24%

-15%

12%

50%

-56%

42%

-60%

-40%

-20%

0%

20%

40%

60%

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

Funded Loans Unfunded Commercial Lines* Unfunded Construct. and CRE

26

Year-Over-Year Growth in Funded and Unfunded Loans – 12th District Banks

Loan Growth: District Outpaced Nation; Does Slowing in Unfunded Loan Growth Signal More Moderate Growth Ahead?

FRB-SF

Based on commercial banks, excluding De Novos; trimmed means (not merger adjusted); preliminary 3/31/15 data; *includes unfunded loan commitments not secured by residential or commercial real estate (CRE), not for CRE purposes, and not for credit cards (i.e., mostly commercial and industrial lines)

Shifts in unfunded loan commitments (especially C&LD) can precede changes in on-balance sheet loan growth by several quarters.

Loan Growth

12th

District Nation

Dec-14 11.9% 7.1%

Mar-15 12.1% 7.5%

27

14.9

%

12.5

%

11.7

%

11.2

%

9.9%

9.4%

7.4%

6.5%

5.4%

12.1

%

7.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

CA OR ID HI AZ UT WA NV* AK 12thDist.

Nation


Year-Over-Year Average Net Loan Growth by State

Based on commercial banks, excluding De Novos; trimmed means (not merger adjusted); preliminary 3/31/15 data; *NV: excludes credit card and zero-loan banks

Net Loan Growth Occurred Broadly Across the District

FRB-SF

3 of the top 5 states for net loan growth are in the 12th District.

28

Some Portfolios Notched High Segment-Level Growthbut Did Not Necessarily Drive Overall Growth Rate

FRB-SF

Segment Level YOY

Growth Rate

(Mar-2015)

% Point Contrib. to YOY Total

Loan Growth

(Mar-2015)

% of Total Loans

(Mar-2015)

Segment Level YOY

Growth Rate

(Mar-2015)

% Point Contrib. to YOY Total

Loan Growth

(Mar-2015)

% of Total Loans

(Mar-2015)

Construction & Land Dev. 27% 1.3% 5% 35% 1.0% 3%Multifamily 27% 1.9% 8% 7% 0.4% 6%Other Loans* 17% 0.4% 3% 42% 2.9% 9%Consumer Loans 15% 0.4% 3% 35% 0.5% 2%Commercial & Industrial 15% 2.6% 18% 14% 3.0% 22%Closed-End 1-4 First Liens 13% 1.7% 13% 7% 2.4% 33%Agricultural and Farmland 12% 0.4% 3% 7% 0.2% 2%Nonfarm Nonresidential 11% 5.1% 44% 3% 0.5% 17%HELOC + Closed-End 1-4 Jr. Liens 6% 0.3% 4% 2% 0.1% 5%Memo: Aggregate Loan Growth Rate 14.1% 11.0%

Banks $10 - $200 BillionComposition of Domestic Aggregate Loan Growth - 12th District Banks

Loan Segment

Banks < $10 Billion

Based on a panel of commercial banks, excluding De Novos and banks with extreme growth (likely merger-related); preliminary 3/31/15 data; *includes leases as well as loans collateralized by securities (margin loans), loans extended to governments and to depository and non-depository institutions, and all other

FRB-SF

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

Apr

-14

Jul-1

4

Oct

-14

Jan-

15

Apr

-15

Apr

-14

Jul-1

4

Oct

-14

Jan-

15

Apr

-15

Apr

-14

Jul-1

4

Oct

-14

Jan-

15

Apr

-15

Apr

-14

Jul-1

4

Oct

-14

Jan-

15

Apr

-15

Comm'l. &Indust.

CommercialReal Estate (CRE)

1-4 FamilyMortgages*

Consumer

Small Borrowers

Non-Traditional/Non QM-Jumbo*

Nonfarm-Nonresid.

Multifamily

C&LD

Large Borrowers Credit Card

Prime/GSEEligible*

Auto

Net Percentage Reporting Tightening (Loosening) Standards During 3 Mos.

29

Did Some Growth Come At the Expense ofUnderwriting, Which Loosened Further?

FRB-SF

HOTT O P I C

Based on a sample of loan officers at 70+/- domestic banks (number varies by period and loan type); *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/)

Fewer lenders easing small

business credit standards

Multifamily is only major category

tighter on net

0%

20%

40%

60%

80%

100%

Med.- Lg.

Sm. Med.- Lg.

Sm. Med.- Lg.

Sm. Med.- Lg.

Sm. Med.- Lg.

Sm. Med.- Lg.

Sm.

SpreadOver

Cost ofFunds

InterestRate

Floors

MaxLoanSize

LoanCovenants

CollateralReq'ts.

MaxLoan

Maturity

EasedConsiderably

EasedSomewhat

RemainedUnchanged

TightenedSomewhat

TightenedConsiderably

% Reporting Change in C&I Terms in Past 3 Months – April 2015

30

C&I Lenders Were Most Likely To Ease Terms onPricing, Size, and Covenants

FRB-SF

HOTT O P I C

Based on a sample of loan officers at 70+ domestic banks; Source: Federal Reserve Senior Loan Officer Opinion Survey conducted in April 2015 (http://www.federalreserve.gov/BoardDocs/snloansurvey/)

Size of Borrowing Firm

C&I Loan Term

3.583.47

3.363.183.163.00

1.5

2.0

2.5

3.0

3.5

4.0

2001

2002

*200

3

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

*201

4

*201

5

Spreadover Costof Funds

Max. LoanSize

Max. LoanMaturity

Loan-to-Value(LTV)

DebtServiceCoverage(DSC)

3.00

31

Avg. Change to CRE Lending Standards During Prior 12 Months(1-2: tightened considerably-somewhat; 3: basically unchanged; 4-5: eased somewhat-considerably)

Based on an annual sample of loan officers at 54-76 domestic banks (number varies by reporting period); survey conducted in January or April (*) of each year; Source: Federal Reserve Senior Loan Officer Opinion Survey

In Past Years, CRE Lenders Conceded on Pricing, Size, and Maturity More Often Than DSC or LTV

FRB-SF

<<<<

<<<

Tig

hten

edHOTT O P I C

Ease

d >>

>>>

32Based on commercial banks, excluding De Novos; trimmed means; preliminary 3/31/15 data; Noncurrent = 90+ days past due or on nonaccrual

0.89

%

4.76

%

0.84

%

0.91%

2.38%

0.97%

0.00%

1.00%

2.00%

3.00%

4.00%

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

District

Nation

Credit Quality: District Severe Delinquencies FellBelow the National Average, Led by Smaller Banks

Average Noncurrent Rate (%)

Bank Size Mar-2014

Mar-2015

District Small(<$10B) 1.36% 0.83%

District Mid-Sized

($10B-$50B)1.28% 1.08%

Nation Large(>$50B) 1.44% 1.10%

FRB-SF

Lack of seasoning in fast-growing portfolios likely helped noncurrent loan ratio trends

Noncurrent Loans and Leases / Total Loans and Leases

33

1.55

%

1.19

%

1.09

%

1.08

%

0.99

%

0.79

%

0.71

%

0.57

%

0.48

%

0.86

%

0.92

%

0.00%

0.30%

0.60%

0.90%

1.20%

1.50%

1.80%

NV* AZ ID WA OR UT CA AK HI 12thDist.

Nation


Nonperforming Assets / Assets by State

Based on commercial banks, excluding De Novos; trimmed means; preliminary 3/31/15 data; *NV: excludes credit card and zero-loan banks; nonperforming assets include noncurrent assets (90+ days past due or nonaccrual) plus foreclosed real estate.

Average Nonperforming Asset Ratios DeclinedBroadly Across Most 12th District States

FRB-SF

34

0.06%

2.15%

0.18%0.06% 0.04%0.01%

0.72%

0.00%

0.40%

0.80%

1.20%

1.60%

2.00%

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Mar

-14

Mar

-15

District

Nation

Net Charge-Offs / Average Loans and Leases

Based on commercial banks, excluding De Novos; year-to-date annualized trimmed means; preliminary 3/31/15 data

Average District Net Charge-off Rate WasNegligible in First Quarter 2015

FRB-SF

67%

76%

66%

61%

65%

61%

50%

55%

60%

65%

70%

75%

80%

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

District Nation

FRB-SF

35

Net Loans and Leases / Assets

Liquidity: Loan Growth Outpaced Increases in Assets;Short Term Investment Levels Held Steady

8%

5%

13%12%

7%

8%

11%

9%

0%

2%

4%

6%

8%

10%

12%

14%

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

District Nation

Short-Term Investments / Assets

Based on commercial banks, excluding De Novos; trimmed means; preliminary 3/31/15 data; Short-Term Investments: interest-bearing bank balances, Federal funds sold & securities purchased under agreements to resell, and <1-year debt securities

9.5%9.5%

24.5%

-8.4%

0.1%

35.5%

-15.4%

-9.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

Total Assets Total Deposits CDs > $100K CDs < $100K

36Based on commercial banks, excluding De Novos; trimmed means (not merger adjusted); preliminary 3/31/15 data

Year-Over-Year Growth – 12th District Deposit growth was fastest among mid-sized banks, in part because of mergers.

Non-Maturity Deposit Growth Supported Asset Increases

FRB-SF

Average AnnualDeposit Growth

Bank Size Mar-2014

Mar-2015

District Small

(<$10B)7.1% 9.3%

District Mid-Sized

($10B-$50B)10.4% 13.0%

Nation Large

(>$50B)5.0% 7.2%

12%

29%

7%6%

-4%

9%

20%

10%

-1%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

District >$100K District >$250K Nation >$100K Nation >$250K

Net Noncore Funds Dependence Ratio

37

Net noncore funding ratio turns negative if CDs between $100K and $250K are excluded.

Based on commercial banks, excluding De Novos; trimmed means; preliminary 3/31/15 data; *Net noncore funding is sum of borrowed funds, foreign and brokered deposits, large CDs (previously defined as > $100K—green area, now defined as > $250K—blue bars) less short-term investments divided by long-term assets

Average Net NoncoreFunds Dependence

by Bank Size (Using CDs > $100K)

Bank Size Mar-2014

Mar-2015

District Small(<$10B) 7.2% 6.0%

District Mid-Sized

($10B-$50B)13.9% 15.2%

Nation Large(>$50B) 14.6% 16.5%

As a Result, Reliance on Noncore Funding RemainedModerate; Still Lowest Among Small Banks

FRB-SF

Interest Rate Risk: Non-Maturity Deposits CouldProve Rate-Sensitive as Interest Rates Rise

HOTT O P I C

Based on commercial banks, excluding De Novos; trimmed means; preliminary 3/31/15 data; non-maturity includes demand, money market and savings; Constant Maturity (CM) Treasury Rate from Federal Reserve, Haver Analytics 38

0.93%

5.12%

0.03%0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

35%

40%

45%

50%

55%

60%

65%

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

Non-maturity Deposits / Assets (Left Axis) 3-Mo. U.S. CM Treasury Rate (Right Axis)

56%

42%

63%

Non-Maturity Deposits / Total Assets12th District Banks

Qtly. Avg. 3-Month U.S. CM Treasury Rate

FRB-SF

Meanwhile, Long-Term Asset Exposures RemainElevated at Small Banks; Dipped at Mid-Sized

HOTT O P I C

Based on commercial banks, excluding De Novos; trimmed means; preliminary 3/31/15 data 39

FRB-SF

27%

44%

39%

30%

20%

25%

30%

35%

40%

45%

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

District Small (<$10B)

District Mid-Sized ($10-$50B)

Nation Large (>$50B)

Loans and Securities Maturing or Re-Pricing > 3 Years / Assets

Longer-term earning assets will be slower to re-price upward as rates rise.

FRB-SF

Interest Rates Declines Buoyed Securities Gains and Thus Other Comprehensive Income, For Now

Based on commercial banks, excluding De Novos; trimmed means; preliminary 3/31/15 dataConstant Maturity (CM) Treasury Rate from Federal Reserve, Haver Analytics

0.97%

-1.59%

1.53%

-0.76%

0.48%

5.07%

1.64%1.97%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

Mar

-04

Sep

-04

Mar

-05

Sep

-05

Mar

-06

Sep

-06

Mar

-07

Sep

-07

Mar

-08

Sep

-08

Mar

-09

Sep

-09

Mar

-10

Sep

-10

Mar

-11

Sep

-11

Mar

-12

Sep

-12

Mar

-13

Sep

-13

Mar

-14

Sep

-14

Mar

-15

AOCI / Tier 1 (Left Axis) 10-Yr. U.S. CM Treasury Rate (Right Axis)

Accumulated Other Comprehensive Income (AOCI) / Tier 1 Cap. – 12th District

Qtly. Avg. 10-Year U.S. CM Treasury Rate

40

FRB-SF

HOTT O P I C

Based on commercial banks, excluding De Novos; trimmed means; preliminary 3/31/15 data; per generally accepted accounting principles (GAAP), securities designated as held-to-maturity (HTM) are carried at book value and any net unrealized gains/losses are not recognized in capital accounts. In contrast, those designated available-for-sale (AFS) are carried at market value with net unrealized gains/losses adjusted from GAAP capital via AOCI.

3%3%5%

6%

11%10%

9%11%

3%4%

13%

19%

0%

5%

10%

15%

20%

Mar

-12

Mar

-13

Mar

-14

Mar

-15

Mar

-12

Mar

-13

Mar

-14

Mar

-15

Mar

-12

Mar

-13

Mar

-14

Mar

-15



Nation > $50Billion

Share of Securities Designated as HTM

41

Capital: Large Banks Increasingly Designated Securitiesas HTM to Limit Effects of Price Swings on Risk-Based Capital

FRB-SF

Beginning in March 2014, banks adopting advanced approaches to risk-based capital had to include AOCI in regulatory capital. Beginning in March 2015, all other banks had to make a permanent, one-time election if they wanted to opt out of including AOCI in regulatory capital (most opted out).

For most banks, AOCI is dominated by net unrealized gains or losses on investment securities designated as available-for-sale (AFS)—making it prone to volatility with changes in interest rates. Also included in AOCI: accumulated net gains or losses on cash flow hedges, cumulative foreign currency translation adjustments, and certain pension liability adjustments.

Large banks using advanced approaches to risk-based capital shifted securities from AFS to HTM partly in response to capital

rule changes effective March 2014.

Based on commercial banks, excluding De Novos; trimmed means; preliminary 3/31/15 data; new risk-based capital reporting became effective March 2014 for advanced approach adopters and March 2015 for all others 42

9.8%

11.3%10.5%

10.3%

7.3%

10.0%

4%

6%

8%

10%

12%

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15


Tier 1 Leverage Ratio

Risk-Based Ratios Moderated as Assets Shifted into Loans;Average Mid-Sized Bank Capital at Roughly 2005 Levels

FRB-SF

13.5%

16.4%

15.0%15.4%

11.8%

14.0%

8%

10%

12%

14%

16%

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15


Total Risk-Based Capital Ratio

43

Section 3 – Regulatory Ratings and Trends

Focusing on trends in examination (CAMELS) ratings

assigned by regulatory agencies among commercial

banks headquartered within the

12th Federal Reserve District.

17%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

Mar

-09

Sep

-09

Mar

-10

Sep

-10

Mar

-11

Sep

-11

Mar

-12

Sep

-12

Mar

-13

Sep

-13

Mar

-14

Sep

-14

Mar

-15

% Upgrades

% Downgrades

44

Percent 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); recent data are preliminary; data updated through 05/15/15

Regulatory Ratings: Upgrades Continuedto Outpace Downgrades

FRB-SF

60%

4%

24%

32%

12%

0%

10%

20%

30%

40%

50%

60%

Mar

-91

Mar

-92

Mar

-93

Mar

-94

Mar

-95

Mar

-96

Mar

-97

Mar

-98

Mar

-99

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

12th Dist. - Composite "3"



Nation - Composite "3", "4", "5"

60%

21%

39%

Share of Banks Rated Composite 3, 4, or 5

45Trends for all commercial banks based on examination completion dates (mail dates); data updated through 05/15/15

FRB-SF

The Share of District Banks with CAMELS CompositeRatings of 3, 4, or 5 Moderated Further

2.7

2.1

3.2

2.1

3.4

2.5

2.4

2.1

2.5

1.8

2.9

2.3

1.5

2.0

2.5

3.0

3.5

Mar

-07

Sep

-07

Mar

-08

Sep

-08

Mar

-09

Sep

-09

Mar

-10

Sep

-10

Mar

-11

Sep

-11

Mar

-12

Sep

-12

Mar

-13

Sep

-13

Mar

-14

Sep

-14

Mar

-15

Average CAMELS Component Ratings for 12th District Banks (1: strong; 2: satisfactory; 3-5: less-than-satisfactory)

Recession

Earnings

Asset QualityCapitalSensitivity*Liquidity

Earnings and Management often garnered weaker ratings compared with other component areas—even before the Financial Crisis

46Trends for all commercial banks based on examination completion dates (mail dates); recent data are preliminary; data updated through 05/15/15; *Sensitivity to Market Risk

Earnings and Management Remained Weakest Components

FRB-SF

Management

47Trends for all commercial banks based on examination completion dates (mail dates); CRA = Community Reinvestment Act; recent data are preliminary; updated 5/15/15

27%

13%

4%

15%

3%0%

5%

10%

15%

20%

25%

Mar

-91

Mar

-93

Mar

-95

Mar

-97

Mar

-99

Mar

-01

Mar

-03

Mar

-05

Mar

-07

Mar

-09

Mar

-11

Mar

-13

Mar

-15

Percent of 12th District Banks with Less-than-Satisfactory Ratings

ConsumerCRA

Consumer Compliance Ratings and CRA Ratings WereGenerally Steady

FRB-SF

1. Summary of Institutions

2. Technical Information

3. Regulatory Hot Topics

Appendices

48

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. 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.

49

Area Commercial Banks(De Novos)

Industrial Banks

(De Novos)

Savings Institutions (De Novos)

Mar-14 Mar-15 Mar-14 Mar-15 Mar-14 Mar-15

AK 4 (0) 4 (0) - - 2 (0) 1 (0)

AZ 22 (0) 21 (0) - - 1 (0) 1 (0)

CA 198 (1) 190 (1) 6 (0) 4 (0) 16 (0) 12 (0)

GU 2 (0) 2 (0) - - 1 (0) 1 (0)

HI 6 (0) 6 (0) 1 (0) 1 (0) 2 (0) 2 (0)

ID 14 (0) 11 (0) - - 1 (0) 1 (0)

NV 12 (0) 12 (0) 4 (0) 4 (0) 2 (0) 2 (0)

OR 25 (0) 23 (0) - - 3 (0) 3 (0)

UT 31 (0) 31 (0) 18 (0) 18 (0) 4 (0) 4 (0)

WA 50 (1) 46 (0) - - 12 (0) 12 (0)

12L 364 (2) 346 (1) 29 (0) 27 (0) 44 (1) 39 (0)

US 5,742 (25) 5,502 (11) 31 (0) 29 (0) 954 (2) 885 (2)

Based on preliminary 3/31/15 data.

Appendix 1: Summary of Institutions

Appendix 2: Technical Information

LEVE

LOF

CON

CERN

BSA/AML – Internal Control Environment

Operational – Information / Cyber SecurityMarket – Lengthening Asset MaturitiesCredit – Quality of Loan Growth

Liquidity – Non-Maturity Deposit Sensitivity (a/k/a “Surge Deposits”)BSA/AML – Board and Management OversightCredit – Real Estate Lending ConcentrationsOperational – Business Continuity PlanningOperational – Service Provider Risk ManagementOperational – Internal Audit Oversight & ProgramCompliance – New/Complex Products & ServicesCompliance – Keeping Pace with Regulatory Change

50

High - Represents a current or future (next 1-2 years) problem area that if realized would likely lead District institutions to unprofitability, downgrade, or failure (Note: High concern cannot have an Increasing outlook because High is already the highest concern level).

Elevated - Represents a lower likelihood than High of becoming a problem area and/or the problem area has a somewhat lower impact on District institutions’ profitability, supervisory ratings, or ongoing concern.

Moderate - Represents a concern that is notable, but has low likelihood of realization or low impact to District institutions. Typically, these issues are of an emerging nature.

Appendix 3: Regulatory Hot TopicsModerate-to-High Concern Areas to Watch

FRB-SF

Evolving competitive, economic, regulatory, and technological challenges have heightened risks in many areas, especially BSA/AML, information technology,

interest rate risk/liquidity, operations, and consumer compliance.

BSA/AML policies, processes, and procedures have not always kept pace with the District’s vulnerability to trade-based money laundering, bulk cash smuggling, marijuana-related businesses, and virtual currencies.

HOTT O P I C

Mode

rate

High

Elev

ated

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