First Look 12Lprovides a quarterly overview of banking and economic conditions in the twelfth district of the Federal Reserve System. In 1Q22, median district bank loan growth – excluding Paycheck Protection Program (PPP) loans – exceeded 13% year-over-year, the fastest pace among twelve districts of the Federal Reserve. Median quarterly earnings ratios also compare favorably, but declined from 4Q21, in part due to lower PPP fees. Loan performance remained strong. Nonetheless, declining fiscal stimulus, rising inflation and interest rates, and ongoing supply chain and personnel issues may put pressure on borrowers going forward. Liquidity on the balance sheet remained high but declined slightly, and rising interest rates hurt bond values. In addition, the shift in banks’ asset mix away from liquid instruments and PPP loans has weighed on risk-based capital ratios.
Unemployment in the district also continued to decline during the first quarter. Overall, home price growth accelerated as buyers pushed demand forward amid tight inventories and rising mortgage rates. Meanwhile, housing permit volumes have increased but completions have plummeted, hampered by supply chain, staffing and input cost issues. Commercial real estate (CRE) price growth has slowed in most sectors. District CRE fundamentals remained stronger for industrial and apartment properties than for offices and retail. Headwinds from inflation and geopolitical tensions could become more significant headwinds in the coming quarter.