First Glance 12L

March 2, 2020
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Fourth Quarter 2019: COVID-19 Fears Could Amplify Bank Earnings Pressures

First Glance 12L provides a quarterly look at banking and economic conditions within the Federal Reserve System’s Twelfth District. District banks’ average 4Q19 net interest margin and return of average asset ratios dipped both year-over-year and quarter-over-quarter. Declining short-term interest rates and stronger on-balance sheet liquidity contributed to bank margin pressures. Similar to prior quarters, annual loan growth slowed. Large dividend payouts—used in part to support parent company share repurchases—constrained capital accretion at mid- and large-sized banks relative to smaller ones. Quarterly job growth in the District accelerated and outpaced the national growth rate, but by a smaller margin than in recent quarters. Mortgage interest rates stabilized in 4Q19 but remained low enough to sustain housing demand and construction. Although banking and economic conditions were solid through yearend, the COVID-19 outbreak intensified in early 2020. Virus-related disruptions to supply chains and reduced trade and travel activity could challenge manufacturers and service providers, and a related decline in U.S. interest rates could pressure bank net interest margins in the near term. The report briefly covers several other hot topics, and the forthcoming community bank leverage ratio is discussed in this quarter’s “Spotlight” feature.

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