First Glance 12L (4Q18)

Bank Profits Strong amid Waning Growthand Weaker Sentiment

February 28, 2019

A Product of the Surveillance and Analysis and Data Analytics Units

This report is based upon preliminary data from 4Q18 and prior Condition & Income Reports as well as other examination and economic sources. Data has been prepared primarily for bank supervisors and bankers. The opinions expressed in this publication are those of the authors. Opinions are intended only for informational purposes, and are not formal opinions of,

nor binding on, the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System.

Data Inquiries: please contact sf.fisc.publications@sf.frb.orgPress Inquiries: please contact Media Relations at https://www.frbsf.org/our-district/press/

First Glance 12L: https://www.frbsf.org/banking/publications/first-glance-12l/

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

Highlights: 12th District Overview and Spotlight Feature 3 – 7

Section 1:Economic Conditions

Job growth moderated; housing markets and CRE optimism cooled 8 – 21

Section 2:Commercial Bank Performance

EarningsBank profits outpaced 2017, owing to tax reform and interest rate hikes

Loan Growth and ConcentrationsLoan growth was strong but slowing; centered in commercial real estate

Credit QualityLoan performance was good, but some lenders expect deterioration

Liquidity and Interest Rate RiskFunding shifted from nonmaturity deposits to certificates and borrowings

CapitalCapital ratios improved at smaller banks, led by strong earnings retention

22

23 – 27

28 – 35

36 – 42

43 – 48

49 – 52

Appendices: Summary of Institutions / Technical Information 53 – 54

Table of Contents

New

District job growth decelerated in 4Q18, with mixed performance across District states. Year-over-year, nonfarm jobs grew by 2.2% in the 12th District (District), down slightly from 2.4% in 3Q18 andin contrast to a mildly accelerating growth rate of 1.8% nationally. Slowdowns in the retail trade andeducation and health services sectors were the main drivers of the overall deceleration, while theprofessional and business services sector gained momentum across most District states. In Idaho,Utah, and Hawaii, slower hiring in the leisure/hospitality and construction sectors, constrained inpart by tight labor markets, contributed to decelerating job growth. Alaska’s job losses moderated,but a 4Q18 decline in oil prices may affect its future growth. Unemployment rates were relativelystable in most states, but ticked up in Oregon, Hawaii, and Arizona, where unemploymentincreased faster than the labor force. Of note, job figures remained subject to annual benchmarkrevisions in March 2018, which have been significant on occasion in the past.

Home price gains continued year-over-year in all District states, but signs of cooling wereapparent. The pace of home price increases slowed across District states, most notably inCalifornia, where price appreciation trailed the national average for the first time since May 2012.In several District states, more expensive homes moderated in value, while more affordable homesregistered gains. Separately, the National Association of Realtors reported that the volume ofexisting homes sold during 4Q18 declined 7.6% nationally and 13.9% in the West on a year-over-year basis. Another sign of possible weakness was a shift in lenders’ outlook. Fannie Mae noted in4Q18 that 25% of surveyed mortgage lenders expected home prices to decline in the year ahead,up from 6% of lenders in 4Q17. Likewise, 33% anticipated price gains, down from 69% in 4Q17.

Commercial real estate (CRE) fundamentals were solid across property sectors, but CRE investorpessimism increased. In 2018, vacancy rates improved in the majority of District markets in everysector. Demand for office properties was particularly strong with large portions of new constructionpre-leased by tech companies. Coworking operators were also an increasing source of officespace demand; however, as detailed in a recent Real Estate Lending Risk Monitor, most of thesefirms are not yet recession-tested. Meanwhile, apartments continued to benefit from job growth andmodest single-family construction. Retail properties maintained steady improvement, with mostDistrict markets posting lower vacancy rates amid low construction levels. In the industrial sector,several markets had weaker vacancy rates because of higher levels of supply, which was spurredby exceptional rent growth. CRE property prices generally increased year-over-year, but the paceof appreciation slowed for all but suburban office properties. Surveyed CRE investors noted thatmarket conditions have cooled somewhat and that they had grown less sanguine about future CREmarket conditions, property prices, and financing availability.

12th District Overview“Bank Profits Strong amid Waning Growth and Weaker Sentiment”

3

Growth based on change in3-month moving average; dataseasonally adjusted. Source: Bureauof Labor Statistics via Haver Analytics.

Chris

Unemp.Rate

12 Mo. 4Q18 Dec-18

NV 3.76% 4.40%

AZ 3.41% 4.80%

UT 3.13% 3.20%

WA 3.08% 4.30%

OR 2.22% 4.10%

ID 2.01% 2.60%

CA 1.75% 4.20%

HI 1.71% 2.50%

AK -0.29% 6.30%

US 1.80% 3.90%

Nonfarm Job Growth& Unemployment (%)

Year-over-Year Job GrowthState

FRB-SF

S&S Examinations** Resulting in Rating Change – 12th District

12th District Overview, Continued

4.1%2.0%

4.6%1.5%

5.6%5.6%

2.5%

6.6%5.1%

4.6%11.7%

8.1%10.2%

4.6%

-14% -7% 0% 7% 14%

S&S CompositeSen. to Mkt. Risk

LiquidityEarnings

ManagementAsset Quality

Capital

Downgrade Upgrade

6.2%

0.6%

2.1%

12.4%9.0%

-7%

0%

7%

14%

21%

0%

2%

4%

6%

8%

Dec

-04

Dec

-06

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Delinquencies (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.

Wider net interest margins and tax cuts benefitted full-year bank profits. District banks’average, year-to-date return on average assets (ROAA) ratio improved to 1.26%, up 2 bpsfrom 3Q18 and 37 bps from 2017 (adjusted for Subchapter S tax filers). Year-over-yearcomparisons were magnified by large, one-time writedowns on deferred tax assets in 2017and lower effective tax rates in 2018. Stronger net interest margins reflected the effects ofhigher interest rates on asset yields; however, deposit funding costs picked up steam as theyear progressed and funding shifted slightly towards costlier time deposits and borrowings.

Annual net loan growth eased further but loan performance remained strong. The District’saverage annual net loan growth rate closed 2018 just shy of 9.0%, down from 9.3% and 9.9%in the prior quarter and year, respectively. Meanwhile, the national average net loan growthrate decelerated to 5.9%. Compared with 2017, overall construction and land developmentand nonfarm-nonresidential real estate portfolios increased at a strong but slowing pace;concurrently, commercial and industrial and 1-4 family segments posted comparatively lowbut accelerating growth rates. Capital accreted more quickly than CRE loans, moderating theDistrict’s average CRE loan-to-total capital ratio. Still, at 230% of capital, the average CREloan concentration surpassed the national average by more than 100 percentage points. Onaverage, the volume of delinquent loans increased, but from a low base and concurrent withloan growth, so past-due rates continued to be minimal (see chart on left). Although creditperformance remained strong, Federal Reserve and third party surveys noted worseningbanker optimism regarding future loan growth, credit quality, and economic conditions.

Liquidity risks edged higher, but stronger earnings boosted capital ratios. Continuing anearlier trend, nonmaturity deposit gathering slowed, prompting an uptick in more costly timedeposits and borrowings, especially among mid-sized and large banks. Technically, theaverage noncore funding ratio declined year-over-year, but this was led by legislative changesin the treatment of reciprocal deposits rather than a structural shift. Although on-balance sheetliquidity tightened, regulatory capital ratios improved. Capital accretion among mid-sized andlarge banks trailed that of small ones because of comparatively higher dividend payouts.

Examination upgrades outpaced downgrades. In the twelve months ending December, theshare of safety and soundness examinations that resulted in upgrades continued to equal orexceed that of downgrades across component areas. Overall, nearly 93% of District bankswere rated satisfactory or strong for safety and soundness. In addition, 95% and 98% wererated satisfactory or better for consumer compliance and Community Reinvestment Actperformance, respectively. 4

District Credit Metrics*

FRB-SF

**% of safety & soundness (S&S) exams completed in 12 months ending December, mailed through 2/12/2019.

Industry consolidation, financial crisis-driven failures, competitive cost pressures, and theproliferation of mobile and online banking have contributed to branch closures over the pastdecade. According to the FDIC’s annual Survey of Deposits, insured depositories operatednearly 12,400 full service brick and mortar and retail (BMR) banking offices in the District asof mid-2018, down 1.4%, 7.7%, and 9.6% during the past one-, five-, and ten-year periods,respectively. This trailed the nationwide pace of closures (see chart at right).1 There werealso roughly 200 other offices, including limited-service drive through (43%), trust (18%),administrative (15%), and mobile/seasonal (11%) facilities, as well as cyber offices (13%).

Within the District, the states with the largest build up in BMR offices prior to the financialcrisis tended to have significant declines in the years following (see chart at bottom). Forinstance, counts in fast-growing Arizona and Nevada expanded more than 50% between1998 and 2009, including by way of denovo formation, but these states also experiencedhigh rates of bank and thrift failures and consolidation in the ensuing years. In contrast,insular markets like Alaska and Hawaii lost BMR offices for the better part of 20 years.

Because the District is home to a large number of major urban cores, 91% of BMR officeswere located within metropolitan (metro) areas, another 6% were within micropolitan(micro) counties, and the remaining 3% were within other areas.2 Nationwide, the mixtended to be slightly less urbanized, with 79%, 11%, and 10% of BMR offices within metro,micro, and other counties, respectively.

5

Spotlight: Branching Trends in the District

-9.6%

-10.7%

-7.7%

-8.0%

-1.4%

-1.8%

-12% -9% -6% -3% 0%

District

Nation

1-Year 5-Year 10-Year

Net Change in BMR Offices, 2018

153

129

153

124

133

119

125109

117108

120107 111

94 9079

75

100

125

150

'98

'18

'98

'18

'98

'18

'98

'18

'98

'18

'98

'18

'98

'18

'98

'18

'98

'18

AZ NV ID OR CA WA UT AK HI

BMR Indexed Office Count by District State (1998 = 100)FRB-SF

1 This analysis and most accompanying graphics include bank and thrift (but not credit union) full-service offices that are either “brick and mortar” or located within retail locations (e.g., supermarkets), and excludes single-office entities with deposits exceeding $3 billion. 2 In general, metropolitan areas are those with one or more related counties containing an urbanized core with 50,000 or more people while micropolitan areas are those with one or more related counties containing an urbanized core with 10,000 to 50,000 people. Source: FDIC Summary of Deposits (June of each year).

Source: FDIC Summary of Deposits, June each year.

78% - 97%57% - 77%39% - 56%4% - 38%

Although non-metro areas were home to a relatively small share of BMR offices, theyexperienced slightly higher rates of closure. For instance, between 1998 and 2009, theDistrict’s metro-area BMR count expanded by 23%, then contracted through 2018, butstill ended the 20-year period 11% higher on net (see bottom left chart). In contrast,micro- and other-area office counts did not expand as strongly in the early 2000s andlagged 1998 levels by mid-2018. Of note, the districtwide net closure rate for non-metro BMR offices exceeded the national average.

Because of merger activity and corporate consolidations, the share of offices held byout-of-state institutions also shifted. In aggregate, roughly 40% of the District’s officeswere controlled by institutions headquartered within the same state, down steadilyfrom 77% in 1998. By mid-2018, in Arizona, Nevada, Oregon, and Idaho, at least threeout of every four BMR offices were owned by depositories headquartered in otherstates (see map at right). In contrast, offices in Hawaii were rarely held by out-of-stateinstitutions. This implies that the competitive landscape in the West differs from thecentral part of the nation, where offices of locally-owned banks are more dominant.

As office counts shrank, the median volume of deposits-per-office increased notably,even after adjusting for inflation (see bottom right chart). A state’s median volume ofdeposits per office correlated to factors such as how metro-centric the office mix was,the cost of doing business, and the amount of gross state product per BMR.California’s and Hawaii’s median office sizes ranked among the top five nationallyalongside the District of Columbia (2nd), New Jersey (3rd), and New York (4th).

6

Spotlight: Branching Trends in the District

Share of BMR Offices Held by Institutions Headquartered in State

124

110110

99

105

93

123 111

108

92100

8885

95

105

115

125

'98

'08

'18

'98

'08

'18

'98

'08

'18

Metro Micro Other

Nation District

BMR Office Count by Market Type (Indexed, 1998 = 100)

Source: FDIC Summary of Deposits.

97%

6545 40 43

31 35 37 28 2739

9775 73

61 56 53 52 5037

52

0

25

50

75

100

CA HI NV AZ WA AK OR UT ID Nation

1998 2008 2018

Median Inflation-Adjusted Deposits per BMR Office ($Mils.)

*1998 and 2008 inflated to current (2018) dollars for comparability.Sources: FDIC Summary of Deposits, Bureau of Labor Statistics.

FRB-SF

7%

5%

45%

23%19%

39%

49%

50%

Source: FDIC Summary of Deposits, June 2018.

FRB-SF

Prospectively, the pace of office consolidations will depend upon many factors,including customer migration to electronic channels, competition from bank and non-bank firms, and shifting demographics. Data from the Federal Reserve’s 2017 Surveyof Household Economics and Decisionmaking showed that younger customers tendedto embrace mobile banking, while older customers preferred tellers (see chart at right).As tech-savvy consumers age and account for a larger share of financial servicebusiness, physical offices and attendant staffing are expected to decline. Already, newtechnologies and office closures have fed a structural decline in teller jobs, whichshrank 26% in the District between 2008 and 2017 (see chart at bottom right).

Community banks have adapted to meet customer demand to some degree. Accordingto the CSBS/Federal Reserve 2018 National Survey of Community Banks, many banksoffered or planned to offer certain technologies, but adoption of tools like interactiveteller machines, automated underwriting, and online loan closings was less widespread(see chart at bottom left). Roughly two-thirds of bankers said it was important/veryimportant to adopt new or emerging technologies to meet customer demand; however,only one-quarter felt it was as important to be a leader in adopting such capabilities.New technologies require upfront costs and pose operational risks. Other challengesinclude legacy system limitations, technology staffing, and privacy and data security.

PwC’s 2018 Digital Banking Survey of consumers found that branches may have somestaying power for now: 65% of respondents felt it was important to have a local branch,and over 50% preferred to apply for a loan or deposit account in a physical office. In thenear term, institutions may opt to modify the branch experience rather than eliminate it.

0% 25% 50% 75% 100%

TelephoneBanking

MobileBanking

TellerVisit

OnlineBanking

ATM/Kiosk 18-24

25-34

35-44

45-54

55-64

65-74

75+

12th District Banking HabitsBy Age Cohort, 2017

12th District respondents only, shown as a share of those willing to disclose a response. Source: Federal Reserve 2017 Survey of Household Economics and Decisionmaking.

Share Using in Trailing 12 Mos.

7

Spotlight: Branching Trends in the District

0%25%50%75%

100%

MobileBanking

RemoteDepositCapture

ElectronicBill Pay

OnlineLoan

Applic.

InteractiveTeller

Machines

AutomatedUnder-writing

OnlineLoan

Closings

Plan to Offer*

Currently Offer

Community Bank Technology-Related Offerings

*Within the coming year; based on a nationwide survey of 521 community bankers.Source: CSBS/FRB/FDIC, Community Banking in the 21st Century, 2018.

109

81

708090

100110120

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Tellers, 12th District States (Thousands)

Source: Bureau of Labor Statistics, Occupational Employment Statistics Survey, May each year.

FRB-SF

FRB-SF

8

Job Growth

Housing Market

Commercial Real Estate

Section 1Economic Conditions

For more information on the District’s real estate markets and economy, see:Real Estate Lending Risks Monitor

(https://www.frbsf.org/banking/publications/real-estate-lending-risks-monitor/)Banks at a Glance

(https://www.frbsf.org/banking/publications/banks-at-a-glance/)

For more information on the national economy, see:FRBSF FedViews

(https://www.frbsf.org/economic-research/publications/fedviews/) FOMC Calendar, Statements, & Minutes

(https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm)

3.1%

-6.7%

3.1%2.2%

2.1%

-4.9%

2.2%

1.8%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

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

Dec

-15

Dec

-16

Dec

-17

Dec

-18

District Nation

Year-over-Year Nonfarm Job Growth

Based on average nonfarm payroll levels over trailing three months; data are preliminary estimates; construction sector includes mining in Hawaii; information sector excludes Hawaii and Nevada. Source: Bureau of Labor Statistics via Haver Analytics.

District hiring slowed, led by retail and education/health, but professional/business hiring accelerated.

FRB-SF

1Q17-4Q18 4Q18

Construction 4.83% 5.45%Prof. & Business Svcs. 3.59% 14.61%Transport. & Utilities 3.51% 3.83%Edu. & Health Svcs. 2.96% 15.11%Leisure & Hospitality 2.70% 12.15%Information 2.39% 2.70%Manufacturing 2.01% 7.53%Financial Activities 1.30% 5.14%Government 0.93% 15.45%Retail Trade 0.78% 10.47%Other Private 0.56% 3.65%Wholesale Trade 0.48% 3.91%Total Nonfarm 2.23% 100%

Job Sector

Year-over-Year % Change

Share of Total Jobs

(4Q18)

12th District Jobs by Sector

9

FRB-SF

12.3

%

12.9

%

9.4%

7.5% 8.

3%

6.1%

4.3%

6.8%

1.8%

5.3%

11.7

%

10.8

%

8.7%

7.4%

6.3%

5.1%

4.3%

4.2%

1.7%

4.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

ID NV UT AZ WA OR HI CA AK US

Dec-17 Sep-18 Dec-18

Idaho, Nevada, and Utah led the nation for price gains; growth slowed from 3Q18 across most District states.

HPI = home price index (includes all detached and attached homes, including distressed sales). Source: CoreLogic.

FRB-SF

Year-over-Year % Change in Home Price Index

10

11

Versus Pre- Crisis

Peak:+17% -13% +25% -9% +30% +25% +19% +7% +8% +6%

5

105

121

129 130136

137142

143143

111

135

148

142

152

158163

157

153

102

117121 124

127 126130

134 136

100

110

120

130

140

150

160

170

Dec

-14

Dec

-16

Dec

-18

Dec

-14

Dec

-16

Dec

-18

Dec

-14

Dec

-16

Dec

-18

Dec

-14

Dec

-16

Dec

-18

Dec

-14

Dec

-16

Dec

-18

Dec

-14

Dec

-16

Dec

-18

Dec

-14

Dec

-16

Dec

-18

Dec

-14

Dec

-16

Dec

-18

Dec

-14

Dec

-16

Dec

-18

AK HI AZ CA OR UT NV ID WA

All Tiers

Low Tier (<75% of Median)

High Tier (>125% of Median)

Growth rate for high tier homes came under pressurein the second half of 2018, further lagging low price tier.

Home Price Index (Re-indexed, Dec-14 = 100)

FRB-SF

11

HPI = home price index (includes all detached and attached homes, including distressed sales). Index values re-indexed to December 2014. Source: CoreLogic.

48%

90%83%

42%

84%

56%

29%

84%

55%

33%

82%

50%

32%

80%

46%

19%

90%

42%

34%

80%

40%

24%

47%

32%

72%

25%23%

37%

6%

15%9% 14%

10%

32%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2006

2018

2006

2018

2006

2018

2006

2018

2006

2018

2006

2018

2006

2018

2006

2018

2006

2018

AK* ID AZ UT WA NV OR HI CA

Major Metros Seattle So. CA SF Bay Area Other CA Metros

Housing affordability deteriorated further, butmost areas were still more affordable than in 4Q06.

Un-weighted Average Metro Housing Opportunity Index, December Each Year(% of Home Sales Deemed Affordable to Median Family Income; Lower Ratio = Less Affordable)

FRB-SF

Assumes median income, 10% down payment, ratio of income-to-housing costs (principal, interest, taxes, and hazard insurance) of 28%, and a fixed-rate, 30-year mortgage; So. CA = Los Angeles, Orange, Riverside-San Bernardino, San Diego, and Ventura metros; SF Bay Area = San Francisco, Oakland, San Jose, Napa, Vallejo, and Santa Cruz metros. *AK series starts in 2007. Sources: National Association of Homebuilders/Wells Fargo via Haver Analytics, FRB-SF calculations.

12

Lender size based upon 2017 total loan originations: Large = lenders in the top 15% of lending institutions (volume above $1.18 billion); Mid-Sized = lenders in the next 20% of lending institutions (volume between $400 million and $1.18 billion); Smaller = bottom 65% of lending institutions (volume less than $400 million); includes responses from nonbanks as well as banks, thrifts, and credit unions; data for “All Lenders” is an average of the three size groupings; responses generally collected early to mid-November of each year. Source: Fannie Mae Mortgage Lender Sentiment Surveys.

Per Fannie Mae, a growing share of mortgage lendersexpect prices to stabilize/decline in the coming year.

8% 4%

19%

3% 3% 6%

31%

5% 7% 7%

25%

3% 6% 6%

25%

71%

49% 73

%

30% 57

%

61%

65%

36% 46

%

45% 70

%

34% 58

%

52% 69

%

33%

50%

25%

0%

25%

50%

75%

4Q15

4Q16

4Q17

4Q18

4Q15

4Q16

4Q17

4Q18

4Q15

4Q16

4Q17

4Q18

4Q15

4Q16

4Q17

4Q18

LargeLenders

Mid-SizedLenders

SmallerLenders

All Lenders

Increase Decrease

Share of Lenders Expecting Change in Home Prices in the Next 12 Months:

FRB-SF

13

0

75

150

225

300

375

2004

2006

2008

2010

2012

2014

2016

2018

2004

2006

2008

2010

2012

2014

2016

2018

1-4 Family Units Authorized 5+ Family Units Authorized

4Q 3Q 2Q 1Q

Housing Permits – 12th District(Thousands Of Units, Not Seasonally Adjusted)

District permit activity continued to shift to 1-4 family;multifamily declined year-over-year in 3Q18 and 4Q18.

FRB-SF

*Year-over-year change trend lines as of Dec. of each year. Source: Census Bureau/Haver Analytics.

14

Level2005-2018*

Dec-18 vs.

Dec-06

% Multif.Dec-18

UT 105% 26%

WA 92% 42%

ID 86% 17%

CA 76% 42%

OR 72% 44%

AZ 64% 22%

AK 60% 16%

HI 57% 36%

NV 47% 25%

Dist. 75% 35%

New Authorized Housing Units

Trailing 12-Month Totals

= trough = peak

FRB-SF

2,578-unit (8.6%) year-over-year decline in 4Q18 driven by Arizona (-1,404),

California (-698) and Washington (-702), with marginal growth only in

Utah and Oregon

1,505-unit (3.6%) year-over-year decline in 4Q18 driven

by California (-2,107), Nevada (-419), and Utah (-321), partly

offset by growth in Arizona (+1,096)

81

67

72

58

0

10

20

30

40

50

60

70

80

90

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

Jan-

17

Jan-

18

Jan-

19

West

Nation

Homebuilder sentiment remained positive on net,but optimism weakened during 2018.

Homebuilder Diffusion Index (Trailing 3-Mo. Moving Avg.)Index Above 50 Considered Positive

Data are seasonally adjusted; index is a weighted average of current sales (59.2%), sales in next six months (13.6%), and traffic of prospective buyers (27.2%). Source: National Association of Home Builders (NAHB)/Wells Fargo Builders Economic Council Survey via Haver Analytics.

FRB-SF

15

Region Jan-18

Jan-19

West 81.3 66.7

South 73.3 62.3

Midwest 70.0 51.7

Northeast 58.0 45.3

Nation 71.7 58.0

Regional Home Builder Diffusion

Indices (Trailing 3 Mo. Avg.)

Includes 72, 12th District Markets based on a comparison of 4Q vacancy rates in each year; deterioration means an increase invacancy rates; small improvement means a vacancy rate decline of <100bps; large improvement means a vacancy rate decline of >=100bps. May not equal 100% due to rounding. Source CoStar.

CRE vacancy rates improved in most District markets;industrial vacancies showed signs of deterioration.

40% 61

%

25% 43

%

28%

26% 47

%51

%

11%

13%

36% 29

%

33%

26% 15

%14

%

49%

26%

39% 28

%

39%

47% 38

%35

%

-100%

-75%

-50%

-25%

0%

25%

50%

75%

100%

2008

2013

2014

2015

2016

2017

2018

2008

2013

2014

2015

2016

2017

2018

2008

2013

2014

2015

2016

2017

2018

2008

2013

2014

2015

2016

2017

2018

Apartment Office Industrial Retail

Deterioration Large Improvement Small Improvement

Share of 12th District Markets with Year-over-YearImprovement (Deterioration) in Vacancy Rate:

FRB-SF

16

Includes 72, 12th District Markets based on annual rent growth in each year; deterioration means negative rent growth, small improvement means annual rent growth <5%, large improvement means annual rent growth >5%. May not equal 100% due to rounding. Source CoStar.

CRE rents strengthened in most District markets;industrial properties saw the largest rent growth.

58%

65% 88

%94

%

15%

10%

99%

88%

40%

31%

13%

4% 85%

90%

1%

1% 4% 1% 1%11

%

-100%

-75%

-50%

-25%

0%

25%

50%

75%

100%

2008

2013

2014

2015

2016

2017

2018

2008

2013

2014

2015

2016

2017

2018

2008

2013

2014

2015

2016

2017

2018

2008

2013

2014

2015

2016

2017

2018

Apartment Office Industrial Retail

Deterioration Large Improvement Small Improvement

Share of 12th District Markets with Year-over-YearImprovement (Deterioration) in Annual Rent Growth:

FRB-SF

17

West Region capitalization rates were stable-to-higherfor some CRE types, dipped for office and industrial.

5.1% 5.3% 5.4%

4.4%

6.1%5.9%

6.4%

4.9%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Dec

-06

Dec

-09

Dec

-12

Dec

-15

Dec

-18

Dec

-06

Dec

-09

Dec

-12

Dec

-15

Dec

-18

Dec

-06

Dec

-09

Dec

-12

Dec

-15

Dec

-18

Dec

-06

Dec

-09

Dec

-12

Dec

-15

Dec

-18

Office Industrial Retail Apartment

Suburban

Central Business District(CBD)

18

FRB-SF

Flex

Warehouse

Shopping Centers

Garden

Shops

Mid-/High-Rise

Includes transactions in the West (AK, CA, HI, ID, MT, NV, OR, UT, WA, and WY, but not AZ); property sales > $2.5 million with available capitalization rate data. Source: Real Capital Analytics.

Western U.S. CRE Capitalization Rates (Trailing 12-Month Average %)

11.5%

8.9%8.7%

7.9% 7.7%

2.0%

8.2%

0.4%0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Apartment Office Industrial Retail

Year-over-Year % Change in Commercial Property Price Index – Nation

CRE prices appreciated across sectors, but gains wereoften low for retail and scant for CBD office properties.

FRB-SF

CPPI = Commercial Property Price Index; CBD = central business district (downtown); based upon repeat-sales transactions. Source: Real Capital Analytics.

19

Suburban

CBD

5-Year 70.6% 45.2% 54.1% 26.9% 10-Year 94.2% 27.9% 36.1% 18.2%

Average Cumulative Change in CPPI

YE = year end. Source: RCLCO Real Estate Advisors (formerly Robert Charles Lesser & Co.) Sentiment Surveys.

CRE investor sentiment shifted notably in thesecond half of 2018 according to one survey.

7%19% 15% 16% 11% 14%

46%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mid

-201

5

YE

201

5

Mid

-201

6

YE

201

6

Mid

-201

7

YE

201

7

Mid

-201

8

YE

201

8

Unclear/ Don't Know

Significantly Better

Moderately Better

Unchanged

Moderately Worse

Significantly Worse

National Real Estate Market Conditions Today vs. One-Year Ago(% of Respondents)

FRB-SF

20

*4Q19 reflects expectations for the next 12 months; survey was conducted by FPL Advisory Group on behalf of The Real Estate Roundtable and measures the views of chief executives, presidents, and other top CRE industry executives regarding conditions in the past 12 months and expectations for the next 12 months; 4Q surveys were typically conducted in October. Source: Real Estate Roundtable Sentiment Index Reports.

CRE investors also expressed pessimism about future market conditions, asset values, and financing.

18% 34

%

10%

45%

22% 36

%

13%

42%

0%10%20%30%40%50%60%70%80%90%

100%

4Q15

4Q16

4Q17

4Q18

*4Q

19

4Q15

4Q16

4Q17

4Q18

*4Q

19

4Q15

4Q16

4Q17

4Q18

*4Q

19

4Q15

4Q16

4Q17

4Q18

*4Q

19

MarketConditions

AssetValues

EquityAvailability

DebtAvailability

Much Better

Somewhat Better

About the Same

Somewhat Worse

Much Worse

CRE Investor Sentiment Compared with Year Ago or Next Year*(% of Respondents)

FRB-SF

21

22

Earnings

Loan Growth and Concentrations

Credit Quality

Liquidity and Interest Rate Risk

Capital

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.

1.75%

-1.20%

1.54%1.63%

1.11%

-1.01%

0.89%1.26%

1.33%1.36%

0.94%

0.37%

0.83%

1.06%

-1.60%

-1.20%

-0.80%

-0.40%

0.00%

0.40%

0.80%

1.20%

1.60%

2.00%

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Pre-Tax After-Tax

District

Nation

Wider margins and lower taxes more than offsethigher noninterest expenses during 2018.

FRB-SFAverage = trimmed mean; YTD = year-to-date (annualized); *ROAA = return on average assets (net income/average assets), with theoretical tax expense deducted from Subchapter S filers for after-tax ratio; TE = tax equivalent (yields and applicable tax expense adjusted for tax-exempt revenues).

Average YTD ROAA*

23

ProfitComponent Dec-17 Dec-18

Interest Income (TE) 4.11% 4.42%

Interest Expense -0.32% -0.48%

Net Int. Income (TE) 3.78% 3.94%

Nonint. Income 0.62% 0.59%

Nonint. Expense -2.88% -2.90%

Provision Expense -0.06% -0.08%

TaxExpense (TE) -0.58% -0.35%

Average YTD as % of Average Assets

12th District(Expenses = Negative Values)

70%73%

76%

64%

7.98%

4.42%4.86%

4.98%

4.04%

4.26%

3.03%

0.36%0.60%

50%

53%

56%

59%

62%

65%

68%

71%

74%

77%

80%

0.00%

0.80%

1.60%

2.40%

3.20%

4.00%

4.80%

5.60%

6.40%

7.20%

8.00%

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Loans / Assets (Right) Interest Income (Left) Net Interest Margin (Left) Interest Expense (Left)

Quarterly net interest margins edged up,lifted primarily by higher short-term interest rates.

Average = trimmed mean (12th District banks only); one-quarter annualized data; TE = tax equivalent.

FRB-SF

24Avg. Quarterly as % of Avg. Earning Assets (TE) Avg. Net Loans / Assets

55%

41%

17%

10%7%

4%

-14%

-7%

0%

7%

14%

21%

28%

35%

42%

49%

56%

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

12th District Nation

YTD Interest Expense YTD Interest Income Total Assets

Average Year-over-Year Change

Interest expense growth accelerated from a low base,and outpaced increases in interest income and assets.

FRB-SF

Average = trimmed mean; YTD = year-to-date; growth rates are not merger-adjusted.

2514.0%

-0.6%

9.7%

8.4%7.3%

13.0%

8.7%

7.3%

7.1%

8.6%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

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

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Total Assets

YTD Noninterest Expense

Average Year-over-Year Change — 12th District Banks

On average, overhead expenses also increasedfaster than assets during 2018.

FRB-SF

Average = trimmed mean (12th District banks only); growth rates are not merger-adjusted; YTD = year-to-date.

26

1.71%

0.86%

0.30%

1.60%

0.88%

0.32%

0.00%

0.30%

0.60%

0.90%

1.20%

1.50%

1.80%

Dec

-06

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-06

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-06

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Personnel All Other NetOccupancy

District

Nation

Average YTD Overhead Expense / Average Assets

Rising personnel expenses contributed heavilyto overhead trends.

FRB-SF

Average = trimmed mean; YTD = year-to-date (annualized); overhead = noninterest expense.

27

16.5%

-6.5%

12.9%

9.9%9.0%8.1%

-2.5%

6.5%5.9%

-7.0%

-3.5%

0.0%

3.5%

7.0%

10.5%

14.0%

17.5%

Dec

-06

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

District Nation

Dec-17

Dec-17

Average Year-over-YearNet Loan Growth

In isolation, 4Q18 net loan growth matched pace with4Q17 and 4Q16, but full-year 2018 growth trailed 2017.

FRB-SFAverage = trimmed mean; growth rates are not merger-adjusted; includes loans and leases held for sale and for investment, net of allowances for loan and lease losses.

5.1%

11.1%

6.8%

9.1%

-7.0%

-3.5%

0.0%

3.5%

7.0%

10.5%

14.0%

17.5%

1Q 2Q 3Q 4Q

2014 2015 2016 2017 2018

Average Quarter-over-QuarterNet Loan Growth (Annualized)

|--------- 12th District Banks Only --------|

28

Average = trimmed mean; growth for loans net of allowances for loan losses, not merger-adjusted; NV excludes zero loan and credit card banks. SF Bay = 37 banks based in San Francisco-San Jose Combined Statistical Area (CSA); So. CA = 69 banks based in Los Angeles CSA + San Diego metropolitan area; Other CA = 34 banks based in all other areas.

FRB-SF

Average annual net loan growth decelerated acrossseveral District states, weighing on the District average.

Average Year-over-Year Net Loan Growth (%), Faster / Slower Rate vs. 3Q18

Nation = 5.9%District = 9.0%

Average Year-over-YearNet Loan Growth, Dec-18

> 8.5%

6.5% to 8.5%

5.0% to 6.5%

< 5.0%

SF Bay = 11.1%So. CA = 10.9%Other CA = 10.2%

29

20%13% 13% 9% 9% 6%12% 12% 7% 8% 7% 4%

-50%-40%-30%-20%-10%

0%10%20%30%40%

Dec

-10

Dec

-14

Dec

-18

Dec

-10

Dec

-14

Dec

-18

Dec

-10

Dec

-14

Dec

-18

Dec

-10

Dec

-14

Dec

-18

Dec

-10

Dec

-14

Dec

-18

Dec

-10

Dec

-14

Dec

-18

All OtherC&LD

1-4 FamilyConstruction

Multifamily Commercial& Industrial

Nonfarm-Nonresid.

1-4 FamilyMortgages

District

Nation

Average Year-over-Year Loan Growth, Selected Loan Categories

Construction and multifamily remained amongthe fastest-growing major portfolio segments.

FRB-SF

Average = trimmed mean; growth rates are not merger-adjusted; C&LD = construction and land development; nonfarm-nonresidential includes mortgages with owner-occupied collateral.

District 23.61 10.10 32.35 83.78 248.40 79.07Nation 19.27 10.20 13.46 71.06 141.55 137.55

Memo: Average Concentration to Total Capital, Dec-18

30

284%

230%

151%140%

88%

36%22% 32%

126%

69%

32% 13%0%

50%

100%

150%

200%

250%

300%

Dec

-09

Dec

-12

Dec

-15

Dec

-18

Dec

-09

Dec

-12

Dec

-15

Dec

-18

Dec

-09

Dec

-12

Dec

-15

Dec

-18

Dec

-09

Dec

-12

Dec

-15

Dec

-18

CREExcluding

Owner-Occupied

Nonowner-Occupied

NFNR

C&LD Multifamily

District

Nation

Average CRE Loans Outstanding / Total Capital

Earnings-fueled capital accretion outpaced increasesin CRE loans, reducing concentrations to capital.

FRB-SF

Average = trimmed mean; Commercial Real Estate (CRE) Excluding Owner-Occupied = nonowner-occupied nonfarm-nonresidential (NFNR), construction and land development (C&LD), multifamily, and other CRE-purpose loans.

12th District Including Owner -

Occupied:Dec-09 439%Dec-12 321%Dec-18 341%

31640

494

399

490 407

151

98 142

0

110

220

330

440

550

660

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

By Originator Type By Property Type

Fannie/Freddie Industrial Commercial Banks Multifamily Life Insurance Retail CMBS/Conduits Office

CRE Mortgage Origination Indices (4-Quarter Trailing Average, 2001 = 100)

CRE mortgage originations eased on average in 2018at banks, but surged at GSEs because of multifamily.

FRB-SF

GSE = government sponsored enterprises (Fannie/Freddie) specialize in multifamily. Source: Mortgage Bankers Association (MBA).

32Per MBA, CRE originations surged during 4Q18, increasing 33% quarter-over-quarter and 14% year-over-year. For the full year, originations grew a more modest 3%. Growth among GSEs and insurance cos. outpaced banks and CMBS/ Conduits. As of February 10, 2019, MBA expected 2019 originations to be similar to 2018.

294

204

214

148

128

432

322

334

145

118

434

334 346

155

111

352

283 29

1

168

101

1,51

21,

399

1,14

073

166

453

050

5 588

734

760

903

1,05

3 1,14

31,

185

1,23

7

1,51

41,

326

1,16

677

71,

331

1,16

893

11,

456

1,11

150

377

61,

000

616

458

392

0

200

400

600

800

1,000

1,200

1,400

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

*20

19*

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

*20

19*

Purchases Refinancings

4Q 3Q 2Q 1Q

Mortgage Origination Volumes & Forecast ($ Billions)

Per MBA, a decline in refi-related business may againovershadow an uptick in purchase originations in 2019.

FRB-SF

*4Q18 and 2019 forecasted. Sources: Mortgage Bankers Association (MBA) 2/11/19 Mortgage Finance Forecast, Haver Analytics.

33+$52B

-$66B

-$158B

+$42B

3%4%13%

7%

17%

0%-2%

6%2%

30%

15%

0%

15%

30%

45%

60%

75%

90%

Jan-

05Ja

n-07

Jan-

09Ja

n-11

Jan-

13Ja

n-15

Jan-

17Ja

n-19

Jan-

05Ja

n-07

Jan-

09Ja

n-11

Jan-

13Ja

n-15

Jan-

17Ja

n-19

Jan-

05Ja

n-07

Jan-

09Ja

n-11

Jan-

13Ja

n-15

Jan-

17Ja

n-19

Jan-

05Ja

n-07

Jan-

09Ja

n-11

Jan-

13Ja

n-15

Jan-

17Ja

n-19

Commercial &Industrial

CommercialReal Estate (CRE)

1-4 FamilyMortgages

Consumer

Small Borrowers

Non-Traditional/Non QM-Jumbo***

All CRE/ Nonfarm-Nonresid.*

Multi-family

C&LD

Mid-LargeBorrowers

CreditCard

All/Prime/GSE

Eligible**Auto

Net % of Lenders Reporting Tighter (Looser) Loan Standards vs. 3 Months Prior(January of Each Year)

Surveyed lenders indicated modest signs of credittightening during 4Q18 versus the same period in 2017.

FRB-SF

Based on a sample of 70+/- loan officers at domestic banks (number varies by period and loan type); C&LD = construction and land development; *includes all CRE loans prior to Oct-13; **includes all residential mortgages prior to Apr-07, “prime” mortgages Apr-07 to Oct-14, and GSE-Eligible starting Jan-15; ***includes “nontraditional” mortgages Apr-07 to Oct-14 and Non QM Jumbo mortgages starting Jan-15. Source: Federal Reserve (FR) Senior Loan Officer Opinion Survey, https://www.federalreserve.gov/data/sloos.htm) via Haver Analytics.

34

35

2%

11%

4%

5%

4%

17%

10%

21%

21%

81%

81%

81%

80%

90%

73%

87%

78%

77%

17%

9%

14%

15%

6%

10%

3%

1%

1%

0% 50% 100%

GSE-Elig. 1-4 Fam.

Auto LoansMid-Large C&I

Jumbo 1-4 Fam.

Small C&I

Credit CardsNonfarm-Nonresid.

C&LD

Multifamily

Tighter Same Easier

Multifamily

C&LD

Nonfarm-Nonresid.

Credit Cards

Small C&I

Jumbo 1-4 Family

Mid-Large C&I

Auto Loans

GSE-Elig. 1-4 Fam.

Expectations for Lending Standards in Coming Year% of Senior Loan Officers Reporting

Based on a sample of loan officers at 50-72 domestic banks (count varies by loan type and year); C&LD = construction and land development; C&I = commercial and industrial; GSE = government sponsored enterprise. Source: Federal Reserve Senior Loan Officer Opinion Survey (http://www.federalreserve.gov/BoardDocs/snloansurvey/).

Versus Jan. 2018, more lenders expected tighter andfewer expected easier standards in the coming year.

FRB-SF

3%

5%

11%

11%

12%

16%

24%

27%

30%

94%

91%

89%

86%

87%

80%

77%

73%

70%

3%

4%

3%

2%

4%

0% 50% 100%

January 2018 January 2019

35

36

9%

5%

18%

7%

39%

4%

6%

2%

6%

86%

95%

75%

88%

57%

93%

94%

88%

84%

5%

7%

5%

4%

3%

11%

9%

0% 50% 100%

GSE-Elig. 1-4 Fam.

Nonfarm-Nonresid.

Auto LoansJumbo 1-4 Fam.

Credit CardsMultifamily

C&LD

Mid-Large C&I

Small C&I

Worse Same Better

Small C&I

Mid-Large C&I

C&LD

Multifamily

Credit Cards*

Jumbo 1-4 Fam.

Auto Loans*

Nonfarm-Nonresid.

GSE Elig. 1-4 Fam.

Expectations for Loan Performance in Coming Year% of Senior Loan Officers Reporting

Based on a sample of loan officers at 46-71 domestic banks (varies by loan type and year); C&I = commercial and industrial; C&LD = construction and land development; GSE = government sponsored enterprise; *2019 data excludes subprime. Source: Federal Reserve Senior Loan Officer Opinion Survey (http://www.federalreserve.gov/BoardDocs/snloansurvey/).

By 2019, a growing share of senior lenders forecastedweakening performance across most loan categories.

FRB-SF

11%

16%

17%

17%

18%

20%

24%

24%

27%

86%

84%

81%

80%

82%

80%

75%

75%

71%

3%

2%

3%

2%

1%

3%

0% 50% 100%

January 2018 January 2019

36

1.43%

0.21%

3.16%

4.66%

0.36%0.62% 0.68%

0.00%

0.75%

1.50%

2.25%

3.00%

3.75%

4.50%

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Past Due 30-89 Days Past Due 90+ Days orNonaccrual

District

Nation

Average Past Due or Noncurrent / Gross Loans & Leases

Past-due ratios remained low; delinquencies among C&Iand 1-4 family often exceeded other major categories.

FRB-SF

Average = trimmed mean; loans past due 30-89 days are delinquent but still accruing interest (early-stage); noncurrent = loans past due 90+ days or on nonaccrual status; C&I = commercial & industrial; NFNR = nonfarm-nonresidential mortgages; C&LD = construction & land development; average overall past due ratio differs from the sum of the average 30-89 day rate plus the average noncurrent rate because each ratio is trimmed and averaged separately.

Loan Type Dec-17

Sep-18

Dec-18

C&I 0.59 0.67 0.661-4 Family 0.65 0.60 0.59Consumer 0.27 0.26 0.32 Credit Card 0.57 0.71 0.86 Auto 0.20 0.20 0.24 Other 0.21 0.16 0.18

Agriculture 0.26 0.23 0.30NFNR 0.31 0.31 0.28 Owner-Occ 0.38 0.36 0.35 Other 0.11 0.11 0.07

C&LD 0.19 0.16 0.16All Loans 0.64 0.65 0.64

Avg. % Past Due 30+ Days or Nonaccrual

12th District

37

-5.5%

8.9%

-1.1%

5.8%

9.1%

5.9%

12.8%

7.7%

0.0%

10.0%

1.6%

12.3%

-30%

-20%

-10%

0%

10%

20%

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

12th District Nation

Gross Loans Noncurrent Total Past Due

Average Year-over-Year % Change in Dollar Volume

Annual growth in delinquencies outpaced gross loans, which could lift past-due ratios in future periods.

FRB-SF

Average = trimmed mean; total past due = loans past due 30+ days past due or on nonaccrual status; noncurrent = loans past due 90+ days or on nonaccrual status.

38

2.73%

0.10%

3.81%

0.14%

2.71%

0.12%

3.57%

0.30%

1.99%

0.02%

2.86%

0.04%

2.26%

0.10%

2.53%

0.29%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

District Very Small(< $1B)

District Small($1B - $10B)

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

Nation Large(> $50B)

Provisions

Net Chargeoffs

Average YTD Provision Expenses and Net Chargeoffs / Average Loans & Leases

Annual net chargeoff ratios tended to be higher atmid-sized and large banks.

FRB-SF

Average = trimmed mean; YTD = year-to-date (annualized).

39

1.26%

0.10%

3.44%

0.51%

2.98%

0.89%

2.83%

1.34%

1.93%

0.06%

3.45%

0.12%

3.48%

0.25%

2.61%

0.21%

0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

District Very Small(< $1B)

District Small($1B - $10B)

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

Nation Large(> $50B)

Consumer C&I

Average YTD Net Chargeoffs / Average Loans by Category

Losses at mid-sized and large banks were led by larger holdings of and losses on C&I and/or consumer loans.

FRB-SF

Average = trimmed mean; YTD = year-to-date (annualized); C&I = commercial and industrial; consumer includes credit cards, auto loans, and other loans to individuals for household, family, and other personal expenditures.

Consumer 4.70 8.75 5.83 89.01 C&I 81.46 71.69 114.95 141.85

Memo: Average Concentration to Total Capital, Dec-18

40

88%

86%

92%

82%

11%

18%

20%

32%

11%

18%

21%

42%

4% 3% 6% 9%

11%

13% 8%

12%

36% 29% 30%

30%

32% 34

% 39%

33%

73%

66%

65% 71

%

1% 1% 6%

53%

54%

50%

37%

57%

49%

40%

24%

24%

31%

29%

20%

0%10%20%30%40%50%60%70%80%90%

100%

1Q18

2Q18

3Q18

4Q18

1Q18

2Q18

3Q18

4Q18

1Q18

2Q18

3Q18

4Q18

1Q18

2Q18

3Q18

4Q18

DepositCompetition

LoanDemand

EconomicConditions

CapitalAccess

Improve Same WorseExpectations in Next 12 Months – West Area

Per Promontory, bankers’ outlooks for loandemand and the economy dimmed notably in 4Q18.

FRB-SF

4Q18 data based on a nationwide survey of bank chief executive officers, chief financial officers, and presidents at 447 institutions, queried between January 3 and January 16, 2019; West = Kansas City/San Francisco Districts; Midwest = Chicago/Cleveland/Minneapolis/St. Louis Districts; South = Atlanta/Dallas/Richmond Districts; Northeast = Boston/New York/Philadelphia Districts. Source: Promontory Interfinancial Network Bank Executive Business Outlook Surveys.

41

40

45

50

55

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

Midwest Northeast South West

Bank Confidence IndexAbove 50 Considered Expansionary

1.25%

2.70%

1.38%1.35%

6.69X

5.48X4.99X

1.27%1.78%

1.27% 1.26%

3.43X

2.95X

3.04X

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Dec

-06

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-06

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

ALLL / Loans Not HFS (%) ALLL / Noncurrent (X)

District

Nation

Average ALLL Coverage of Loans not HFS (%)and Noncurrent Loans (X)

Loan loss allowances continued to lag loan growthand dipped as a multiple of noncurrent loans.

FRB-SF

Average = trimmed mean; ALLL = allowance for loan and lease losses; HFS = held for sale; noncurrent = loans past due 90+ days or on nonaccrual status.

42

75.8%

63.6%

69.7%70.5%

66.7%

58.5%

65.6%66.6%

50.0%

55.0%

60.0%

65.0%

70.0%

75.0%

80.0%

Dec

-06

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

District

Nation

FRB-SF

Net Loans and Leases / Assets*

On-balance sheet liquidity tightened, continuing anearlier trend, but was stronger than pre-crisis levels.

17.8%

30.2%

25.4%24.3%27.4%

35.7%

29.3%28.2%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Dec

-06

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

District

Nation

Securities + Liquid Invest. / Assets*

*All data are averages (trimmed means); liquid investments = cash, due from balances, interest bearing balances, and federal funds sold & securities purchased under agreements to resell.

FRB-SF

43 Although lower, net unrealized losses within securities portfolios also crimped on-balance sheet liquidity.

Average = trimmed mean (12th District banks only); AFS = available-for-sale; changes in valuation reported net of deferred tax effects; UST = end of period U.S. Treasury yield at a constant maturity (from Federal Reserve via Haver Analytics); AFS securities excludes equities beginning with the March 2018 Call Report.

1.99%

-0.85%

-2.33%

-1.40%

4.04%

3.04% 3.05%

2.69%

-2.80%-2.10%-1.40%-0.70%0.00%0.70%1.40%2.10%2.80%3.50%4.20%4.90%

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Average Net Unrealized Gains (Losses) on AFS Securities / AFS Securities 10-Yr. UST Yield

FRB-SF

(Losses)

44

50.9

%

66.9

%

66.1

%

21.1

%

36.0

%

35.8

%

46.5

%

60.9

%

60.4

%

13.8

% 22.8

%

22.7

%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

All NMDs NMDs > $250K

District

Nation

Average Nonmaturity Deposits / Assets

Total and jumbo NMDs ticked down as ashare of assets as NMD growth stalled.

FRB-SF

Average = trimmed mean; NMD = nonmaturity deposits (all deposits excluding time deposits); jumbo = > $250K.

45

Average = trimmed mean; growth rates are not merger-adjusted; NMD = nonmaturity deposits; CD = certificate of deposit; borrowings includes federal funds purchased, repurchase agreements, federal home loan bank advances, and other borrowed money; as part of a coordinated response to market dislocation, the FDIC provided an unlimited guarantee on certain transaction accounts between Oct-08 and Dec-10, which was extended with modification through Dec-12.

65%69%

62% 62%

18%13%

16%10%

2% 2% 6%8%

0%

10%

20%

30%

40%

50%

60%

70%

Dec

-06

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-06

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-06

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-06

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

District Very Small(< $1B)

District Small($1B - $10B)

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

Nation Large(> $50B)

NMDs CDs BorrowingsAverage % of Total Assets

As NMD growth slowed, many banks turned tocostlier CDs and borrowings.

FRB-SF

46

13.0%

10.7%10.4%

4.9% 4.9%

3.2%2.3%

3.2%1.9%

1.5%

10.6%

9.6%

4.1% 4.4%3.5%

2.7%

1.3% 1.0%0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

All NoncoreFunds

CDs > $250K Borrowings Brokered Deposits< $250K

District Nation

Average Noncore Funding / Assets

Legislative changes in the treatment of reciprocaldeposits reduced technical noncore funding ratios.

FRB-SFAverage = trimmed mean; noncore liabilities = sum of borrowings (e.g., federal funds purchased, repurchase agreements, and other borrowed money), foreign deposits, certificates of deposit > $250K, and brokered deposits < $250K; beginning with the June 2018 Call Reports, qualifying (generally well-rated and well-capitalized) banks could opt to discontinue reporting reciprocal deposits as brokered so long as they aggregated less than $5 billion or 20% of total liabilities, as permitted under the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) of 2018.

Average Reciprocal Brokered Deposits /

Total Brokered DepositsDec-17 Dec-18

District 46% 6%

Nation 29% 3%

47

26.1%

44.4%42.9%

28.4%

46.3%

43.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

District

Nation

Average % of Loans & Securities Repricing > 3 Years

Average = trimmed mean; *December of each year; NV excludes credit card and zero-loan banks.

Investments in longer-term loans andsecurities remained elevated.

FRB-SF

2006-18* Dec-18

AK 53.2%

OR 53.0%

HI 48.0%

WA 47.5%

AZ 46.9%

NV 46.5%

CA 43.2%

ID 34.3%

UT 31.2%

Nation 43.0%

Average % ofLoans & Securities Repricing > 3 Years

= trough = peak

48

FRB-SF

64%

49%51%

18% 20%17%

68%

61% 60%

36%31%

28%

0%

10%

20%

30%

40%

50%

60%

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Dec

-17

Dec

-18

Subchapter S Tax Filers Non Subchapter S Tax Filers

District

Nation

Average YTD Cash Dividends / Net Income

Dividend payout ratios eased among District C-corp.banks; tax reform created denominator effects.

FRB-SFAverage = trimmed mean; YTD = year-to-date; Subchapter S filing banks (13% of banks in the 12th District, 38% of banks nationwide) pay taxes at the shareholder rather than corporate level and typically have higher dividend payout rates (also known as distributions) so that shareholders can cover tax obligations.

492017 net income

was depressed by one-time deferred

tax asset write-downs, but 2018 profits benefitted

from tax cuts.

9.9%

11.3

%

11.7

%

14.9

%

13.0

%

16.1

%

9.6% 11

.0%

13.4

%

15.7

%

14.5

%

16.8

%

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

17.0%

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Tier 1 Leverage Tier 1 Risk-Based Capital Total Risk-Based Capital

District

Nation

Average Regulatory Capital Ratios

Capital ratios edged up as capital formationeclipsed average and risk-weighted asset growth.

FRB-SFAverage = trimmed mean; new risk-based capital rules that became effective March 2015 for most banks (March 2014 for some larger/more complex banks) included the phase out of some capital instruments and higher risk weights on some asset and off-balance sheet commitment categories; beginning with the June 2018 Call Report, banks could opt to implement changes to the definition of high volatility commercial real estate (per the Economic Growth, Regulatory Relief, and Consumer Protection Act of2018), which may have reduced risk weightings for a generally small subset of assets previously weighted at 150%.

50

Average = trimmed mean; new risk-based capital (RBC) rules that became effective March 2015 for most banks (March 2014 for some larger/more complex banks) included the phase out of some capital instruments and higher risk weights on some asset and off-balance sheet commitment categories; beginning with the June 2018 Call Report, banks could opt to implement changes to the definition of high volatility commercial real estate (per the Economic Growth, Regulatory Relief, and ConsumerProtection Act of 2018), which may have reduced risk weightings for some assets previously weighted at 150%.

11.64%10.90% 10.71%

9.59%

15.63%

14.00%12.73% 12.61%

16.79%

15.17%13.67%

14.15%

6.00%

9.00%

12.00%

15.00%

18.00%

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

District Very Small(< $1B)

District Small($1B - $10B)

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

Nation Large(> $50B)

Tier 1 Leverage Tier 1 Risk-Based Total Risk-Based

Average Regulatory Capital Ratios by Bank Size

Improvements in capital ratios were morepronounced among smaller banks.

FRB-SF

51

1.7%3.2%

6.9%8.3%8.0% 8.0%

3.8% 3.2%

-15.0%

-12.0%

-9.0%

-6.0%

-3.0%

0.0%

3.0%

6.0%

9.0%

12.0%

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

Dec

-08

Dec

-10

Dec

-12

Dec

-14

Dec

-16

Dec

-18

District Very Small(< $1B)

District Small($1B - $10B)

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

Nation Large(> $50B)

Dividends

Retained Earnings

Average YTD Dividends and Retained Earnings / Avg. Equity – 12th District

Smaller banks achieved greater capital accretionin part because of lower dividend impacts on equity.

FRB-SF

Average = trimmed mean (12th District banks only); YTD = year-to-date (annualized); as of 4Q18, roughly 17% of District very small, 7% of District small banks, and none of the mid-sized or large banks were Subchapter S tax filers.

52

Summary of Institutions

Technical Information

Appendices

53

General: This report focuses on the financial trends and performance of commercial banks headquartered within the 12th Federal Reserve District (“12L”). 12L includes nine western states: AK, AZ, CA, HI, ID, NV, OR, UT, and WA, as well as Guam.

Banking Statistics: Unless otherwise noted, all data are for commercial banks based upon headquarters location. Averages are calculated on a “trimmed” basis by removing the highest 10% and lowest 10% of ratio values prior to averaging to prevent distortion from outliers. Earnings figures are presented on an annualized year-to-date or quarterly basis, as noted. Growth rates are not adjusted for mergers. The latest quarter of data is considered preliminary. Other than the table to the left, most graphics exclude “De Novo” banks (banks less than five years old) and industrial banks and savings institutions (which have different operating characteristics).

Groups by Asset Size: “Very Small,” “Small,” and “Mid-Sized” bank groups are based on total asset ranges of <$1 billion, $1-$10 billion, and $10-$50 billion, respectively. The “Large” bank group uses banks with assets >$50 billion nationwide because these banks typically operate beyond the District’s geographic footprint and a larger statistical population is needed to construct trimmed means.

54Based on preliminary fourth quarter 2018 data.

Appendix 1: Summary of Institutions

Appendix 2: Technical Information

AreaCommercial

Banks(De Novos)

Industrial Banks(De Novos)

Savings Institutions (De Novos)

Dec-17 Dec-18 Dec-17 Dec-18 Dec-17 Dec-18

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

AZ 15 (0) 15 (0) - - - -

CA 152 (1) 140 (2) 3 (0) 3 (0) 11 (0) 11 (0)

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

HI 5 (0) 5 (0) 1 (0) 1 (0) 2 (0) 2 (0)

ID 12 (0) 12 (0) - - 1 (0) 1 (0)

NV 10 (0) 10 (0) 4 (0) 4 (0) 3 (0) 4 (1)

OR 17 (0) 15 (0) - - 3 (0) 2 (0)

UT 27 (0) 26 (0) 15 (0) 14 (0) 2 (0) 1 (0)

WA 37 (0) 33 (0) - - 10 (0) 9 (0)

12L 281 (1) 262 (2) 23 (0) 22 (0) 34 (0) 32 (1)

U.S. 4,890 (7) 4,685 (12) 25 (0) 24 (0) 752 (1) 690 (1)