District jobs, housing permits, and loan portfolios expanded strongly through 2Q15 and further reductions in noninterest expenses and historically low provision expenses helped lift bank earnings. Although higher, bank profits remained constrained by narrow net interest margins. Residential and commercial real estate prices increased further, but the pipeline of new apartment construction may weaken vacancies and/or rents modestly in several District markets. Drought became an increasing concern in the Pacific Northwest and International developments during 3Q15 may pose challenges for some institutions. While District asset quality measures improved further, Federal Reserve surveys noted relatively loose underwriting in some segments, which could lead to rising delinquencies over time. Global financial turmoil may muddy the future timing and severity of interest rate increases, but once rates do increase, they could weaken investment portfolio values and alter the mix and pricing of deposits.
