The quality of loans has improved due to more prudent underwriting and capital levels appropriately support the risk profile. As of 4Q 2018 on average, Second District ratios were slightly above the national peer average for tier 1 and total risk-based capital ratios. In terms of profitability, return on average assets was 0.95% in 2018 for community banks in the Second District, only slightly trailing the national average of 1.1% for all community banks. Another relevant metric is the more diversified loan mix on the balance sheets of community banks. Commercial Real Estate (CRE) is a major source of asset growth, and in our geography, real estate continues to be in high demand and continues to outperform certain parts of the country. For example, in the Second District non-owner occupied CRE concentration remains higher than the national peer average. Our examiners, however, have noted more robust risk management practices and oversight, and commensurate levels of capital as mentioned earlier. As supervisors, we will continue to stress to the region’s bankers that a financial institution’s decision to assume certain types of risk is a decision for the Board of Directors and senior management. Also, as supervisors, we will continue to expect to see the appropriate level of risk management in place to manage and mitigate the risks assumed. This means having the appropriate expertise on the management team, robust information systems and technologies to monitor and manage those risks, proper controls and oversight, reasonable limits, and an action plan to take corrective measures when necessary.
All business decisions have risks and there must be mitigating strategies in place to manage adverse occurrences. Hearing your input and perspectives on these issues is an important part of the process for us, and I am fortunate to have the opportunity to meet with many community bankers in the Second District. Some of the most common themes I hear include: an appreciation for the recent regulatory reforms implemented such as the streamlining of the Call Report; the extension of the examination cycle to 18-month for firms under $ billion in total asset-size; and the current discussions around capital simplification. The comment period on capital simplification will close on April 9th, and I hope you all shared input to influence that important policy decision. 1/3  BIS central bankers' speeches  One area where we receive mixed feedback from bankers is the issue of off-site examinations. Some bankers love that idea, while others have stated they like the face-to-face interaction as it reduces the risk of miscommunication, misinterpretations or ambiguities. Still others prefer a hybrid approach with certain portions of examination work conducted on-site and others off-site. All felt critical meetings should be conducted in person. Today’s technology makes all of these options possible, and we will continue to exercise judgment and thoughtful communication with bankers to determine the best option. At the end of the day, our shared goal is a fair and accurate assessment for your institution, and we will continue to work together to accomplish this.