Contact: Media Representative 612-204-5261 Date: October 1, 1999 FOR IMMEDIATE RELEASE

Ninth District Banking Conditions Remain Strong through Second Quarter 1999

MINNEAPOLIS—Banking conditions in the Ninth Federal Reserve District changed little during the second quarter of 1999 and continued to remain strong with loan loss ratios and noncurrent loan ratios holding at or near historically low levels. Earnings at commercial banks (as measured by pretax ROAA) improved slightly, while capital levels edged down somewhat but remained near their 15-year high level.

Average pretax ROAA was up slightly during the second quarter to 1.76 percent. While this remained one of the lowest levels since the early 1990s, it was the first quarterly increase in the last five quarters. Profitability continues to be pressured by weak net interest margins (the spread between the cost of funds for banks and the rate at which they lend money), which stabilized somewhat during the second quarter after experiencing their third largest quarterly decline in the last 15 years during the first quarter.

Overall loan loss ratios increased marginally during the second quarter and stand at 0.16 percent of average loans. This increase was consistent with the seasonal trend exhibited by loan losses, which typically fall during the first quarter and rise throughout the rest of the year. All major loan categories (e.g., real estate, agriculture) showed roughly the same increase.

The spread between small and large bank profitability widened further during the second quarter, even though interest margins improved at small banks and declined at larger institutions. Large banks recorded higher noninterest income levels, as well as lower provision and overhead expenses, allowing them to offset their weaker interest margins.

The district's agricultural banks--those with agricultural loans equal to or greater than 25 percent of their loan portfolio--saw their pretax ROAA rise to 1.70 percent during the second quarter, while earnings at nonagricultural banks were flat at 1.82 percent. The asset quality of these institutions was also generally consistent with nonagricultural banks.

1998 year-end data for Minnesota banks is now available on BancSearch, a searchable directory of Ninth Federal Reserve District bank data.

As one of the 12 Federal Reserve Banks, the Federal Reserve Bank of Minneapolis contributes to a variety of Federal Reserve System functions, including operation of a nationwide payments system, distribution of the nation’s currency and coin, supervision and regulation of member banks and bank holding companies, and serving as a fiscal agent for the U.S. Treasury. Additionally, the president of Minneapolis Fed serves as a member of the Federal Open Market Committee, the monetary policymaking arm of the Federal Reserve’s Board of Governors. Together with its branch in Helena, Mont., the Minneapolis Fed serves the Ninth Federal Reserve District, which includes Minnesota, Montana, North and South Dakota, 26 counties in northwestern Wisconsin and the Upper Peninsula of Michigan.

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