Contact: Media Representative 612-204-5261 Date: May 12, 2000 FOR IMMEDIATE RELEASE

Upper Midwest Bank Conditions Weaken
Slightly in 1999

Banking conditions in the Ninth Federal Reserve District worsened slightly during 1999 from their very strong position over the last several years. In particular, average capital and earning levels declined modestly. Community banks (those with assets less than $100 million) continued to perform at historically favorable levels.

Asset quality across the district remained strong as both loan loss ratios and noncurrent loan ratios continued to hold near historically low levels. Banks' shift away from core deposit funding and increased exposure to market risk (e.g. changes in interest rates) merit continued attention.

In recent years he has held several key responsibilities at the System level. He served as the first chair of the Subcommittee on Credit, Reserves and Risk Management and earned special recognition for his outstanding leadership of the Banking Supervision Information Technology Committee.

Selected Indicators of Bank Performance

Asset Quality -- Ninth District banks continue to maintain strong asset quality. Overall loan loss ratios remained relatively unchanged during 1999 at 0.21 percent for small banks and 0.26 percent for large institutions. Noncurrent loans declined modestly over the course of the year from 1.20 percent to 1.03 percent at small banks and remained stable at 0.80 percent at large institutions.

Capital -- Both small and large banks witnessed declines in their capital levels over the course of 1999. Average equity-to-asset ratios dropped by roughly 60 basis points at small banks and over 30 basis points at large banks to stand at 10.4 percent and 8.8 percent respectively. The key reasons for the decline were negative swings in banks' securities portfolios, which were reduced in value by increases in interest rates.

Earnings -- Small banks recorded their typical fourth quarter decrease in earnings, pushing average pretax ROAA (return on average assets) down to 1.65 percent. This drop in earnings was due primarily to the impact of shrinking net interest margins (the spread between the banks' interest income and the cost of funds).

1999 year-end data for Ninth District banks is 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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