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Contact: Patti Lorenzen
Media Representative
612-204-5261
Patti.Lorenzen@mpls.frb.org

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Banking Conditions in Ninth District States Second Quarter 2011 Update

MINNEAPOLIS, August 22, 2011—Federal Reserve Bank of Minneapolis

Profits and Growth Remain Weak at Minnesota Banks, but Conditions Are Slowly Improving

Profits and growth remain weak at Minnesota banks, but conditions are slowly improving, according to a Federal Reserve Bank of Minneapolis report based on June 30, 2011, data from the 375 banks in Minnesota.

"Banking conditions in Minnesota improved at a gradual pace in the second quarter of 2011," said Ron Feldman, senior vice president for Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis. "There was a small improvement in overall asset quality, but critical metrics like earnings and loan growth remain weak. This quarter was better than last quarter, but the pace of improvement remains slow."

Asset quality improved overall and was similar to the previous quarter for commercial real estate loans and loans to finance construction and land development. However, asset quality measures in Minnesota were worse than those in the country overall.

Measures of earnings—the return on average assets and net interest margin—increased slightly for Minnesota banks, but remain around the same level as in the nation. The year-over-year change in the amount of outstanding loans for Minnesota banks was nearly −5 percent. The same figure for the nation was about −2 percent.

There was continued improvement in the capital and liquidity position of Minnesota banks. Total risk-based capital increased by less than half a percentage point to about 14.5 percent. Banks in Minnesota increased their use of stable funding.

View data for Minnesota and the nation. [pdf]

View additional data on the characteristics of banks in the region and definitions and explanations of these data. [pdf]

More details on the second quarter update for the Ninth District can be found on the following page: Banking Conditions in Ninth District States Second Quarter 2011 Update.

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Loan Quality Improves, but Results Mixed for Profits and Growth at Montana Banks

Asset quality improved at Montana banks in the second quarter of 2011, while measures of earnings are mixed and growth remains weak, according to a Federal Reserve Bank of Minneapolis report based on June 30, 2011, data from the 70 banks in Montana.

"Banking conditions in Montana showed mixed improvement in the second quarter of 2011," said Ron Feldman, senior vice president for Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis. "There was solid strengthening in overall asset quality, but critical metrics like earnings and loan growth were less uniformly positive. This quarter was better than last, and I expect continued improvement, but the pace of improvement remains uncertain."

Asset quality measures showed marked improvement. Nonetheless, overall asset quality concerns and problems with commercial real estate loans were worse in Montana than in the country as a whole. The direction of earnings was less clear. Despite an improvement in the median net interest margin, the return on average assets fell from the previous quarter.

Measures of earnings—the return on average assets and net interest margin—remains around the same level in Montana as in the nation. Finally, loan growth is weak. The year-over-year change in the amount of outstanding loans for Montana banks was about −5 percent. The same figure for the nation was about −2 percent.

There was improvement in the capital and liquidity position of Montana banks. Total risk-based capital increased by less than half a percentage point to about 16 percent. Banks in Montana increased their use of stable funding.

View data for Montana and the nation. [pdf]

View additional data on the characteristics of banks in the region and definitions and explanations of these data. [pdf]

More details on the second quarter update for the Ninth District can be found on the following page: Banking Conditions in Ninth District States Second Quarter 2011 Update.

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North Dakota Banks Continue to Outperform National Averages, but Challenges Remain

Conditions are slowly improving at North Dakota banks and are better than banking conditions nationwide, but earnings and growth remain weak by historical standards, according to a Federal Reserve Bank of Minneapolis report based on June 30, 2011, data.

"Banking conditions in North Dakota continued to improve in the second quarter of 2011," said Ron Feldman, senior vice president for Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis. "There was gradual improvement across a variety of metrics, including critical areas like earnings and loan growth, where key measures deteriorated in recent years. North Dakota banks fared well compared with the rest of the nation when conditions weakened, and they continue to do so as banking conditions recover."

Asset quality improved overall despite a slight increase in past-due commercial real estate loans at the median North Dakota bank. The performance of commercial real estate lending and loans to finance construction and land development deteriorated in North Dakota as in the rest of the country in recent years. However, overall asset quality—as measured by bad loans compared to loss-absorbing resources—remains much better in North Dakota (at 10 percent) than in the United States (at 15 percent).

Measures of earnings—the return on average assets and net interest margin—increased slightly for North Dakota banks, but remain below the state's historical standards, even as they exceed national returns. The year-over-year change in the amount of outstanding loans for North Dakota banks was just barely positive at 0.04 percent. However, the same figure for the nation was about −2 percent.

The median total risk-based capital ratio at North Dakota banks fell just below 13.5 percent. Alternative measures of capital did improve in the most recent quarter, but have fallen slightly in North Dakota over the past few years. There was continued improvement in the liquidity position of North Dakota banks. Banks in North Dakota increased their use of stable funding.

Data for North Dakota and the nation [pdf]

Additional data on the characteristics of banks in the region and definitions and explanations of these data [pdf]

More details on the second quarter update for the Ninth District can be found on the following page: Banking Conditions in Ninth District States Second Quarter 2011 Update.

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South Dakota Banks Continue to Outperform National Averages, but Loan Growth Remains Weak

Although banking conditions remain generally weak by historical standards, South Dakota banks outperformed national averages, according to a Federal Reserve Bank of Minneapolis report based on June 30, 2011, data.

"Banking conditions in South Dakota continued to improve in the second quarter of 2011," said Ron Feldman, senior vice president for Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis. "There was an improvement in overall asset quality and earnings, but loan growth remained negative. South Dakota banks stand out for better asset quality and earnings relative to the rest of the nation."

Asset quality improved overall in South Dakota, and the state's banks have mostly avoided the problems with loans to finance commercial real estate and construction and land development that have troubled many of the nation's banks. Median measures of problem loans were just half as much in the state as in the nation as a whole.

Measures of earnings—the return on average assets and net interest margin—increased slightly for South Dakota banks compared with the previous quarter. While South Dakota banks' roughly 1 percent median return on average assets was lower than in years past, it compares favorably to the 0.74 percent national rate. The year-over-year change in the amount of outstanding loans for South Dakota banks was −.75 percent. The same figure for the nation was about −2 percent.

Liquidity worsened a bit. Banks in South Dakota increased their use of stable funding, but it remains better in the state than in the nation as a whole. There was continued improvement in the capital position of South Dakota banks. Total risk-based capital increased by about a quarter of a percentage point to over 16.5 percent.

View data for South Dakota and the nation. [pdf]

View additional data on the characteristics of banks in the region and definitions and explanations of these data. [pdf]

More details on the second quarter update for the Ninth District can be found on the following page: Banking Conditions in Ninth District States Second Quarter 2011 Update.

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