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Banking Conditions in Ninth District States First Quarter 2012 Update

MINNEAPOLIS, May 21, 2012—Federal Reserve Bank of Minneapolis

Minnesota Banking Conditions Mixed in First Quarter

Minnesota banks reported mixed performance in the first quarter of 2012, based on data from the 366 commercial banks in the state. As is often the case in the first quarter, asset quality declined and profits improved. Year-over-year loan growth remains negative, but less so. Most measures are considerably better than a year ago. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Compared with last year at this time, Minnesota banks reported stronger asset quality, improved profitability and continued capital growth. Consistent with seasonal patterns, we saw asset quality get worse, while profit growth was strong. I continue to foresee improvement in Minnesota banking conditions for 2012.”

While the year-over-year change in the amount of outstanding loans remained negative at the end of March, it improved materially from year-end 2011. Loan growth stood at -2.5 percent at the end of 2011. Minnesota banks reported a median rate of -1.3 percent as of the first quarter.

The level of problem loans compared with the resources banks have to cover loan losses worsened by more than 1 percentage point since year-end, consistent with the typical trend in the first quarter. Compared with last year at this time, the measure fell by nearly 5 percentage points to less than 14.5 percent.

Profitability measured by the median return on average assets increased to above 0.9 percent for Minnesota banks. Strong improvement in profits is typical of the first-quarter pattern driven by lower provisions. Liquidity and capital also improved from year-end.

Data for Minnesota 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 2012 banking conditions can be found on the following page: Banking Conditions in Ninth District States - First Quarter 2012 Update.

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Montana Banking Conditions Improve in Several but Not All Key Measures

The first-quarter 2012 financial reports filed by the 69 commercial banks in Montana show mixed bank performance, with healthy improvements in profits and loan growth, but a typical first-quarter weakening of asset quality. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “In the first quarter of 2012, the median Montana-based bank reported an improvement in earnings, liquidity and loan growth rates. Overall asset quality fell, but commercial real estate loan performance improved. Asset quality continues to be much worse in Montana than in the rest of the country.”

In the state, overall asset quality improved considerably year over year. The amount of loans that aren’t making on-time payments dropped from more than 21 percent to less than 18 percent of the value of resources banks have to cover potential losses. The current figure, however, increased from the 17 percent figure reported at the end of 2011, typical of first-quarter deterioration. Asset quality remains a weak spot for Montana banks relative to the nation as a whole.

Earnings improved, as they often do in the first quarter. Montana banks are just about matching national rates of return. But these levels remain far off pre-crisis levels. Some key indicators of capital and liquidity also improved in Montana throughout the year and roughly match national conditions.

The year-over-year growth in the amount of outstanding loans remains at roughly -2 percent for the median Montana bank, but it is encouragingly up 80 basis points from last quarter and better than 3 percentage points from last year.

Data for Montana 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 2012 banking conditions can be found on the following page: Banking Conditions in Ninth District States - First Quarter 2012 Update.

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North Dakota Banks Have Rapid Loan Growth with Mixed Results on Asset Quality and Profits

North Dakota banks had, typical of the first quarter, weakened asset quality and higher profits, according to data reported by the 88 commercial banks in the state. Generally speaking, other states are still recovering from crisis conditions as North Dakota builds on comparatively strong metrics. While shrinking loan portfolios across the nation have challenged other banks’ recovery, the average North Dakota bank stands out for rapid reported growth. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “North Dakota bank performance stands out relative to the nation with regard to its strength. First-quarter trends of worsening asset quality and improving profits are par for the course. But loan growth was very strong; as high as rates before 2006.”

Measures of earnings increased from a year ago. The return on average assets for the median North Dakota bank was 1.1 percent compared with a national median of 0.86 percent. Both increased by 15 to 20 basis points from last year.

Overall asset quality, as measured by the ratio of loans that are behind on payments compared with the resources banks have to offset those losses, worsened somewhat in the first quarter. This outcome is typical of first-quarter performance. Compared with a year ago, loan quality is considerably improved, with the measure dropping from roughly 11 percent to below 8 percent, similar to the nearly 3 percentage point improvement seen in the national measure.

While the nationwide year-over-year growth in the amount of outstanding loans improved a bit in the first quarter, it remains negative. In contrast, the North Dakota median bank grew its loan portfolio by more than 8 percent, a large increase from the 4.5 percent rate that already stood out at year-end.

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 2012 banking conditions can be found on the following page: Banking Conditions in Ninth District States - First Quarter 2012 Update.

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South Dakota Banking Conditions—Except for Loan Growth—Take a Step Back in the First Quarter

South Dakota bank performance fell a bit overall in the first quarter of 2011, based on March 31, 2012, reports filed by the 75 commercial banks in the state. Nonetheless, loan growth—a key metric of bank health—increased considerably from a quarter ago. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “South Dakota banks reported higher loan delinquencies in the first quarter, consistent with seasonal trends, and weaker profits, but year-over-year improvement was strong and banks had a strong improvement in loan growth.”

The state average ratio of problem loans to the resources banks have to cover losses rose by about 1 percentage point in the first quarter. This kind of increase in the first quarter is typical. Even with the increase, the metric is still roughly one-third the national average and fell by roughly 40 percent from last year at this time.

South Dakota banks have also improved profitability compared with last year, but saw a small reduction in the first quarter. The return on average assets ratio fell 3 basis points to 1.08 percent. Although profitability remains off of pre-crisis levels, it’s considerably better in South Dakota than in the nation as a whole.

Loan growth is a highlight of the state’s first-quarter figures. Compared with persistent negative levels reported in the nation, South Dakota banks boast growth of more than 2 percent over the past 12 months. This level is off from pre-crisis levels, but grew by almost 1.5 percentage points in the first quarter.

Data for South 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 2012 banking conditions can be found on the following page: Banking Conditions in Ninth District States - First Quarter 2012 Update.

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Upper Peninsula Banking Conditions Remain Mixed After the First Quarter and Continue to Lag U.S.

Typical of the first quarter each year, banks in the Upper Peninsula of Michigan reported weakened asset quality and improved earnings, according to March 2012 data filed by the 21 Michigan banks in the Federal Reserve’s Ninth District. Although median profitability, loan performance, capital and liquidity have all improved from a year ago, Upper Peninsula banks are reporting increasingly negative loan growth. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “First quarter trends of worsening asset quality and improving profits are par for the course. In the bigger picture, the U.P.’s banks reported year-over-year improvement across many key metrics, but asset quality and loan growth remain worse than in the rest of the nation.”

While the U.P.’s year-over-year change in the amount of outstanding loans fell more than 1.5 percentage points from a year ago to -2.9 percent at the end of March, the corresponding national rate improved by that much and stands just a shade under zero at -0.16 percent.

Some deterioration in the level of problem loans compared with the resources banks have to cover loan losses is consistent with historical first-quarter patterns, and U.P. banks report a median measure above 16 percent. Although it improved a bit over the past year, this figure is now 3 percentage points greater than the national figure. The performance of commercial real estate loans is also significantly worse in the U.P. relative to the rest of the country.

Profitability measured by the median return on average assets increased to above 0.9 percent for U.P. banks and remains a bit higher than in the rest of the country. Liquidity improved slightly during the quarter and capital ticked down, but both remain strong by historical standards.

The data for the U.P. and the nation are found in the tables below. The attachment to this release provides additional data on the characteristics of banks in the region as well as definitions and explanations of those data.

Data for Michigan 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 2012 banking conditions can be found on the following page: Banking Conditions in Ninth District States - First Quarter 2012 Update.

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Western Wisconsin Banks Report Mixed Results on Asset Quality and Profits with Improving Growth

Banks in the portion of western Wisconsin covered by the Federal Reserve’s Ninth District reported mixed results in the first quarter of 2012, according to data collected by the Federal Reserve Bank of Minneapolis. As is often the case in the first quarter, asset quality declined and profits improved. Year-over-year loan growth remains negative, but less so. Most measures have improved from a year ago. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Compared with last year at this time, banks in western Wisconsin reported stronger asset quality, improved profitability and continued capital growth. Consistent with seasonal patterns, we saw asset quality worsen and profits improve this quarter.”

While the year-over-year change in the amount of outstanding loans remained negative at the end of March, it improved materially from year-end 2011. Median loan growth for western Wisconsin banks stood at -2.65 percent at the end of 2011. Banks reported a median rate of -0.31 percent as of the first quarter.

Overall asset quality improved considerably year over year. The amount of loans that aren’t making on-time payments dropped from more than 24 percent to less than 18 percent of the value of resources banks have to cover potential losses. Overall loan quality, however, fell this quarter by about 1 percentage point, and the ratio of problem commercial real estate (CRE) loans fell by about 2 percentage points this quarter.

Profitability measured by the median return on average assets increased to above 1 percent for western Wisconsin banks. Improvement in profits is typical of the first-quarter pattern driven by lower provisions, but the current level of return is considerably better in Wisconsin than in the nation as a whole.

Data for Wisconsin 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 2012 banking conditions can be found on the following page: Banking Conditions in Ninth District States - First Quarter 2012 Update.

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