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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 2013 Update

MINNEAPOLIS, August 22, 2013—Federal Reserve Bank of Minneapolis

Minnesota Banking Conditions Improve a Bit in Second Quarter 2013

Financial data reported by the 351 banks in Minnesota at the end of second quarter 2013 improved, but by a small amount. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Second quarter results were better than the first quarter. There was some reduction in problem loans from an already strong level and a small increase in profitability and loan growth. The latter two areas continue to fall below historically normal levels. The gains were modest, but the state is performing, in general, on par with the nation.”

The state median level of problem loans (as a percentage of the resources banks must have to cover potential losses on loans) fell by 18 basis points to the lowest point since 2005. Minnesota is right around the national median, with 10.79 percent noncurrent and delinquent loans as a percentage of capital and allowance.

Return on average assets, a key measure of earnings, also improved to 0.96 percent in the quarter and stands higher at the Minnesota median bank than at the nation as a whole.

Minnesota bank loan growth was 1.6 percent over the past four quarters, a third lower than the national median. Despite a substantial 80 basis point improvement from a year ago, this year-over-year change in the amount of outstanding loan balances remains sluggish by historical standards.

Key measures of liquidity and capital deteriorated slightly in the quarter, but are stronger than national medians. Minnesota’s median total risk-based capital ratio inched back to 15.65 percent, high by historical standards. Liquidity also remains strong. Bank use of noncore funding (as opposed to more stable traditional deposits) stands at 13.75 percent of liabilities.

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 banking conditions can be found on the following page: Banking Conditions in Ninth District States.

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Conditions at Montana Banks Improved in Second Quarter 2013 from First Quarter Decline

In the second quarter of 2013, the 62 banks in Montana turned in a notable improvement for key indicators of strength, according to quarterly financial data. Montana banks showed worsening conditions in first quarter 2013. This quarter, Montana banks reported a strong decline in problem loans and a large improvement in the rate of loan growth, as well as a small gain in profitability. That said, loan growth remains near zero. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “While negative growth remains troublesome for Montana banks, the second quarter of this year was characterized by encouraging signs. There was solid progress toward positive loan growth and a healthy reduction in problem loans. Montana bank performance is currently comparable to or better than national averages across many key areas.”

The state median ratio of problem loans to the resources banks have to cover loan losses decreased by nearly 4 percentage points to 11.60 percent in the second quarter, the lowest level since 2007 and closer to the national median of 10.88 percent.

Montana bank profitability improved 10 basis points to 0.89 percent in the second quarter, slightly above the national median of 0.85 percent.

The state median bank growth in outstanding loans gained a great deal in the second quarter by improving 158 basis points to -0.18 percent. The national median growth rate in the amount of outstanding loans stands at 2.43 percent.

Capital and liquidity measures remain strong at Montana banks. Although the total risk-based capital ratio fell by 52 basis points to 17.28 percent in the second quarter, it compares favorably to the national level of 16.35 percent. The reliance on “noncore” resources (as opposed to more stable traditional deposits) showed a small increase of 32 basis points to 16.28 percent, below the national median of 19.8 percent.

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 banking conditions can be found on the following page: Banking Conditions in Ninth District States.

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North Dakota Banking Conditions in Second Quarter 2013 Generally Improved from First Quarter; Loan Growth Slows

Profits and asset quality at North Dakota banks improved in second quarter 2013. Loan growth remains healthy in an absolute sense, but continues to decline based on financial data reported by the state’s 87 banks. North Dakota banking conditions outpace the nation across most key metrics. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Profits fell and problem assets grew at North Dakota banks in the first quarter of 2013. In the second quarter, these banks reversed some of those changes. The rate of loan growth at North Dakota banks is still nearly twice that of the rest of the country, even as it continues to slow down. In total, the state’s banking conditions are continuing to show impressive strength.”

In the second quarter, the state median level of problem assets improved considerably from the previous quarter. The value of loans that are not current on their payments as a percentage of the resources banks have to cover losses decreased by 2.14 percentage points to 5.4 percent, well below the national level of 10.88 percent.

North Dakota bank profitability also improved during the quarter. As measured by the median return on average assets, earnings increased from 1.06 percent to 1.13 percent. State profitability measures compare favorably to national averages.

The median four-quarter net loan growth rate in North Dakota fell notably by 3.15 percentage points. Nonetheless, at 4.74 percent, growth is still nearly double the national median of 2.43 percent. The state median is down by more than 7 percentage points from 2012’s astounding annual growth rate.

Capital and liquidity measures remain strong at North Dakota banks despite moderate deterioration in the quarter. The total risk-based capital ratio, a key benchmark of capital adequacy, fell slightly to 13.82 percent. Liquidity, in terms of the median bank use of noncore funds (instead of more stable traditional deposits), increased by roughly one half of a percentage point to 13.25 percent of total liabilities.

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 banking conditions can be found on the following page: Banking Conditions in Ninth District States.

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Continuing Loan Growth Highlights Strong and Generally Improving Conditions at South Dakota Banks

Key measures of banking health strengthened once again for the 70 banks in South Dakota, where banking conditions continue to outperform the nation as a whole. Important measures of performance in earnings and asset quality improved from the previous quarter. The rate of loan growth was more than a percentage point higher than a quarter ago. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve of Minneapolis, “Growth in the value of loans held at South Dakota banks accelerated considerably compared to the last quarter and to prior quarters as well. That growth together with higher profitability and lower problem loans particularly demonstrate healthy overall performance at the state’s banks.”

The state median level of problem loans compared to the resources banks have on hand to cover potential loan losses fell by 41 basis points in the second quarter to 4.24 percent, less than half the national median.

South Dakota bank earnings, as measured by the median return on average assets, improved 8 basis points to a rate of 1.02 percent in the second quarter. The ratio is notably greater than the national median of 0.85 percent and represents a recovery from declines last quarter.

South Dakota’s banks turned in a median loan growth rate of more than double the national median at 5.98 percent, up by 1.4 percentage points from a quarter ago. Loan growth in the state has steadily improved since the first quarter of 2011.

Key indicators of liquidity and capital remain strong by historical standards, though both weakened a bit in the quarter. The median bank use of noncore funding dependence (as opposed to more stable traditional deposits) increased by 35 basis points to 17.19 percent. The state median total risk-based capital ratio fell by a full percentage point to 16.31 percent.

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 banking conditions can be found on the following page: Banking Conditions in Ninth District States.

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Upper Peninsula Banking Conditions Generally Deteriorate in Second Quarter 2013; Earnings the Exception

At the end of the first half of 2013, the 21 banks in the Upper Peninsula of Michigan reported a modest improvement in earnings, but higher levels of problem loans and persistent negative loan growth. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “The banks in the Upper Peninsula have lagged the nation in some important measures of banking performance. In that context, some of those measures, particularly loan growth and asset quality, got worse in the second quarter of 2013. That said, strong capital and reasonable profitability provide some strength to these banks.”

In the second quarter, banks in the Upper Peninsula reported substantial growth in the level of problem loans as a percentage of the resources banks maintain to cover losses. The ratio increased nearly 4 percentage points to 23.13 percent, considerably higher than the national level of 10.88 percent.

U.P. bank earnings, as measured by return on average assets, turned in an 11 basis point improvement to 0.86 percent at the end of second quarter 2013. The state median ratio of earnings now stands slightly above the national median of 0.85 percent.

The year-over-year growth in outstanding loan balances fell by 73 basis points to -1.29 percent in second quarter 2013, well below the rest of the country’s growth rate of 2.43 percent.

Key measures of capital and liquidity remain strong. The total risk-based capital ratio improved by 35 basis points to 19.19 percent. Bank liquidity as measured by the use of noncore funds (rather than more stable traditional deposits) dropped by 153 Basis points to 18.50 percent. Both performance measures remain stronger than national levels.

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 banking conditions can be found on the following page: Banking Conditions in Ninth District States.

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Western Wisconsin Banks Turn in Mixed Results in Second Quarter 2013

In the second quarter, banking conditions were mixed for the 54 western Wisconsin banks in the Federal Reserve’s Ninth District. The amount of problem loans increased notably from a quarter ago, while earnings and loan growth improved slightly. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Western Wisconsin banks improved in some regards from first quarter 2013, but fell behind in others. Growth remains sluggish by historical standards, and asset quality deteriorated quite a bit from the previous quarter. Profitability, capital and liquidity compare favorably to the rest of the nation, but within these key areas, only capital ratios are relatively strong by historical standards.”

In the second quarter, the volume of problem loans (as a percentage of the resources banks must have to cover potential losses on loans) grew by 109 basis points to 15.06 percent for banks in western Wisconsin, exceeding the national median by 4.18 percentage points.

Bank earnings—as measured by the return on average assets ratio, increased a few basis points to 0.97 percent in the second quarter. The state median is strong compared to the national median of 0.85 percent.

Loan growth remained weak through the first half of 2013 for western Wisconsin banks. Year-over-year loan growth increased by 45 basis points from the previous quarter to 1.12 percent.

Key measures of capital and liquidity remain strong. Banks in the western part of Wisconsin are maintaining historically high levels of capital. The total risk-based capital ratio increased by 293 basis points to 17.06 percent. The noncore funding dependency ratio also grew in the second quarter by 22 basis points to 17.52 percent. Western Wisconsin’s liquidity and capital ratios both compare favorably the national medians.

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 banking conditions can be found on the following page: Banking Conditions in Ninth District States.

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