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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 Third Quarter 2013 Update

MINNEAPOLIS, November 25, 2013—Federal Reserve Bank of Minneapolis

Small Improvement for Minnesota Bank Performance in Third Quarter 2013

In the third quarter of 2013, Minnesota’s 349 banks posted small improvements across key financial ratios. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Minnesota banks had slightly better performance this quarter than last. In a continuation of longer-run trends, the state’s banks reduced problem loans and improved loan growth. The improvement remains steady but slow. Generally, Minnesota banking conditions compare well to the nation as a whole.”

At the median Minnesota bank, the level of problem loans as a percent of the resources to cover potential losses decreased by 85 basis points to 9.94 percent in the third quarter. This ratio is a bit below the national median bank’s 10.22 percent.

Minnesota bank earnings, as measured by the median return on average assets, improved 2 basis points to 0.98 percent, better than the national median of 0.86 percent.

The state’s banks continued to improve loan growth in the third quarter, increasing the year-over-year rate of change in outstanding loan balances by 83 basis points to 2.43 percent.

Key measures of liquidity and capital remain strong in the third quarter. Despite a relatively small decline of 5 basis points in the median total risk-based capital ratio to 15.60 percent, capital remains strong relative to previous years. Bank liquidity, as measured by the median dependence on noncore funding (as opposed to more stable traditional deposits) similarly remains strong and declined by 26 basis points to 13.49 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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Montana Banking Conditions Improve in Third Quarter 2013

The 62 banks in Montana turned in favorable results across key metrics of health in the third quarter of 2013. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “For the second consecutive quarter, Montana Banks demonstrated improvement through reduced problem loans, increased loan growth and improved earnings. These results put Montana near or exceeding national performance across key measures.”

The state median level of problem loans (as measured by problem loans relative to the resources banks have set aside to cover potential loan losses) hit five-year lows with a 90-basis-point drop in the third quarter to 10.71 percent. The figure is now just half a percentage point higher than the national median bank.

Montana bank earnings, as measured by return on average assets, improved 3 basis points to 0.91 percent in the third quarter, slightly above the national median rate of 0.86 percent.

The state’s banks considerably narrowed the gap in year-over-year loan growth rates by improving the rate of change in outstanding loan balances by more than 3 percentage points to 3.2 percent, compared to the national median of 3.28 percent.

Key measures of liquidity and capital remain strong at Montana banks. Despite a small drop in the total risk-based capital ratio of 38 basis points, capital remains healthy. Banks’ use of noncore funds (rather than more stable traditional deposits) dropped during the quarter to 15.85 percent of liabilities and remains below the national median rate.

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 Improve and Remain Far Better than U.S. Conditions

North Dakota banks turned in strong results in third quarter 2013. During the quarter, the state’s median bank improved on key metrics of growth, profitability and problem loans. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “North Dakota’s year-over-year median bank loan growth rate rose significantly this quarter, while profits increased and problem loans fell. Relative to last year, performance in the third quarter is less stellar on some dimensions for the median North Dakota bank, but remains far superior to the U.S. as a whole.”

In the third quarter, the state median level of problem loans fell. The value of loans that are not current on their payments as a percentage of the resources banks have to cover losses decreased by 39 basis points to 5.01 percent, well below the national level of 10.22 percent.

North Dakota bank profitability improved notably during the quarter. As measured by the median return on average assets, earnings increased nine basis points to 1.22 percent, well above the national median of 0.86 percent.

The median four-quarter net loan growth rate in North Dakota increased by more than a full percentage point from last quarter to 5.80 percent and outpaces the national median of 3.28 percent.

Capital and liquidity measures remain strong at North Dakota banks. Despite moderate deterioration during the quarter, liquidity as measured by the median bank use of noncore funds (instead of more stable traditional deposits) remains strong by historical standards at 13.74 percent of total liabilities. The total risk-based capital ratio, a key benchmark of capital adequacy, improved by 5 basis points to 13.88 percent.

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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Improvement in South Dakota Bank Performance in Third Quarter of 2013

The 70 banks in South Dakota turned in strong gains in performance compared with the rest of the country in the third quarter of 2013. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “South Dakota banking conditions are already strong, but managed to improve on some measures in the third quarter. Loan growth in particular was nearly 4 percentage points higher than last quarter.”

The state median level of problem loans as a percentage of the resources banks have to cover loan losses was about flat at a very low 4.29 percent. However, that figure stands at less than half of the national median of 10.22 percent.

South Dakota bank earnings, as measured by return on average assets, improved 5 basis points to 1.07 percent. The state median exceeds the national median of 0.86 by a robust 21 basis points.

The year-over-year growth in loans for banks in South Dakota climbed nearly 4 percentage points to 9.79 percent. That level of growth has not been seen since 2009.

The total risk-based capital ratio, a key measure of capital, remained basically flat at a relatively strong 16.33 percent. Banks’ use of noncore funding instead of more stable traditional deposits increased for a second consecutive quarter to 18.51 percent. Both measures compare favorably to the national medians.

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 of Michigan Banking Conditions Improve but Remain Relatively Weak in Third Quarter 2013

The 21 banks in the Upper Peninsula of Michigan reported reduced problem loans and positive loan growth in the third quarter of 2013 (at the median). However, profits fell, and all three measures are significantly worse than the median U.S. bank. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit of the Federal Reserve Bank of Minneapolis, “On the negative side, the banks in the Upper Peninsula of Michigan continue to trail the rest of the country in many key performance measures. Profits also declined this quarter. On the positive side, problem loans fell, and loan growth improved in the third quarter. Capital and liquidity remain strong too.”

The level of problem loans at U.P. banks saw a substantial reduction in terms of problem loans relative to the resources set aside to cover potential losses, falling 3.74 percentage points to 19.39 percent in the third quarter. However, the state median is nearly twice the national 10.22 percent median.

Return on average assets, a key measure of earnings, declined by 8 basis points to 0.78 percent. By comparison, the national median ratio was stronger at 0.86 percent as of the end of third quarter 2013.

The U.P.’s rate of loan growth was -0.39 percent over the last four quarters. While the negative rate means outstanding loan balances are still shrinking year over year, it was an improvement of 90 basis points from the preceding quarter. The U.P.’s loan growth rate remains well below the rest of the nation’s 3.28 percent.

Key indicators of liquidity and capital remain strong. The total risk-based capital ratio declined by 49 basis points to 18.70 percent, but remains stronger than the national median bank. The median use of noncore funding (as opposed to more stable traditional deposits) increased nearly one full percentage point to 19.48 percent, but is still below the national median of 19.9 percent.

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 Banking Conditions Mixed in Third Quarter, Weaker than U.S. in Some Regards

At median, the 55 banks in the western part of Wisconsin that fall within the Federal Reserve’s Ninth District posted mixed results in the third quarter of 2013. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Western Wisconsin banks reported a reduction in the level of problem loans. However, loan growth remains weak and fell during the quarter, while earnings held steady. Problem loans are higher in western Wisconsin than in the U.S., and loan growth is weaker.”

In the third quarter, banks in the western part of Wisconsin improved by reducing the level of problem loans (as a percentage of the resources banks must have to cover potential loan losses) by 84 basis points to 14.22 percent. That level is nonetheless relatively high compared to the national median of 10.22 percent.

Bank earnings, as measured by return on average assets, fell slightly by 2 basis points to 0.95 percent in the third quarter. However, that return is stronger than the nation’s 0.86 percent median.

Year-over-year loan growth in western Wisconsin banks slowed in the third quarter, declining by almost 1 percentage point to a sluggish 0.13 percent, compared to the national 3.28 percent median rate.

Key measures of liquidity and capital both remain strong at western Wisconsin banks. The total risk-based capital ratio increased 20 basis points to 17.26 percent in the third quarter. A key liquidity metric, the noncore funding dependence ratio, dropped by 61 basis points to 16.91 percent. Both measures compare favorably to the national median bank.

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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