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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 2014 Forecast and Fourth Quarter 2013 Results

MINNEAPOLIS, March 4, 2014—Federal Reserve Bank of Minneapolis

Minnesota Banking Conditions Improved as Expected in 2013; Better but Not Great Improvement Forecast for 2014

Key measures of Minnesota banking conditions reported at year-end 2013 all fell within the range of projections offered by the Federal Reserve Bank of Minneapolis a year earlier. While loan growth and profitability finished 2013 at the lower end of expectations, loan performance ratios were at the stronger end of the forecast range.

The Minneapolis Fed projects general improvement in 2014, with gains across key measures of earnings, loan growth and asset quality. However, the improvement is not likely to be large. “Minnesota’s banks remain below the long-run average levels of profitability and growth despite registering improvement in 2013,” said Ron Feldman, executive vice president at the Federal Reserve Bank of Minneapolis. “I expect to see improvement in 2014. But the gains seem likely to be small to middling, with profits and loan growth remaining below long-run norms.”

2013 Performance
According to data collected at year-end 2013, Minnesota banking conditions turned in flat to middling improvement for the year. The median level of problem loans (as a percent of the resources banks must have to cover potential losses) fell to 9.04 percent at year-end, improving from the 11.68 percent rate of a year earlier. This reduction occurred even though problem loans were already at relatively low levels, and the figure compares favorably to the long-run median. Profitability, as measured by the median return on average assets, was essentially flat, improving just 1 basis point to 0.95 percent at year-end. Loan growth improved to 3.09 percent, marking the second straight year of positive growth. Minnesota banks continued to report historically high levels of capital and liquidity.

2014 Forecast
The 2014 forecast projects additional improvement in 2014. Problem loans, as measured by the ratio of noncurrent and delinquent loans to capital and allowance, are expected to finish 2014 between 5.5 percent and 9 percent, a middling change relative to historical norms. The return on average assets (a key measure of profitability) should also continue to climb in 2014 to somewhere between 0.95 percent and 1.15 percent, also a middling increase by historical standards and greater than last year’s gain. The forecast range for profitability remains below the long-run median. The Federal Reserve Bank of Minneapolis projects that Minnesota’s banks will see loan growth rates improve by a small amount in 2014 to a forecast range from 3 percent to 7 percent, still a bit below historical norms.

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 Improved in 2013 as Expected; Continued Recovery Forecast in 2014

Montana banking conditions improved in 2013, generally consistent with the Federal Reserve Bank of Minneapolis forecast for the year. Actual loan growth finished the year squarely in the middle of the forecast range, while asset quality was just below expectations. Profitability improved in 2013 to end the year near the bottom of the forecast range.

Banking conditions in Montana are projected to continue to show strong improvement in 2014 across key metrics; banks in Montana will strengthen earnings, improve overall loan growth and reduce the level of problem loans in 2014. According to Ron Feldman, executive vice president at the Federal Reserve Bank of Minneapolis, “Major measures of banking health in the state have been improving for three years, and I expect strong improvement in 2014. That said, even with gains, profitability and loan growth at the Montana banks may not rise to their long-run historical averages. Problem loans should continue to improve from their already low historical levels.”

2013 Performance
For the median Montana bank, asset quality, earnings, loan growth, capital and liquidity all improved quite a bit over the past year. Banks in the state reduced the median level of problem loans as a percent of the resources banks have on hand to cover potential losses by 3.66 percentage points from a year earlier to 10.47 percent at year-end 2013. Montana bank earnings (measured by the median return on average assets, or ROAA) improved by 14 basis points from a year earlier. Year-over- year net loan growth improved by 328 basis points in 2013 and gained ground on the national median growth rate. Both capital and liquidity remain strong for Montana’s banks. The total risk-based capital ratio increased slightly to 17.62 percent. The use of noncore funding as a percent of total liabilities (rather than more stable traditional deposits) decreased to 16.24 percent.

2014 Forecast
The Federal Reserve Bank of Minneapolis forecasts that Montana banks will once again strengthen earnings, increase loan growth and reduce the level of problem loans. One key earnings measure, ROAA, is expected to rise to a rate between 0.95 percent and 1.15 percent. Total outstanding loan balances are projected to rise in 2014 by 3.5 percent to 7.5 percent. The level of problem loans should decline to a level between 6.5 percent and 10 percent (measured by noncurrent and delinquent loans as a percent of capital and allowance) by the end of 2014.

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 Generally at Low End of Forecast in 2013; Continued Strength around 2013 Levels Forecast for 2014

Banking conditions for North Dakota banks generally met the low end of the strong level of performance forecast for 2013. Problem loans, already at very low levels, fell a bit, consistent with the forecast for continued strength. Profitability as measured by return on average assets (ROAA) finished 2013 right near the 1.15 percent to 1.3 percent range that was expected. Loan growth fell further than anticipated from historic highs and finished well below the 8 percent to 12 percent forecast range, but remained at a level near historical norms.
                                                                                                                                                                      
The state’s 86 banks continue to enjoy exceptional strength, relative to the rest of the nation, and are expected to maintain that strength in 2014. According to Ron Feldman, executive vice president at the Federal Reserve Bank of Minneapolis, “I expect North Dakota banks to continue to perform well in 2014. I expect that the extremely strong conditions in the state will continue near the current levels. The rate of loan growth should increase while profits hold steady and problem loans come up a bit from their record lows.”

2013 Performance
Over the course of 2013, North Dakota banks fell back slightly from the impressive strength of a year earlier. The state median level of problem loans as a percent of the funds set aside to cover potential loan losses dropped 5 basis points to a near record low at 4.81 percent—well below the national median of 9.92 percent. Earnings for the year registered a 1.14 percent median return on ROAA, down 4 basis points for the year, but a great deal stronger than the national median of 0.85 percent. Loan growth rates also came in much lower than the robust 10.94 percent a year earlier to 5.39 percent. North Dakota’s median loan growth rate is still stronger than the national median. Capital and liquidity measures were strong. The total risk-based capital ratio improved slightly by 30 basis points during the year, and the median bank remains well capitalized. Liquidity continued to improve in 2013, as the noncore funding ration fell to 12.57 percent at year-end.

2014 Forecast
The Federal Reserve Bank of Minneapolis forecasts that North Dakota’s bank performance will continue its current strength in 2014. Current key metrics of health already lie within the ranges forecast for year-end 2014. The current ROAA of 1.14 percent is expected to remain between 1.05 percent and 1.25 percent. The Federal Reserve Bank of Minneapolis sees continued strong loan growth rates over 2014, in the range of 5 percent to 9 percent. The level of problem loans is once again expected to stay near the current record lows and finish 2014 between 3.5 percent and 7 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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Mixed Performance for South Dakota Banks Relative to 2013 Forecast; Moderation but Still Strong Performance Expected in 2014

South Dakota banks had mixed performance in 2013 relative to the Federal Reserve Bank of Minneapolis forecast. South Dakota banks surprised forecasters on the upside with year-over-year loan levels growing by an exceptional 10.64 percent, exceeding even the very high 8 percent upper end of the 2013 forecast. Going into 2013, the level of problem loans was already very low, and it continued to fall to the strongest end of the forecast range of 3 percent to 6.5 percent. However, profitability did not improve as expected and finished 2013 below the 1.1 percent to 1.27 percent forecast for the return on average assets (ROAA) ratio.

Relatively small changes in conditions for South Dakota banks are forecast for 2014. Ron Feldman, executive vice president at the Federal Reserve Bank of Minneapolis said, “Banks in the state of South Dakota will likely see lower but still strong levels of loan growth. I think earnings will pick up relative to last year, but only a small amount. Problem loans will remain at exceptionally low levels, but I expect them to rise a bit from last year.”

2013 Performance
Over the course of 2013, the median South Dakota bank reported generally strong performance. The median South Dakota bank reported problem loans (as a percent of resources banks must have to cover potential losses on loans) at 3.23 percent as of year-end, down 1 percentage point from a year earlier (a substantial improvement given the already low levels of problem loans). Earnings, as measured by ROAA, were relatively flat from the prior year at 1 percent, a 5-basis-point decrease from a year earlier, but considerably greater than the national median of 0.85 percent. Year-over-year loan growth reached a rate of 10.64 percent in 2013, more than double the national median and an improvement of 6.62 percentage points from 2012. Liquidity and capital remain strong in 2013 despite minor deterioration.

2014 Forecast
Key measures of growth and asset quality are likely to moderate at South Dakota banks in 2014. Asset quality is exceptionally strong, and while it may improve even further, it is more likely to worsen a bit. The ratio of problem loans to capital and reserves against loan losses is forecast to remain between 2.5 percent and 6 percent. The annual net loan growth rate should remain stronger than national averages and above 5 percent, but is expected to fall below 9 percent. A benchmark earnings measure, ROAA, is forecast to remain between 0.95 percent and 1.16 percent, indicating a likely improvement in profits.

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 Hit 2013 Forecast; Small Improvement Expected in 2014

Banking conditions in the Upper Peninsula of Michigan generally met expectations in 2013, as forecasted by the Federal Reserve Bank of Minneapolis. Improvement in both problem loans and loan growth put 2013 levels within the anticipated range. In contrast, profitability deteriorated and fell short of expectations.

Key measures of bank health are projected as steady-to-improving in 2014 in the most recent forecast. According to Ron Feldman, executive vice president at the Federal Reserve Bank of Minneapolis, “I see more upside than downside to the performance of U.P. banks in 2014. I expect the profitability of U.P. banks to bounce bank in 2014 with middling gains by historical standards. Problem loans should also continue to fall, though by a small amount. I see loan growth remaining relatively flat.”

2013 Performance
A key measure of loan performance improved substantially in 2013 for U.P. banks. The median level of overall problem loans as a percent of the resources banks have set aside to cover potential losses fell by more than 3 percentage points from a year earlier to 17.38 percent. The annual rate of loan growth increased to a positive 1.03 percent for 2013, the first time it has been above zero since 2009. However, U.P. banks reported lower profitability at the median. The return on average assets was 0.72 percent at year-end 2013, 19 basis points lower than a year earlier. A key capital ratio (median total risk-based capital) improved 12 basis points for the year to 18.91 percent. Use of noncore funding as a percent of total liabilities (rather than more stable traditional deposits) was 19.37 percent, down 116 basis points from the prior year.

2014 Forecast
The Federal Reserve Bank of Minneapolis forecasts general improvement for banks in the U.P. for 2014. The return on average assets is expected to finish the year between 0.7 percent and 0.9 percent (it currently stands at 0.72 percent). The level of problem loans should also improve. The median amount of noncurrent and delinquent loans as a percent of capital and allowance currently stands at the high end of the range forecast for 2014; it is expected to finish the year between 14.5 percent and 18 percent. The forecast anticipates that loan growth rates may not change much in the next year and will finish 2014 between -1 percent and 3 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 Bank Conditions Generally Worse than Anticipated in 2013; Improvement Forecast for 2014

The Federal Reserve Bank of Minneapolis had projected key measures of banking health in western Wisconsin to incrementally improve in 2013, with a chance of stable ratios. Although problem loans fell a bit more than expected, profitability actually weakened by a small amount, and loan growth stalled and fell short of the forecast.

The forecast for 2014 anticipates continued improvement across earnings, growth and asset quality. According to Ron Feldman, executive vice president at the Federal Reserve Bank of Minneapolis, “Profits and loan growth for banks in the western part of Wisconsin were worse than I predicted in 2013, but should improve in 2014 relative to 2013. In 2014, I project middling to small improvements in loan growth, problem loans and profitability.”

2013 Performance
The 55 banks in the western part of Wisconsin that lie within the Ninth District of the Federal Reserve had generally weak results in 2013. On the plus side, the level of problem loans compared with the resources banks have to cover loan losses fell to 11.55 percent, a historically low figure for this part of the district and a 2.74-percentage-point improvement from a year earlier. However, earnings, as measured by the median return on average assets, stood at 0.92 percent for the year, a 3-basis-point decrease from a year earlier. Though higher than the national median of 0.85 percent, the figure compares unfavorably to long-run norms. Western Wisconsin bank loan growth fell 1.36 percentage points in 2013 to 0.96 percent and is only one quarter of the national median rate. Capital and liquidity remain strong.

2014 Forecast
In 2014, the Federal Reserve Bank of Minneapolis forecast expects profitability to improve and finish the year in a range of 0.9 percent to 1.1 percent. Net loan growth is expected to accelerate to between 1 percent and 5 percent. The forecast anticipates that problem loans (the median ratio of noncurrent and delinquent loans as a percent of capital and reserves) will fall once again and finish 2014 between 7 percent and 10.5 percent.  Problem loan levels will remain lower than historical norms, which is desirable, but profitability and loan growth will be below their norms as well, which is not.

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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