Minnesota Banking Conditions Improved in 2012, Consistent with Federal Reserve Forecast; Steady Improvement Expected for 2013

The key measures of banking conditions reported at year-end 2012 all fell within the range of projections offered by the Federal Reserve Bank of Minneapolis a year ago. The pace of loan growth was at the high end of expectations, while profitability and loan performance ratios landed right in the center of the forecast range.

The Federal Reserve Bank of Minneapolis projects continued steady improvement for Minnesota banks across key measures of earnings, growth and asset quality. “Banks in Minnesota have registered gains in emerging from crisis conditions over the past several years,” said Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis. “I expect 2013 to see continued improvement in loan growth and profits, although at a slower pace than last year. Both measures will likely remain off long-run medians. Problem loans should also decline, but given their already low levels, this decline will be measured.”

2012 Performance
According to data collected at year-end 2012, Minnesota banking conditions had middling to strong improvement for the year. 

The median level of problem assets (as a percent of the resources banks must have to cover potential losses on loans) fell to 11.63 percent at year-end, improving considerably from the 13.22 percent rate of a year ago. The current ratio compares favorably to the long-run median. Profitability as measured by the median return on average assets improved to 0.92 percent at year-end, up 15 basis points from the previous year. Minnesota banks saw negative loan growth throughout 2009, 2010 and 2011, but the annual rate for 2012 reached 1.7 percent. Banks in the state continued to maintain record high levels of capital and liquidity in 2012. Total risk-based capital declined by about half of a percentage point from a year ago to 15.34 percent, while Minnesota banks have steadily reduced reliance on “noncore” funds for more than three years. 

2013 Forecast
The 2013 forecast projects the level of problem assets to remain steady or improve. Currently at 11.63 percent, the ratio of noncurrent and delinquent loans to capital and allowance is expected to end 2013 between 8.5 percent and 12 percent. The return on average assets (a key measure of profitability) should continue to climb in 2013 to somewhere between 0.95 percent and 1.10 percent. That range for profitability stands below the long-run median. Loan growth is projected to rebound to a range of 3 percent to 7 percent, the upper end of which is closer to historical norms.

The data for Minnesota 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 and definitions and explanations of those data.

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.

Montana Banking Conditions Improved in 2012, Consistent with Federal Reserve Forecast; Montana Banks Expected to Continue Recovery in 2013

Montana banking conditions improved in 2012, generally consistent with the Federal Reserve forecast. Actual loan growth and asset quality measures both finished the year right around the middle of the forecast range. Profitability rose in 2012 to 0.8 percent and came in slightly lower than the bottom of the forecast range of .825 percent.

Banking conditions in Montana are projected to improve across key metrics over the next year. According to a forecast by the Federal Reserve Bank of Minneapolis, banks in Montana will strengthen earnings and improve overall loan growth in 2013. The level of problem loans is already fairly low by historical measures, but might continue to improve in the next year. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “I expect to see continued improvement in major measures of banking health in Montana. By the end of next year, conditions overall will be closer to normal than they have been since emerging from crisis.”

2012 Performance
At the median, asset quality, earnings, loan growth, capital and liquidity all improved over the past year. Montana-based banks reduced the median level of problem assets as a percent of the resources banks have on hand to cover potential losses by 2.51 percentage points from a year ago to 14.13 percent at year-end 2012. Montana bank earnings (measured by the median return on average assets, or ROAA) were relatively flat in 2012, improving by just 3 basis points from a year ago. Year-over-year net loan growth improved by 270 basis points in 2012 compared to 2011, but is still negative at -0.30 percent.  Both capital and liquidity remain strong at the state’s banks, and neither has been an area of concern post crisis. The total risk-based capital ratio increased slightly to 17.43 percent. The use of noncore funding as a percent of total liabilities (rather than more stable traditional deposits) decreased to 17.80 percent.

2013 Forecast
According to the Federal Reserve Bank of Minneapolis forecast for 2013, Montana banks will finish next year with stronger earnings, positive loan growth and continued strength in loan quality. A key profitability metric, ROAA, is expected to rise to a rate between 0.9 percent and 1.05 percent. Total outstanding loan balances are projected to rise in 2013 for the first time since 2009 to an annual net loan growth rate between 1.5 percent and 5.5 percent. The level of problem assets (measured by noncurrent and delinquent loans as a percent of capital and allowance) is already at a very strong historical level, but should improve with a chance to remain at the strong current rate; it is projected to stand between 11.5 percent and 15 percent at year-end.

The data for Montana 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 and definitions and explanations of those data.

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.

North Dakota Banking Conditions Improved in 2012, Consistent with or Better than Federal Reserve Forecast; Conditions Projected to Remain Strong in 2013

Banking conditions for North Dakota banks improved strongly in 2012, generally consistent with the Federal Reserve forecast. Profitability finished 2012 squarely in the middle of the 1.1 percent to 1.3 percent range forecast. The level of problem assets at year-end was close to the lower end of the 4.25 percent to 7.75 percent range of values that were expected. Loan growth was forecasted to be above near historical highs, but the actual experience was even stronger.

The Federal Reserve Bank of Minneapolis describes banking conditions in the state of North Dakota as exceptional and expects the state’s 88 banks to maintain that strength in 2013. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit, “I expect North Dakota banks to continue to perform exceptionally well compared to the rest of the country in 2013. Given already extremely strong conditions, improvements could be small, but I expect that measures of profitability, growth and asset quality will remain in the range of the impressive statistics we see today.”

2012 Performance
North Dakota banks improved in several key measures over the course of 2012. The volume of problem assets remains low and continues to shrink, profitability is strong and loan growth improved from a year ago. The state median level of problem assets as a percent of the funds set aside to cover potential loan losses dropped nearly two percentage points in 2012 to a near record low at 4.86 percent—well-below the national median of 11.9 percent. Earnings for the year registered a 1.18 percent median return on average assets (ROAA), exceeding the long-run median. Loan growth also came in at a robust 10.94 percent at year-end 2012, more than twice the 2011 rate and 5 times the national median of roughly 2 percent. Capital and liquidity measures were strong. The total risk-based capital ratio fell slightly by 33 basis points during the year, but the median bank remains well capitalized. Liquidity continued to improve in 2012 as the noncore funding ratio fell to 13.8 percent at year-end.

2013 Forecast
The Federal Reserve Bank of Minneapolis forecast for 2013 anticipates that metrics of bank performance and health will improve, but at a slower rate than in the previous year. There is some chance that conditions could remain at current exceptionally strong levels. The current ROAA of about 1.2 percent, a key profitability measure, is expected to remain between 1.15 percent and 1.3 percent. The Federal Reserve Bank of Minneapolis sees continued strong loan growth rates over 2013, in the range of 8 percent to 12 percent. The level of problem assets is expected to stay near the current record lows and finish 2013 between 3.5 percent and 7 percent.

The data for North Dakota 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 and definitions and explanations of those data.

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.

South Dakota Banking Conditions Generally Improved in 2012, Consistent with Federal Reserve Forecast; Improved Conditions Forecast for 2013

South Dakota banking conditions generally improved last year, consistent with most aspects of the Federal Reserve Bank of Minneapolis forecast. The problem assets ratio was forecast to finish the year between 2.5 percent and 6 percent, as it did, landing in the middle of that range of values. South Dakota bank median loan growth in 2012 was toward the higher end of the forecast that expected a rate between 1 percent and 5 percent. Profitability fell to 1.04 percent, a bit lower than the forecast range between 1.15 percent and 1.35 percent for 2012. 

Conditions for South Dakota banks are expected to improve in 2013 or remain very strong. Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, said, “Banks in South Dakota should continue reporting low levels of problem assets over the next year. Loan growth rates seem likely to improve, and profits should increase this year. Even though each of these key indicators is already healthy relative to the rest of the country, I foresee continued strengthening or strong conditions over the course of 2013.”

2012 Performance
During 2012, the median South Dakota bank reported improvements across most measures of bank health. The median South Dakota bank reported problem assets (as a percent of resources banks must have to cover potential losses on loans) at 4.24 percent as of year-end, a slight improvement of 36 basis points from a year ago. This level remains well below the national median of 11.9 percent. Earnings (as measured by return on average assets) were relatively flat from the prior year at 1.04 percent, a very small decline of 7 basis points but considerably greater than the national median of 0.86 percent. Year-over-year loan growth reached a rate of 4.02 percent in 2012, an improvement of 3.36 percentage points from 2011 and about twice the national median. Liquidity and capital remained strong and continued to improve in 2012. The total risk-based capital ratio reached 17.4 percent, while the median use of noncore funding sources (as opposed to more stable traditional deposits) fell to 16.8 percent. Both remain stronger than national medians of 11.9 percent and 20.0 percent, respectively.

2013 Forecast
Key measures of earnings and growth are likely to improve at South Dakota banks in 2013. Asset quality is expected to remain exceptionally strong and may improve even further. Already very low by historical standards, the ratio of problem loans to capital and reserves against loan losses is forecast to remain between 3 percent and 6.5 percent. A benchmark earnings measure, return on average assets, is anticipated to rise above 1.1 percent and as high as 1.27 percent. The annual net loan growth rate should remain above 4 percent and seems likely to improve to as much as 8 percent. 

The data for South Dakota 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 and definitions and explanations of those data.

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.

Upper Peninsula Banking Conditions Likely to Improve in 2013, According to Federal Reserve Forecast

Key measures of bank health are generally expected to strengthen in 2013. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Next year will most likely be a bit better for banks in the Upper Peninsula. I think the Michigan banks in our district will see better—and possibly positive—loan growth for the year, improvement in profitability and fewer problems with bad loans. The low side of the forecast is generally consistent with current conditions. It is important to stress that forecasting these ratios for the Upper Peninsula comes with significant uncertainty because of the small number of banks in the region.”

 A key measure of problem loans worsened in 2012 for U.P. banks. The median level of overall problem assets as a percent of the resources banks have set aside to cover potential loan losses increased by nearly 5 percentage points  to 20.48 percent from the end of 2011. The annual loan growth rate fell by about a quarter of a point in 2012 and remains negative at -1.28 percent. At the median, U.P. banks reported some improvement in profitability. The return on average assets was 0.91 percent at year-end, 12 basis points better than a year ago. A key capital ratio (median total risk-based capital) improved 15 basis points for the year to 18.79 percent. Use of noncore funding as a percent of total liabilities (rather than more stable traditional deposits) was 20.73 percent, up 11 basis points over the previous year. 

The Federal Reserve Bank of Minneapolis forecasts three key measures for the year. In the areas of profitability, loan growth and asset quality, the 2013 forecast generally expects improvement for U.P. banks. The current return on average assets is 0.91 percent and is expected to finish the year between 0.9 percent and 1.05 percent. The forecast anticipates improvements in loan growth, but recognizes that loan growth may remain negative. The level of problem assets is expected to improve, with the median amount of noncurrent and delinquent loans falling to a range between 16 percent and 19.5 percent of capital and allowance.

The data for upper Michigan 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 and 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 banking conditions can be found on the following page: Banking Conditions in Ninth District States.

Federal Reserve Forecasts Generally Improving Banking Conditions for Western Wisconsin

The Federal Reserve Bank of Minneapolis has released a 2013 forecast of generally improving performance for Wisconsin banks with some chance for a stable outcome. Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, said, “Banks in the western part of Wisconsin saw considerable improvement from a year ago and are likely to continue gains in key measures of health through the next year. By the end of 2013, I project improvements in asset quality, loan growth and profitability with a low chance that conditions remain roughly equivalent to current conditions.”

2012 Performance
The 56 banks in western Wisconsin improved across key metrics in 2012, and most metrics remain better than national ratios at the median. The level of problem assets compared to the resources banks have to cover loan losses remains at 14.3 percent, a low figure historically for this part of the Ninth District. Year over year, the measure improved 2.32 percentage points. Earnings, as measured by the median return on average assets, improved 14 basis points from a year ago to 1 percent and compare favorably to the national median bank of 0.86 percent. Western Wisconsin banks’ loan growth turned positive in 2012, reaching 2.02 percent, an increase of 4.7 percentage points from a year ago. Capital remains strong; the median total risk-based capital ratio reached record highs in mid-2012 and stood at 16.1 percent at year-end. The median bank dependence on noncore funds (rather than more stable traditional deposits) dropped by more than a percentage point over the course of the year to 17.7 percent.

2013 Forecast
According to the forecast for 2013, profitability is likely to increase, falling in a range between 1 percent and 1.15 percent. Net loan growth is expected to increase as well to between 2 percent and 6 percent. The forecast anticipates that asset quality (the median ratio of noncurrent and delinquent loans as a percent of capital and reserves) will finish 2013 generally lower than the current figure with a range between 12.5 percent and 15 percent. The weak side of these forecasts is generally around current levels.

The data for western Wisconsin 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 and definitions and explanations of those data.

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.

Minneapolis Fed Forecasts Above-Average Growth for Minnesota in 2013

The 2013 economic outlook from the Federal Reserve Bank of Minneapolis calls for continued growth in the Minnesota economy. Based on the Minneapolis Fed’s statistical model, employment in Minnesota is expected to grow by a solid 2.2 percent, while the unemployment rate is predicted to drop to 4.7 percent in the fourth quarter of 2013. Growth in personal income is expected to exceed 5 percent.

“The Minnesota economy continued on its upward trend in 2012, and it looks like growth could accelerate in 2013,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the Minnesota outlook includes information from the annual fedgazette business outlook poll of 335 district businesses and the annual manufacturing survey of 542 district manufacturers. The poll and survey were mailed out the day after the November election and returned by Dec. 6. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

“The statistical model points to solid economic performance in 2013; however the outlook poll is less clear,” Madden said. “Businesses are upbeat for their own operations and are mixed about the state economy. Metro area companies expect more growth than those in greater Minnesota.”

The surveys of business leaders and manufacturers indicate that businesses expect more sales and production in 2013 and will accomplish this through increased employment and capital investment. They also expect to raise prices.

In regard to the state economy, both the surveys and the statistical model see increases in housing construction. Respondents from the metro area are optimistic and expect employment and consumer spending to rise. However, manufacturers and firms in greater Minnesota are more pessimistic. Manufacturing survey respondents expect most state indicators to be down, while business leaders from greater Minnesota expect flat employment and decreased investment and consumer spending.

The statistical model does not incorporate U.S. fiscal policy decisions. More details on the 2013 economic forecast for Minnesota and the Ninth District can be found in the January issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

2013 Economic Outlook Briefing:
Video and Presentation

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Minneapolis Fed Forecasts Moderate Economic Growth for Montana in 2013

The 2013 economic outlook from the Federal Reserve Bank of Minneapolis calls for moderate growth in the Montana economy. Based on the Minneapolis Fed’s statistical model, employment in Montana is expected to grow by a moderate 1.2 percent, while the unemployment rate should drop to 5.6 percent in the fourth quarter of 2013.

“The economy in Montana grew at a solid pace in 2012, but it looks like the pace of growth will slow in 2013,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the Montana outlook includes information from the annual fedgazette business outlook poll of 335 district businesses and the annual manufacturing survey of 542 district manufacturers. The poll and survey were mailed out the day after the November election and returned by Dec. 6. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

“The surveys and the statistical model both suggest moderate economic gains for Montana in 2013,” Madden said. “Manufacturers and business leaders are somewhat optimistic for the state economy.”

Montana respondents to the manufacturing survey expect flat economic growth and business investment. They also expect slight increases in overall employment and some decreases in consumer spending. Montana respondents to the business outlook poll expect relatively flat employment and slight increases in consumer spending and larger increases in business investment. Both surveys expect moderate increases in wages and benefits.

However, businesses are more upbeat about their individual operations, with both manufacturers and business leaders expecting more sales and production in 2013. They will accomplish this through increased capital investment and higher prices.

The statistical model does not incorporate U.S. fiscal policy decisions. More details on the 2013 economic forecast for Montana and the Ninth District can be found in the January issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

2013 Economic Outlook Briefing:
Video and Presentation

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Minneapolis Fed Forecasts Robust Economic Growth for North Dakota in 2013

The 2013 economic outlook from the Federal Reserve Bank of Minneapolis calls for continued strong growth in the North Dakota economy. Based on the Minneapolis Fed’s statistical model, employment in North Dakota is expected to grow by a faster-than-average 3.6 percent, while the unemployment rate should drop to 2.8 percent by the fourth quarter of 2013. Over 4 percent growth in personal income is expected.

“The oil and natural resource boom drove the North Dakota economy higher in 2012, and we expect robust growth for 2013,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the North Dakota outlook includes information from the annual fedgazette business outlook poll of 335 district businesses and the annual manufacturing survey of 542 district manufacturers. The poll and survey were mailed out the day after the November election and returned by Dec. 6. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

“The surveys and the statistical model both point to solid economic performance in 2013,” Madden said. “Businesses are very optimistic for their own companies and expect solid growth in North Dakota.”

The surveys of business leaders and manufacturers indicate that businesses expect a good year with more sales and production in 2013, which may drive increased employment and capital investment. They also expect to raise prices.

When asked about their state economy, North Dakota respondents were optimistic and expected increased employment, business investment and consumer spending. They expected above-average increases in wages and benefits.

The statistical model does not incorporate U.S. fiscal policy decisions. More details on the 2013 economic forecast for North Dakota and the Ninth District can be found in the January issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

2013 Economic Outlook Briefing:
Video and Presentation

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Minneapolis Fed Forecasts Moderate Economic Growth for South Dakota in 2013

The 2013 economic outlook from the Federal Reserve Bank of Minneapolis calls for continued economic growth in the South Dakota economy. Based on the Minneapolis Fed’s statistical model, employment in South Dakota is expected to grow by a moderate 1.1 percent, while the unemployment rate should drop to 4.1 percent in the fourth quarter of 2013. Almost 5 percent growth in personal income is expected.

“The South Dakota economy grew at a modest pace in 2012, and we expect slightly faster growth for 2013,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the South Dakota outlook includes information from the annual fedgazette business outlook poll of 335 district businesses and the annual manufacturing survey of 542 district manufacturers. The poll and survey were mailed out the day after the November election and returned by Dec. 6. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

“The surveys and the statistical model both point to economic growth in 2013,” Madden said. “Businesses are optimistic for their own operations and expect some improvement in South Dakota.”

The surveys of business leaders and manufacturers indicate that businesses expect more sales and production in 2013 and will hire more employees. They also expect to raise prices.

When asked about their state economy, South Dakota respondents to the business outlook poll said they expect increased overall consumer spending, employment and business investment. They also expect rising prices.

The statistical model does not incorporate U.S. fiscal policy decisions. More details on the 2013 economic forecast for South Dakota and the Ninth District can be found in the January issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

2013 Economic Outlook Briefing:
Video and Presentation

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Minneapolis Fed Forecasts Slow Economic Growth for the Upper Peninsula in 2013

The 2013 economic outlook from the Federal Reserve Bank of Minneapolis calls for continued slow growth in the Upper Peninsula of Michigan economy. Based on the Minneapolis Fed’s statistical model, employment in the U.P. is expected to grow by a sluggish 0.3 percent, while the unemployment rate should drop to 7.9 percent in the fourth quarter of 2013.

“The U.P. economy expanded at a slow pace in 2012, and this should continue in 2013,” said Toby Madden, regional economist at the Minneapolis Fed.
In addition to the forecasting model, the U.P. outlook includes information from the annual fedgazette business outlook poll of 335 district businesses and the annual manufacturing survey of 542 district manufacturers. The poll and survey were mailed out the day after the November election and returned by Dec. 6. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

“The surveys and the statistical model point in different directions for U.P. economic performance in 2013,” Madden said. “The statistical model expects slow growth, while the survey respondents expect decreased activity.” When asked about their state economy, U.P. respondents expected decreases in business investment, consumer spending, economic growth and profits.

Business leaders are more optimistic about their own operations, as they expect increased sales and investment, but declines in employment. Respondents to the manufacturing survey expect increases in productivity, but some declines in orders and employment.

The statistical model does not incorporate U.S. fiscal policy decisions. More details on the 2013 economic forecast for the U.P. and the Ninth District can be found in the January issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

2013 Economic Outlook Briefing:
Video and Presentation

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Minneapolis Fed Forecasts Improved Economic Activity in Northwestern Wisconsin in 2013

The 2013 economic outlook from the Federal Reserve Bank of Minneapolis calls for accelerating growth in the northwestern Wisconsin economy. Based on the Minneapolis Fed’s statistical model, employment in the whole state of Wisconsin is expected to grow by a faster-than-average 1.3 percent, while the unemployment rate should drop to 5.6 percent in the fourth quarter of 2013. Over 4 percent growth in personal income is expected.

“The economy in Wisconsin grew at a sluggish pace in 2012, but the forecast model expects some acceleration in 2013,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the Northwestern Wisconsin outlook includes information from the annual fedgazette business outlook poll of 335 district businesses and the annual manufacturing survey of 542 district manufacturers. The poll and survey were mailed out the day after the November election and returned by Dec. 6. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

“While the statistical model expects accelerating growth, survey respondents from northwestern Wisconsin are a bit more cautious for growth in 2013,” Madden said. “Business leaders see solid growth at their own companies, but are pessimistic about the state economy.”

When asked about their state economy, respondents expected flat to lower activity. Business leaders expected decreases in business investment and consumer spending. Northwestern Wisconsin respondents to the manufacturing survey expected flat economic growth and lower overall corporate profits.

However, businesses are more optimistic about their individual operations, as both manufacturers and business leaders expect more sales and some employment gains in 2013.

The statistical model does not incorporate U.S. fiscal policy decisions. More details on the 2013 economic forecast for Wisconsin and the Ninth District can be found in the January issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

2013 Economic Outlook Briefing:
Video and Presentation

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Minnesota Banks Continue Improvement, Albeit at a Slow Rate, in the Third Quarter

Minnesota banking conditions continued to improve in third quarter 2012, according to data collected from the 361 commercial banks in the state. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Minnesota banking conditions continue to gain strength. Banks in the state are reducing problem assets, turning in positive loan growth and reporting earnings that compare favorably to the national median bank. That said, the improvement in this quarter was often small.”

The level of problem assets as a percent of the resources banks have to cover potential loan losses declined by 1.19 percentage points to 11.54 percent in the third quarter for the median Minnesota bank. Overall, problem assets are down 3.78 percentage points from a year ago. Minnesota’s improvement outpaced the recovery in the national median that stands at 12.1 percent as of third quarter 2012.

Earnings, as measured by the median return on average assets, improved 5 basis points to 0.99 percent, a little better than the national rate of 0.89 percent and up 20 basis points from a year ago.

Minnesota banks’ loan growth was 0.4 percent over the last four quarters. Although this year-over-year change in the amount of outstanding loan balances is smaller than the national rate of 0.91 percent, it is a considerable improvement from the -4.14 percent rate of a year ago.

Key measures of liquidity and capital also turned in small improvements for the quarter and are stronger than national medians. Minnesota banks hold historically high levels of capital. The state’s median total risk-based capital ratio climbed to 15.4 percent. Liquidity improved again in the third quarter and reached the strongest level since 2004. Bank use of noncore funding (as opposed to more stable traditional deposits) stands at 14.7 percent of liabilities.

The data for Minnesota 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 and definitions and explanations of those data.

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 - Third Quarter 2012 Update.

Montana Banks Reduce Problem Assets; Profits and Loan Growth Show Less Improvement

Montana banks reduced the level of problem assets in third quarter 2012, according data from the state’s 62 commercial banks, but other indicators of bank health still compare unfavorably to national measures. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Montana-based banks reported a great deal of progress addressing asset quality. However, earnings and loan growth showed less improvement. Overall, Montana banking conditions still lag the nation in key metrics of health.”

Montana bank median noncurrent and delinquent loans declined from 16.44 percent to 13.41 percent of the value of capital and reserves set aside to cover potential losses. That improvement brought Montana’s third quarter 2012 figure within 1.31 percentage points of the national median. Notably, the measure of problem assets in construction and land development fell below 0.5 percent at the median Montana bank for the first time since 2008.

Montana bank profitability ratios changed little from the previous quarter. The state median return on average assets fell 4 basis points to 0.85 percent, failing to keep pace with the national rate that improved to 0.89 percent as of third quarter 2012.

The annual growth rate in the amount of outstanding loans improved only slightly from last quarter and remains negative at -0.77 percent. It has improved by nearly 3 percentage points from a year ago. By comparison, the national median rate stood at about -1.6 percent a year ago, but turned positive last quarter and maintained those gains by reporting a 0.91 percent rate of net loan growth in third quarter 2012.

Measures of liquidity and capital posted strong results in the quarter, though neither has been a source of trouble for most banks in the recent crisis. The median total risk-based capital ratio reached a new high of 17.26 percent. The use of noncore funding as a percent of total liabilities (rather than more stable traditional deposits) decreased to 17.97 percent. Both metrics are somewhat stronger than the national medians.

The data for Montana 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 and definitions and explanations of those data.

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 - Third Quarter 2012 Update.

North Dakota Banking Conditions Stand Out Compared to Nation

Banking conditions in North Dakota are exceptionally strong, according to data reported by the state’s 88 banks for third quarter 2012. Record low levels in problem assets, robust loan growth and healthy earnings are noteworthy for the state. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “North Dakota’s banking conditions stand out. Profitability improved again and remains above precrisis levels, while growth and asset quality are as strong as they’ve been since the mid-1990s.”

The state median level of problem assets dropped to a near record low in the third quarter. The value of loans that are not current on their payments as a percent of the resources banks have to cover any losses dropped by 2.45 percentage points to 5.77 percent in the third quarter. North Dakota’s level is less than half of the national median of 12.1 percent.

Profitability for North Dakota banks improved in third quarter 2012, as measured by the median return on average assets. The state median stands at 1.24 percent, healthy within the historical range, even as banks nationwide face challenges to maintaining earnings. The national median is 0.89 percent.

North Dakota banks reported a remarkable median four-quarter net loan growth rate of 12.11 percent, more than ten times the national median of 0.91 percent, which only turned positive in the second quarter.

North Dakota median banks remained strong in both capital and liquidity. The total risk-based capital ratio, a key benchmark of capital adequacy, climbed slightly to 13.47 percent. Liquidity also improved by a small margin as the banks use of noncore funds (instead of more stable traditional deposits) decreased by 18 basis points to 15.77 percent of total liabilities.

The data for North Dakota 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 and definitions and explanations of those data.

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 - Third Quarter 2012 Update.

Banking Conditions in South Dakota Improve a Bit and Continue Strong

South Dakota banking conditions generally improved and remain stronger than national conditions across key measures, according to Sept. 30, 2012, reports filed by the 74 commercial banks in the state. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “South Dakota banks continue to report minimal problem assets as the rest of the country recovers from crisis conditions. Profitability improved a bit in the third quarter, while loan growth was essentially flat. While measures of bank profitability and loan growth are below long-term averages in the state, they are performing better than measures in the rest of the country, overall.”

The state median ratio of problem loans to the resources banks have to cover losses improved by 27 basis points in the third quarter to a 20-year low of 3.84 percent, about a third of the national median.

South Dakota bank profitability increased slightly to 1.06 percent in third quarter 2012, as measured by the return on average assets. While that figure is still lower than precrisis levels, it compares favorably to the 0.89 percent national median.

The median growth in the amount of outstanding loans at South Dakota banks was just a bit lower than a quarter ago, but has improved over the past year and stands 3.14 percent. The national figure just turned positive in the second quarter and remains below 1 percent.

Measures of capital and liquidity both remain relatively strong in the state. The total risk-based capital ratio stands near historical highs at 17.29 percent, while the median use of noncore funds (as opposed to more stable traditional deposits) is at just 17.30 percent of liabilities, the lowest level since 2005.

The data for South Dakota 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 and definitions and explanations of those data.

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 - Third Quarter 2012 Update.

Mixed Performance for Upper Peninsula Banks in the Third Quarter

In the third quarter of this year, the 21 banks in the Upper Peninsula of Michigan reported improved overall levels of problem assets but lower loan growth and earnings, according to data collected by the Federal Reserve’s Ninth District. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “The U.P.’s median level of problem assets declined in the quarter, but remains higher than a year ago. Problem assets in the U.P. are much higher than the national figures. The four-quarter loan growth rate deteriorated and remains negative, while the region’s median bank earnings ticked down and no longer exceed the national level.”

Banks in the Upper Peninsula reported a 65-basis-point drop in the level of problem assets as a percent of the resources banks maintain to cover losses. Nonetheless, these institutions report problem assets at 19.32 percent of capital and allowance, considerably higher than the national median of 12.1 percent. Improving commercial real estate loan quality drove the U.P.’s third quarter improvement with a reduction of 1.18 percent of capital and allowance.

Despite a small reduction in the median earnings at U.P. banks, the return on average assets through third quarter 2012 surpassed the national median by 1 basis point at 0.90 percent and has improved by 10 basis points from a year ago.

The total value of loans on bank books fell 0.6 percent from a year ago. In contrast, net loan growth rates in the rest of the country have improved and are now positive.

A key measure of capital, the total risk-based capital ratio, remains strong and improved in third quarter 2012 to 18.51 percent. Bank liquidity as measured by the use of noncore funding (rather than more stable traditional deposits) improved from 20.22 percent to 19.44 percent of total liabilities in the third quarter and compares favorably to the national median.

The data for upper Michigan 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 and 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 - Third Quarter 2012 Update.

Western Wisconsin Banking Conditions Improving

The 56 banks in the western part of Wisconsin in the Ninth Federal Reserve District reported improvement across key metrics of health in the third quarter of 2012. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Banks in western Wisconsin are showing a marked recovery from crisis conditions. While asset quality is still not as strong as national levels, the improvement is strong. Loan growth and earnings in the region continue to improve and are better than national levels.”

Although problem assets remain high in western Wisconsin banks, a key metric declined for the third consecutive quarter. As of third quarter 2012, loans that were behind on their payments decreased 81 basis points to 14.25 percent of the value of resources banks have to cover potential losses. Over the past year, that measure improved by more than 8 percentage points. Problem assets in commercial real estate loans, a key area of concern, did not improve in the quarter and are still considerably higher than those in the rest of the nation at 6.53 percent.

Profit levels, as measured by the median return on average assets, improved 12 basis points to 0.99 percent in the third quarter. This compares favorably to a national median of 0.89 percent.

The year-over-year growth in loans has improved markedly over the past year and gained 60 basis points in the quarter. Now at 2.07 percent, net loan growth in western Wisconsin outpaces the national median of 0.91 percent.

The total risk-based capital ratio, a key measure of capital, remains strong at 16.3 percent after setting a record high last quarter. Banks’ use of noncore funds rather than more stable traditional deposits dropped during the quarter to 18.68 percent of liabilities and remains below the national median.

The data for western Wisconsin 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 and definitions and explanations of those data.

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 - Third Quarter 2012 Update.

Minnesota Banks Improve on Asset Quality and Growth as Recovery Continues

Minnesota banks reported improvement in the level of problem assets and in net loan growth rate in the second quarter of 2012, based on data from the 364 commercial banks in the state. The amount of problem assets at the median Minnesota bank decreased during the second quarter and has recovered to near pre-crisis levels. According to Ron Feldman, senior vice president of Supervision, Regulation, and Credit at the Federal Reserve Bank of Minneapolis, “While negative loan growth remains a concern, Minnesota banks have improved considerably over the last year. Minnesota banks compare favorably with national medians on measures of earnings. The strong improvements in asset quality and loan growth rates reflect a continued positive outlook for 2012.”

The level of problem loans compared with the resources banks have to cover loan losses improved, falling by more than 1.5 percentage points in the second quarter and 4.5 percentage points over the last year. Now at 12.74 percent, this key metric is closing in on national averages and pre-crisis historical levels.

Profitability measures changed little in the quarter. Minnesota’s median return on average assets rate of 0.94 percent stands a bit higher than the national 0.87 percent rate.

The annual rate of loan growth improved from -1.3 percent last quarter to -0.4 percent this quarter. While the year-over-year change in the amount of outstanding loans remains negative as of the end of June 2012, it has improved considerably from a year ago, when the median Minnesota bank reported a rate of -4.7 percent. For the nation as a whole, the figure is now positive at roughly 0.5 percentage point.

Measures of liquidity and capital also registered small gains compared with the previous quarter and remain at relatively healthy levels. The state’s total risk-based capital ratio reached a historically high 15.17 percent. The median use of “noncore” funding (in contrast to more stable bank deposits) is at the lowest point since 2004 at 14.83 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 2012 banking conditions can be found on the following page: Banking Conditions in Ninth District States - Second Quarter 2012 Update.

Montana Banking Conditions Continue Improvement, but Trail National Averages

Montana banks continue to improve in asset quality and loan growth, according to second quarter 2012 data from the state’s 63 commercial banks. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “In the second quarter, Montana-based banks reported considerable gains in asset quality, liquidity and loan growth rates, consistent with our initial forecast for improved conditions in 2012. Despite this improvement, Montana banks still lag national averages in asset quality and loan growth rates.”

Montana bank noncurrent and delinquent loans declined from a little less than 18 percent to 16.44 percent of the value of reserves set aside to cover potential losses as the recovery continues. However, national rates improved by about the same margin and remain better at about 12 percent. Commercial real estate loan performance boosted overall Montana bank asset quality, even as construction and land development loans deteriorated a bit.

Montana bank profitability ratios were essentially unchanged from the previous quarter. The state median return on average assets was 0.88 percent as of June 2012. These earning levels are nearly the same as the nation’s rate of return, but still stand well below pre-crisis levels.

Although the annual growth rate in the amount of outstanding loans is still negative at -0.82 percent, it is up more than 1 percentage point from last quarter for the median Montana bank and up more than 4 percentage points from a year ago. By comparison, the national median rate stood at about -1.9 percent a year ago and turned positive in the second quarter.

Liquidity and capital measures posted mixed results. The median total risk-based capital ratio fell a bit from last quarter’s historical high to 16.51 percent. The use of noncore funding as a percent of total liabilities (rather than more stable and traditional deposits) decreased to 18.23 percent. Both metrics are somewhat stronger than the national medians.

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 - Second Quarter 2012 Update.

North Dakota Bank Performance Continues to Beat Nation

North Dakota banks remain strong, according to data reported by the 88 commercial banks in the state. Although asset quality worsened a bit during the second quarter of 2012, it remains stronger in the state than in the nation as a whole, while earnings and growth continued to make strong gains. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “North Dakota stands out relative to other states with strong banking conditions, just as it does in overall economic performance, which seems to be driving the strong banking conditions. Key areas like bank growth and profitability keep getting better. Asset quality measures deteriorated a bit from the last quarter, but are still strong by most comparisons.”

The value of loans that are behind on their payments compared with the resources banks have to cover losses on loans increased by 41 basis points to 8.22 percent in the second quarter, but that rate is a third lower than the national median and better than the level reported for most of the last 15 years.

Measures of earnings improved over the quarter. The return on average assets at the median North Dakota bank moved to 1.18 percent, in line with the long-run average, even as banks in most of the country have struggled with lower profitability since 2008 (the current national figure stands at 0.87 percent).

North Dakota banks posted particularly strong gains in the year-over-year change in outstanding loan balances. While the national median just turned positive at 0.55 percent in the second quarter, the state median increased by 3.75 percentage points to 11.97 percent. Loan growth over the last year is up an enormous 12 percentage points.

Both capital and liquidity took a step back during the quarter for the median North Dakota bank, but are not near problem territories. The total risk-based capital ratio remains a relatively strong 13.38 percent. The state’s banks saw an uptick in the use of noncore funds (as opposed to more stable traditional deposits) after last quarter’s eight-year low, to 15.95 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 2012 banking conditions can be found on the following page: Banking Conditions in Ninth District States - Second Quarter 2012 Update.

Second Quarter Data Highlight Relative Strength for Banking Conditions in South Dakota

South Dakota bank performance continues to outpace national averages, according to June 30, 2012, reports filed by the 74 commercial banks in the state. Loan performance measures are historically strong in the state and considerably better than national averages. Although earnings fell slightly during the quarter, the rate of loan growth improved by nearly half. Both compare favorably to the rest of the country. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “South Dakota has remained an area of relative strength over the last several years. Although banks in the state are reporting lower levels of earnings and growth compared with long-term averages, they compare favorably with the rest of the country. Other key metrics, particularly asset quality, stand out as healthy by any measure.”

The state median ratio of problem loans to the resources banks have to cover losses improved by more than 1 percentage point in the first quarter to a 20-year low of 4.12 percent, about a third of the national median.

South Dakota bank profitability stayed at around 1 percent, with just a small decrease over the last year. While the state figure of 1.02 percent lost some of its lead over the national 0.87 percent median, the comparison is still favorable.

The median change in the amount of outstanding loans at South Dakota banks continued to improve over the last year and reached 3.23 percent in the second quarter. The national figure just turned positive this quarter at 0.55 percent.

Measures of capital and liquidity remain relatively strong in the state. The total risk-based capital ratio stands at a historically high 17.29 percent, while the median use of noncore funds (as opposed to stable deposits) is 18.96 percent of liabilities. Both are stronger than 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 2012 banking conditions can be found on the following page: Banking Conditions in Ninth District States - Second Quarter 2012 Update.

Upper Peninsula Banking Conditions Post Mixed Results in the Second Quarter

Banks in the Upper Peninsula of Michigan reported improved growth, but weakened asset quality and relatively low earnings, according to June 2012 data filed by the 21 Michigan banks in the Federal Reserve’s Ninth District. Although measures of earnings are lower than historical averages, they posted a small improvement in the quarter and stand somewhat higher than national returns. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “While improved profitability is a bright spot for the U.P., problem loans have worsened and loan growth remains negative. These key areas of concern highlight the U.P.’s banks as a bit more troubled than those in the rest of the country.”

Upper Michigan banks reported an increase in the level of problem loans compared with the resources available to offset losses, while the measure improved in the nation as a whole. At 19.97 percent, the figure is considerably higher than the national median.

The median rate of return on average assets gained 2 basis points during the quarter and 20 basis points over the last year to 0.93 percent, compared with the national figure of 0.87 percent. Although the current rate is stronger than in the rest of the country overall, it was typically greater than 1 percent before 2008.

Strong gains in the annual rate of loan growth still left the region short of positive loan growth at -0.13 percent as of June 2012. The corresponding change in outstanding loan balances across the country turned positive this quarter and stands at 0.55 percent.

Capital and liquidity measures posted mixed results, but did not change materially. The total risk-based capital ratio fell a bit from last quarter, but remains relatively strong by historical standards at 18.28 percent. One measure of liquidity, the use of noncore funding (as opposed to more stable and traditional deposits) improved slightly to 20.22 percent of total liabilities. That figure is better than the national ratio, but higher than the region’s long-run average.

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 - Second Quarter 2012 Update.

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 second quarter of 2012, according to data collected by the Federal Reserve Bank of Minneapolis. Overall asset quality and loan growth posted gains, while earnings decreased slightly. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Overall, banks in western Wisconsin are seeing improved conditions. Loan growth improved, but gains in profitability slowed in the second quarter. We are also seeing better overall asset quality, though banks in this portion of the state report somewhat higher problem loans than banks in the rest of the nation.”

The amount of loans that aren’t making on-time payments dropped in the second quarter of 2012 from more than 17 percent to 15.06 percent of the value of resources banks have to cover potential losses. The improvement in asset quality outpaced the nation, but the level remains a bit worse. Overall commercial real estate lending showed strong improvement in the second quarter. Western Wisconsin banks’ construction and land development loans—a subset of commercial real estate—deteriorated this quarter to account for 0.71 percent of capital and allowance.

Profitability, as measured by the median return on average assets, stands at 0.87 percent for the western part of the state and for the nation as a whole. While the figure is better than it was a year ago, it fell during the quarter.

The year-over-year change in the amount of outstanding loans posted a solid gain in the second quarter, turning from below zero to a positive 1.47 percent rate. With western Wisconsin’s improvement, it now stands above the national median of 0.55 percent.

A key measure of capital, the total risk-based capital ratio, was unchanged from last quarter at a historical high of 16.2 percent. Banks’ use of noncore funds rather than traditional and stable deposits increased somewhat during the quarter, but remains below the national rate at 19.04 percent of liabilities.

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 - Second Quarter 2012 Update.

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.

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.

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.

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.

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.

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.

Minnesota employment growth and unemployment rate forecasts revised downward

A revised 2012 economic forecast shows that Minnesota nonfarm employment growth and the unemployment rate are both expected to finish the year lower than forecast last December. However, the revised forecast points to the same conclusion: The Minnesota economy is expected to grow moderately for the remainder of the year.

Nonfarm employment is expected to grow 1.3 percent during 2012, revised downward from 2.8 percent in December’s forecast. Meanwhile, Minnesota’s unemployment rate is predicted to drop to 4.9 percent by fourth quarter 2012, revised downward from 6.5 percent in December’s forecast.

Personal income in Minnesota is expected to grow during 2012, while the forecasting model predicts decreases in home building, similar to the previous forecast.

The revised forecast is based on data through Feb. 7, and therefore includes fourth quarter data, which were not available for the forecast released in December. With the availability of fourth quarter state data and revisions to national data, this revised forecast is based on a more complete set of information.

Ninth District Regional Model Forecast - Data Tables

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Montana employment growth and unemployment rate forecasts revised downward

A revised 2012 economic forecast shows that Montana nonfarm employment growth and the unemployment rate are both expected to finish the year lower than forecast last December. However, the revised forecast points to the same conclusion: The Montana economy is expected to grow modestly for the remainder of the year.

Nonfarm employment is expected to grow 2 percent during 2012, revised downward from 2.9 percent in December’s forecast. Meanwhile, Montana’s unemployment rate is predicted to drop to 6.6 percent by fourth quarter 2012, revised downward from 7.4 percent in December’s forecast.

Personal income in Montana is expected to grow during 2012, while the forecasting model also predicts increases in home building, similar to the previous forecast.

The revised forecast is based on data through Feb. 7, and therefore includes fourth quarter data, which were not available for the forecast released in December. With the availability of fourth quarter state data and revisions to national data, this revised forecast is based on a more complete set of information.

Ninth District Regional Model Forecast - Data Tables

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

North Dakota employment growth forecast revised upward

A revised 2012 economic forecast shows that North Dakota nonfarm employment growth is expected to finish the year higher than forecast last December. The revised forecast supports the same conclusion reached in December: Strong growth is expected for the North Dakota economy for the remainder of the year.

Nonfarm employment is expected to grow 5.5 percent during 2012, revised upward from 4.8 percent in December’s forecast. Meanwhile, North Dakota’s unemployment rate is predicted to remain at 3.4 percent, the same as predicted in December’s forecast.

The forecasting models predict that personal income and housing units authorized in North Dakota will decrease slightly during 2012; however, both of these negative growth predictions come with a great deal of uncertainty. The negative income prediction is likely due to volatile changes in farm income, which make for difficult forecasting. Meanwhile, the housing units authorized forecast does not account for the sharp increase in demand for housing in the western oil-producing counties.

The revised forecast is based on data through Feb. 7, and therefore includes fourth quarter data, which were not available for the forecast released in December. With the availability of fourth quarter state data and revisions to national data, this revised forecast is based on a more complete set of information.

Ninth District Regional Model Forecast - Data Tables

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

South Dakota employment growth and unemployment rate forecasts revised downward

A revised 2012 economic forecast shows that South Dakota nonfarm employment growth and the unemployment rate are both expected to finish the year slightly lower than forecast last December. The revised forecast points to the same conclusion reached in December: Solid growth is expected for the South Dakota economy during the remainder of the year.

Nonfarm employment is expected to grow 2 percent during 2012, revised downward from 2.1 percent in December’s forecast. Meanwhile, South Dakota’s unemployment rate is predicted to drop to 4 percent by fourth quarter 2012, revised downward from 4.3 percent in December’s forecast.

Personal income in South Dakota is expected to grow during 2012, while the forecasting model also predicts increases in home building, similar to the previous forecast.

The revised forecast is based on data through Feb. 7, and therefore includes fourth quarter data, which were not available for the forecast released in December. With the availability of fourth quarter state data and revisions to national data, this revised forecast is based on a more complete set of information.

Ninth District Regional Model Forecast - Data Tables

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Revised forecast more optimistic for Upper Peninsula of Michigan economy

A revised 2012 economic forecast shows that Upper Peninsula Michigan’s nonfarm employment growth is expected to grow faster and the unemployment rate drop lower than forecast last December. The revised forecast provides a more optimistic outlook for the U.P. economy during the remainder of the year.

Nonfarm employment is expected to grow 3.5 percent during 2012, revised upward from 3 percent in December’s forecast. Meanwhile, the unemployment rate in the U.P. is predicted to drop to 8 percent by fourth quarter 2012, revised downward from 9.4 percent in December’s forecast.

The revised forecast is based on data through Feb. 7, and therefore includes fourth quarter data, which were not available for the forecast released in December. With the availability of fourth quarter state data and revisions to national data, this revised forecast is based on a more complete set of information.

Ninth District Regional Model Forecast - Data Tables

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Wisconsin employment growth and unemployment rate forecasts revised downward

A revised 2012 economic forecast shows that Wisconsin nonfarm employment growth and the unemployment rate are both expected to finish the year lower than forecast last December. The revised forecast suggests that modest growth is expected for the Wisconsin economy during the remainder of the year.

Nonfarm employment is expected to grow 0.2 percent during 2012, revised downward from 1.9 percent in December’s forecast. Meanwhile, Wisconsin’s unemployment rate is predicted to drop to 6.9 percent by fourth quarter 2012, revised downward from 7.3 percent in December’s forecast.

Personal income in Wisconsin is expected to grow during 2012, although somewhat slower than previously forecast, while home building is predicted to decrease.

The revised forecast is based on data through Feb. 7, and therefore includes fourth quarter data, which were not available for the forecast released in December. With the availability of fourth quarter state data and revisions to national data, this revised forecast is based on a more complete set of information. Note that the Wisconsin forecast is for the entire state, not just the Ninth District portion.

Ninth District Regional Model Forecast - Data Tables

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Minnesota Banking Conditions Improved in 2011; Continued Improvement Expected in 2012

2011 Performance

Minnesota banks got healthier across a variety of key measures in 2011, based on year-end data reported by the 367 commercial banks in the state. However, the rate of improvement varied across measures. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Minnesota banks got stronger, overall, in 2011. Banks in Minnesota saw particular improvement in asset quality, especially during the fourth quarter; profitability improved, but to a lesser degree, as did loan growth, which remains negative.”

Overall asset quality showed strong improvement in 2011. The level of problem loans compared with the resources banks have to cover loan losses improved by more than four percentage points, besting the national average at less than 13.5 percent as of year-end. The quality of commercial real estate loans held by Minnesota banks also improved in 2011, roughly matching the national average in the fourth quarter.

Profitability improved, but not to the same extent. The median return on average assets for both Minnesota and the nation remains at about 0.8 percent (sluggish by historical standards). Liquidity and capital both improved over the year, though neither has been a particular challenge for most banks, even in the depths of the recent crisis.

The year-over-year change in the amount of outstanding loans improved by the end of the year (particularly in the fourth quarter). The rate of change, however, remained negative by year-end 2011. The national median was negative as well, although Minnesota’s was worse at -2.5 percent.

The data for Minnesota 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 and definitions and explanations of those data.

2012 Forecast

The condition of the median Minnesota bank is expected to improve in 2012, according to Feldman. “Even with improvement, the performance of banks will vary across condition metrics. By year-end 2012, asset quality may start to approach precrisis levels, while loan growth may not.”

More specifically, asset quality—as measured by the Noncurrent and Delinquent Loans as a Percent of Capital and Allowance ratio—will move from the year-end 2011 measure of 13.2 percent to between 13.25 percent and 9.75 percent by year-end 2012 for the median bank. This forecast is based on a wide range of inputs including, but not limited to, regulatory reporting by commercial banks, information from bankers and others knowledgeable about banking conditions, and analytical models.

Profitability—as measured by the Return on Average Assets ratio—is forecast to improve from the current measure of 0.77 percent to between 0.825 percent and 1.075 percent by year-end 2012 for the median bank.

Year-over-year net loan growth for the median bank in Minnesota was -2.7 percent at year-end 2011. The forecast has it improving to between -2 percent and 2 percent.

“These forecasts come with considerable uncertainty,” noted Feldman. “The range of the forecasts captures, in part, the significant uncertainty associated with forecasts of banking conditions at any time, but particularly when conditions are changing significantly, as they are now.”

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 2011 banking conditions and a forecast for 2012 conditions can be found on the following page: Banking Conditions in Ninth District States - 2011 Update and 2012 Forecast.

Montana Banking Conditions Improve in 2011; Continued Improvement Expected in 2012

2011 Performance

Year-end financial reports filed by the 70 commercial banks in Montana show that median bank health improved over 2011 in the state across a variety of metrics, particularly with regard to asset quality. However, this improvement comes off of deterioration in conditions, leaving conditions still worse than their precrisis levels across many categories. Performance at Montana banks continues to lag the nation as well.

According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “For the median Montana-based bank, capital, asset quality, earnings, liquidity and growth rates all improved from 2010, often outpacing nationwide rates of improvement. However, Montana experienced worse asset quality at the depths of the crisis and continues to experience negative loan growth. Continued improvement is necessary to return Montana banks to their precrisis performance.”

In the state, overall asset quality improved considerably from last year, with the amount of loans that aren’t making on-time payments dropping from more than 23 percent to less than 17 percent of the value of resources banks have to cover potential losses. That improvement is twice as great as the national average. But the ratio is still somewhat higher than in the rest of the country, particularly for commercial real estate loans (at about 9 percent in Montana, the ratio is twice the national median).

Measures of earnings improved over 2011 in the state and in the rest of the country. Montana banks are just about matching national rates of return. But these levels remain far off precrisis levels.

Some key indicators of capital and liquidity also improved in Montana throughout the year and surpass national averages.

The year-over-year growth in the amount of outstanding loans improved a bit, but remains at -3 percent for the median Montana bank. While that’s roughly a percentage point better than the growth a year earlier, it’s considerably below the national average of -0.75 percent.

The data for Montana 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 and definitions and explanations of those data.

2012 Forecast

The condition of the median Montana bank is expected to improve in 2012, according to Feldman. “Even with improvement, the performance of banks will vary across condition metrics. By year-end 2012, asset quality may start to approach precrisis levels, while loan growth may not.”

More specifically, asset quality—as measured by the Noncurrent and Delinquent Loans as a Percent of Capital and Allowance ratio—will move from the year-end 2011 measure of 16.6 percent to between 15.75 percent and 12.25 percent by year-end 2012 for the median bank. This forecast is based on a wide range of inputs including, but not limited to, regulatory reporting by commercial banks, information from bankers and others knowledgeable about banking conditions, and analytical models.

Profitability—as measured by the Return on Average Assets ratio—is forecast to improve from the current measure of 0.77 percent to between 0.825 percent and 1.075 percent by year-end 2012 for the median bank.

Year-over-year net loan growth for the median bank in Montana was -2.9 percent at year-end 2011. The forecast has it improving to between -2 percent and 2 percent.

“These forecasts come with considerable uncertainty,” noted Feldman. “The range of the forecasts captures, in part, the significant uncertainty associated with forecasts of banking conditions at any time, but particularly when conditions are changing significantly, as they are now.”

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 2011 banking conditions and a forecast for 2012 conditions can be found on the following page: Banking Conditions in Ninth District States - 2011 Update and 2012 Forecast.

North Dakota Banking Conditions Improved in 2011, Remaining Far Better Than the Nation; Continued Improvement Expected in 2012

2011 Performance

North Dakota banks improved on a variety of measures over the course of 2011. North Dakota banks compare very favorably to banks in the national as a whole, which were hit much harder by the financial crisis. North Dakota banks are more profitable, have maintained much lower levels of problem credits and are growing loans at a brisk rate compared with national figures. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “North Dakota banking conditions stand out in the Upper Midwest and compared with the nation. They have improved, but without experiencing the deeper struggles that banks in other regions suffered in recent years. The continued growth in loan portfolios and the rate of improvement in other measures are promising for the health of banks in the state.”

Asset quality improved in 2011 at the median North Dakota bank, often better than historic norms. Overall measures of loan quality and for important loan types, such as agricultural, are at 10-year lows. Problem loans are twice as high at the median bank in the nation compared with the median North Dakota bank.

Measures of earnings also increased slightly for North Dakota banks and continue to outpace national returns. The return on average assets for the median North Dakota bank was a little over 1 percent compared with a national measure of 0.75 percent. These returns are getting closer to, but remain off of, precrisis levels.

While the year-over-year growth in the amount of outstanding loans improved a bit nationwide, it remains negative at the median. The North Dakota median bank grew its loan portfolio by 4.5 percent.
The data for North Dakota 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 and definitions and explanations of those data.

2012 Forecast

The condition of the median North Dakota bank is expected to continue improving in 2012, according to Feldman. “With further improvement, some condition metrics will approach or continue to exceed precrisis levels.”

More specifically, asset quality—as measured by the Noncurrent and Delinquent Loans as a Percent of Capital and Allowance ratio—will move from the year-end 2011 measure of 6.8 percent to between 4.25 percent and 7.75 percent by year-end 2012 for the median bank. This forecast is based on a wide range of inputs including, but not limited to, regulatory reporting by commercial banks, information from bankers and others knowledgeable about banking conditions, and analytical models.

Profitability—as measured by the Return on Average Assets ratio—is forecast to improve from the current measure of 1.08 percent to between 1.10 percent and 1.30 percent by year-end 2012 for the median bank.

Year-over-year net loan growth for the median bank in North Dakota was 4.5 percent at year-end 2011. The forecast has it improving to between 4.5 percent and 8.5 percent.

“These forecasts come with considerable uncertainty,” noted Feldman. “The range of the forecasts captures, in part, the significant uncertainty associated with forecasts of banking conditions at any time, but particularly when conditions are changing significantly, as they are now.”

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 2011 banking conditions and a forecast for 2012 conditions can be found on the following page: Banking Conditions in Ninth District States - 2011 Update and 2012 Forecast.

South Dakota Banking Conditions Improved in 2011; Continued Improvement Expected in 2012

2011 Performance

South Dakota banks improved performance over 2011, based on Dec. 31, 2011, reports filed by the 75 commercial banks in the state. Performance improved across many metrics, with asset quality in particular showing strong gains. According to Ron Feldman, senior vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “South Dakota banks showed strong improvement and compare favorably with the rest of the nation, although some measures have not yet returned to precrisis levels. Asset quality is particularly good in South Dakota.”

The state average ratio of problem loans to the resources banks have to cover losses is roughly one-third the national average as of year-end and fell by nearly half over the course of 2011. Overall asset quality and asset quality for important types of loans, such as agricultural, are at the strongest point in the decade.

With better loan performance, South Dakota banks have also improved profitability. The amount of provisions for anticipated losses has come down considerably in South Dakota. However, profitability remains off of precrisis levels.

Compared with year-end 2010, South Dakota’s banks also strengthened their capital position by more than half of one percentage point.

Loan growth is positive in South Dakota, compared with negative levels in the nation and improved over the year. However, loan growth remains at weak levels for South Dakota banks relative to their performance over the past decade.

The data for South Dakota 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 and definitions and explanations of those data.

2012 Forecast

The condition of the median South Dakota bank is expected to improve in 2012, according to Feldman. “With additional improvement, the performance of banks will approach or continue to exceed precrisis levels.”

More specifically, asset quality—as measured by the Noncurrent and Delinquent Loans as a Percent of Capital and Allowance ratio—will move from the year-end 2011 measure of 4.6 percent to between 2.5 percent and 6 percent by year-end 2012 for the median bank. This forecast is based on a wide range of inputs including, but not limited to, regulatory reporting by commercial banks, information from bankers and others knowledgeable about banking conditions, and analytical models.

Profitability—as measured by the Return on Average Assets ratio—is forecast to improve from the current measure of 1.11 percent to between 1.15 percent and 1.35 percent by year-end 2012 for the median bank.

Year-over-year net loan growth for the median bank in South Dakota was 0.7 percent at year-end 2011. The forecast has it improving to between 1 percent and 5 percent.

“These forecasts come with considerable uncertainty,” noted Feldman. “The range of the forecasts captures, in part, the significant uncertainty associated with forecasts of banking conditions at any time, but particularly when conditions are changing significantly, as they are now.”

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 2011 banking conditions and a forecast for 2012 conditions can be found on the following page: Banking Conditions in Ninth District States - 2011 Update and 2012 Forecast.

Minneapolis Fed Forecasts Solid Economic Performance in Minnesota in 2012

The 2012 economic outlook from the Federal Reserve Bank of Minneapolis calls for continued growth in the Minnesota economy. Based on the Minneapolis Fed’s statistical model, employment in Minnesota is expected to grow by a faster-than-average 2.8 percent, while the unemployment rate should drop to 6.5 percent in the fourth quarter of 2012. About average gains in personal income are also expected.

“The economy in Minnesota performed better than the nation in 2011, and it looks like growth will increase in 2012,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the Minnesota outlook includes information from the annual fedgazette business outlook poll of 395 district businesses and the annual manufacturing survey of 474 district manufacturers. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

“The surveys and the statistical model both point to solid economic performance in 2012,” Madden said. “Businesses are optimistic for their own operations and expect moderate improvement in Minnesota.”

The surveys of business leaders and manufacturers indicate that businesses expect more sales and production in 2012 and will accomplish this through increased employment and capital investment. They also expect to raise prices.

When asked about their state economy, Minnesota respondents said they expect increased overall consumer spending, employment and business investment. They expect about a 2 percent increase in wages and benefits. However, both the surveys and the statistical model are bearish on housing construction.

More details on the 2012 economic forecast for Minnesota and the Ninth District can be found in the January issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

2012 Economic Outlook Briefing—Video

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Minneapolis Fed Forecasts Modest Economic Growth in Montana in 2012

The 2012 economic outlook from the Federal Reserve Bank of Minneapolis calls for continued modest growth in the Montana economy. Based on the Minneapolis Fed’s statistical model, employment in Montana is expected to grow by a faster-than-average 2.9 percent, while the unemployment rate should drop to 7.4 percent in the fourth quarter of 2012.

“The economy in Montana grew at a modest pace in 2011, and it looks like this will continue in 2012,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the Montana outlook includes information from the annual fedgazette business outlook poll of 395 district businesses and the annual manufacturing survey of 474 district manufacturers. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

“The surveys and the statistical model point in different directions for Montana’s economic performance in 2012,” Madden said. “The statistical model expects gains, while the survey respondents expect flat activity.”

Montana respondents to the manufacturing survey expect level business investment and consumer spending and slightly increased employment. Montana respondents to the business outlook poll expect relatively flat employment and slight decreases in consumer spending and business investment. Both surveys expect moderate increases in wages and benefits.

However, businesses are more optimistic about their individual operations, with both manufacturers and business leaders expecting more sales and production in 2012. They will accomplish this through increased capital investment and higher prices.

More details on the 2012 economic forecast for Montana and the Ninth District can be found in the January issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

2012 Economic Outlook Briefing—Video

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Minneapolis Fed Forecasts Strong Economic Growth in North Dakota in 2012

The 2012 economic outlook from the Federal Reserve Bank of Minneapolis calls for continued strong growth in the North Dakota economy. Based on the Minneapolis Fed’s statistical model, employment in North Dakota is expected to grow by a faster-than-average 4.8 percent, while the unemployment rate should drop to 3.4 percent in the fourth quarter of 2012.

“Even with the major floods, the North Dakota economy performed better than the nation in 2011, and we expect strong growth for 2012,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the North Dakota outlook includes information from the annual fedgazette business outlook poll of 395 district businesses and the annual manufacturing survey of 474 district manufacturers. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

“The surveys and the statistical model both point to solid economic performance in 2012,” Madden said. “Businesses are very optimistic for their own operations and expect strong improvement in North Dakota.”

The surveys of business leaders and manufacturers indicate that businesses expect more sales and production in 2012 and will accomplish this through increased employment and capital investment. They also expect to raise prices.

When asked about their state economy, North Dakota respondents said they expect increased overall consumer spending, employment and business investment. They expect robust increases in wages and benefits.

More details on the 2012 economic forecast for North Dakota and the Ninth District can be found in the January issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

2012 Economic Outlook Briefing—Video

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Minneapolis Fed Forecasts Solid Economic Growth in South Dakota in 2012

The 2012 economic outlook from the Federal Reserve Bank of Minneapolis calls for continued solid economic growth in the South Dakota economy. Based on the Minneapolis Fed’s statistical model, employment in South Dakota is expected to grow by a faster-than-average 2.1 percent, while the unemployment rate should drop to 4.3 percent in the fourth quarter of 2012.

“The South Dakota economy grew at a decent pace in 2011, and we expect solid growth for 2012,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the South Dakota outlook includes information from the annual fedgazette business outlook poll of 395 district businesses and the annual manufacturing survey of 474 district manufacturers. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

“The surveys and the statistical model both point to solid economic performance in 2012,” Madden said. “Businesses are very optimistic for their own operations and expect solid improvement in South Dakota.”

The surveys of business leaders and manufacturers indicate that businesses expect more sales and production in 2012 and will accomplish this through increased employment. They also expect to raise prices.

When asked about their state economy, South Dakota respondents said they expect increased overall consumer spending, employment and business investment. They expect robust increases in wages and benefits.

More details on the 2012 economic forecast for South Dakota and the Ninth District can be found in the January issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

2012 Economic Outlook Briefing—Video

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Minneapolis Fed Forecasts Moderate Economic Growth in the Upper Peninsula in 2012

The 2012 economic outlook from the Federal Reserve Bank of Minneapolis calls for continued moderate growth in the Upper Peninsula of Michigan economy. Based on the Minneapolis Fed’s statistical model, employment in the U.P. is expected to grow by a faster-than-average 3 percent, while the unemployment rate should drop to 9.4 percent in the fourth quarter of 2012. However, the results of Fed surveys are mixed.

“The U.P. economy expanded in 2011, and based on our statistical models, it looks like this will continue in 2012,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the U.P. outlook includes information from the annual fedgazette business outlook poll of 395 district businesses and the annual manufacturing survey of 474 district manufacturers. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

“The surveys and the statistical model point in different directions for U.P. economic performance in 2012,” Madden said. “The statistical model expects gains, while the survey respondents expect mixed activity.”

When asked about their state economy, U.P. respondents differed by survey, with the business outlook poll expecting decreases in consumer spending, employment and business investment and the survey of manufacturers expecting slight increases in consumer spending and business investment.

Manufacturers are more optimistic about their individual operations and expect more sales, production, employment and capital investment in 2012. Business leaders from the U.P. expect slight growth in sales, flat employment and some decreases in capital investment. Respondents to both surveys expect to raise prices.

More details on the 2012 economic forecast for the U.P. and the Ninth District can be found in the January issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

2012 Economic Outlook Briefing—Video

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Minneapolis Fed Forecasts Modest Economic Growth in Northwestern Wisconsin in 2012

The 2012 economic outlook from the Federal Reserve Bank of Minneapolis calls for continued modest growth in the Wisconsin economy. Based on the Minneapolis Fed’s statistical model, employment in Wisconsin is expected to grow by a faster-than-average 1.9 percent, while the unemployment rate should drop to 7.3 percent in the fourth quarter of 2012. About average gains in personal income are also expected.

“The economy in northwestern Wisconsin grew at a modest pace in 2011, and it looks like this will continue in 2012,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the Wisconsin outlook includes information from the annual fedgazette business outlook poll of 395 district businesses and the annual manufacturing survey of 474 district manufacturers. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

“The surveys and the statistical model point in different directions for Wisconsin’s economic performance in 2012,” Madden said. “The statistical model expects modest gains, while the survey respondents expect mixed activity.”

When asked about their state economy, Wisconsin respondents differed by survey, with the business outlook poll expecting decreases in consumer spending, employment and business investment and the survey of manufacturers expecting increases. Respondents expect about a 2 percent increase in wages and benefits. In addition, both the business outlook poll and the statistical model are bearish on housing construction.

However, businesses are more optimistic about their individual operations, as both manufacturers and business leaders expect more sales and production in 2012. They will accomplish this through increased employment and capital investment. They also expect to raise prices.

More details on the 2012 economic forecast for Wisconsin and the Ninth District can be found in the January issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

2012 Economic Outlook Briefing—Video

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

Minnesota Banking Conditions Continue to Improve, but Progress Varies and Several Key Measures Remain a Distance from Precrisis Levels

Minnesota banks showed another quarter of improvement in key measures of health, based on Sept. 30, 2011, data reported by the 372 banks in the state. However, key metrics of profitability and loan growth remain weak. According to Ron Feldman, senior vice president for Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Compared with pre-2008, Minnesota banks are still facing high loan delinquencies, low profits and weak loan growth. Improvements in profits and loan growth—which remains significantly more negative than national loan growth—were small this quarter. At the same time, measures of asset quality were generally on a positive trend.”

Overall asset quality showed strong improvement in the third quarter. The improvement in the quality of commercial real estate loans was also strong. But the overall ratio of past due loans compared with bank resources available to cover losses was somewhat worse in Minnesota than in the country overall. The same is true for commercial real estate loans, which have a ratio of weak loans to bank loss-absorbing resources of about 6 compared to a ratio of about 5 for the nation.

Profits did not improve as much as loan quality. Measures of profitability—the return on average assets and the net interest margin—increased only slightly and are still weak compared with the levels of earnings banks enjoyed prior to 2008. The return on average assets for both the median Minnesota and national bank was about 0.8 percent.

The year-over-year change in the amount of outstanding loans continued to be negative. It improved only slightly compared with last quarter.

Capital and liquidity ratios improved for banks in Minnesota and across the country. By historical standards, banks have little reliance on noncore funds and relatively high capital, on average.

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 the third quarter update for the Ninth District can be found on the following page: Banking Conditions in Ninth District States Third Quarter 2011 Update.

Montana Banking Conditions Improve, but Asset Quality Continues to Lag the Nation

Third quarter data show that Montana bank health is improving, based on Sept. 30, 2011, regulatory financial reports filed by the 70 commercial banks in the state. While profits are higher in Montana than in the nation, asset quality and loan growth remain considerably worse than the national averages and far from precrisis levels. According to Ron Feldman, senior vice president for Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Banking conditions in Montana banks improved. Asset quality and earnings improved, and while loan portfolios shrank year over year, the rate of decrease improved. However, because Montana banks have worse asset quality on average than the nation and lower loan growth, gaps between Montana and the nation remain.”

Asset quality improved compared with the previous quarter by about three-quarters of a percentage point. But overall asset quality and problems with commercial real estate loans remain worse in Montana than in the country as a whole. Weaker commercial real estate loans as a percent of the bank resources to absorb loan losses was about 8 percent for Montana relative to 5 percent for the nation.

The year-over-year growth in the amount of outstanding loans improved a bit, but remains at −3.75 percent for the median Montana bank compared with about −2 percent for the nation.

Measures of earnings were stronger this quarter. The median net interest margin and return on average assets were slightly higher than a quarter ago and, unlike the other measures discussed, compare favorably with national ratios. The return on average assets is 0.82 percent for Montana banks compared with 0.78 percent for the nation.

The capital and liquidity position of Montana banks continued to improve. Total risk-based capital increased by just over one-quarter of a percentage point to 16.5 percent. Banks in Montana also reduced their dependence on noncore funding.

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 the third quarter update for the Ninth District can be found on the following page: Banking Conditions in Ninth District States Third Quarter 2011 Update.

North Dakota Banks Moving Closer to Precrisis Conditions; Outperform U.S. Banks

North Dakota banks are outperforming national averages and getting stronger based on Sept. 30, 2011, reports filed by the 90 commercial banks in the state. According to Ron Feldman, senior vice president for Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “North Dakota banking conditions improved once again across a variety of metrics, including critical areas like asset quality and loan growth, where banks in other regions struggled in recent years. Continued improvement at this rate will put North Dakota banks at precrisis levels in the near to medium term.”

Asset quality—with the exception of commercial real estate—improved overall at the median and average North Dakota bank to precrisis levels. The performance of commercial real estate lending and loans to finance construction and land development deteriorated in recent years, but has improved over the past several quarters and remains stronger in North Dakota than in the United States as a whole. The overall ratio of bad loans compared with loss-absorbing resources is just above 8.25 percent in North Dakota and over 14.25 percent nationwide. Importantly for banks in North Dakota, loans for agriculture-related purposes were strong.

Measures of earnings also increased slightly for North Dakota banks and continue to outpace national returns. The return on average assets for the median North Dakota bank was a little over 1 percent compared with a national measure of 0.75 percent.

While the year-over-year change in the amount of outstanding loans was negative nationwide, the North Dakota median bank grew its loan portfolio by more than 3 percent.

The liquidity position of North Dakota banks continued to improve. Banks in North Dakota reduced their dependence on noncore funding. Measures of capital (one area where North Dakota banks come up short in national comparisons) also improved this quarter.

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 third quarter update for the Ninth District can be found on the following page: Banking Conditions in Ninth District States Third Quarter 2011 Update.

South Dakota Banks Moving Closer to or Matching Precrisis Conditions; Continue to Outperform National Banks

South Dakota banks continue to outperform national averages, based on Sept. 30, 2011, reports filed by the 76 commercial banks in the state. According to Ron Feldman, senior vice president for Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “South Dakota banks improved again in the third quarter of 2011. South Dakota bank health compares favorably with the nation across a variety of metrics, especially for earnings and asset quality. In those measures, South Dakota banks are moving closer to or matching their precrisis levels.”

Measures of overall asset quality, like the ratio of problem loans to the resources banks have to cover losses, improved as much in South Dakota as in the rest of the country, even though such problem loans were just half as much in the state as in the nation to begin with. The performance of agriculture-related loans is strong.

South Dakota’s median return on average assets is less than—but closing in on—historical standards at 1.18 percent, but it is 40 basis points higher than the 0.78 percent national rate.

The year-over-year change in the amount of outstanding loans for South Dakota banks dipped negative at the beginning of 2011, but improved to just over one-quarter of 1 percent as of the third quarter. The same figure for the nation was −1.7 percent.

Liquidity and capital position also improved for South Dakota banks. Total risk-based capital increased by about a quarter of a percentage point to just under 17 percent, and the median reliance on noncore funding decreased.

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 the third quarter update for the Ninth District can be found on the following page: Banking Conditions in Ninth District States Third Quarter 2011 Update.

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.

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.

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.

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.

The Federal Reserve Bank of Minneapolis’ midyear economic outlook calls for continued moderate economic growth in the Minnesota economy through 2012. Based on the Minneapolis Fed’s statistical model, employment in Minnesota is expected to grow by a half percent in 2011 and accelerate through 2012, while the unemployment rate should drop to 6.2 percent in the fourth quarter of 2012. Gains in personal income are also expected.

“It looks like the Minnesota economy will continue to strengthen through 2012,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the Minnesota outlook includes information from an inaugural midyear business outlook poll of 151 district businesses and the quarterly agricultural credit conditions survey of 139 district agricultural lenders.

Overall, the Ninth District’s economic recovery has performed better than the nation’s. Employment levels have increased, the manufacturing sector is expanding and consumer spending has increased moderately. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

“Businesses in the Ninth District appear to be bucking some of the gloomy economic sentiment seen across the country,” Madden said. “Businesses expect increased sales, hiring and profits. In addition to the survey results, our statistical model predicts increases in income and employment.”

In addition to increased employment, the forecast models and survey respondents expect growth in personal income and consumer spending. Overall, the pace of personal income growth is expected to increase in 2011 compared with 2010. In 2012, personal income growth rates will slow somewhat from 2011 levels. Businesses that responded to the midyear outlook poll expect consumer spending to increase over the next 12 months. However, survey respondents forecast only modest growth in wages.

Farmers are somewhat upbeat with higher crop prices. However, a late, cool, wet spring is reducing expectations for a bumper harvest. Respondents to the quarterly agricultural credit conditions survey expect higher farm income and increases in capital investment.

More details on the economic forecast for Minnesota and the Ninth District can be found in the July issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

Midyear Outlook Briefing—Video

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

The Federal Reserve Bank of Minneapolis’ midyear economic outlook calls for continued moderate economic growth in Montana through 2012. Based on the Minneapolis Fed’s statistical model, employment in Montana is expected to grow by over 2 percent in both 2011 and 2012, while the unemployment rate should drop to 7.0 percent in the fourth quarter of 2012. Moderate gains in personal income are also expected.

 “The delayed slump in the Montana economy should reverse by the end of 2012,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the Montana outlook includes information from an inaugural midyear business outlook poll of 151 district businesses and the quarterly agricultural credit conditions survey of 139 district agricultural lenders.

Overall, the Ninth District’s economic recovery has performed better than the nation’s. Employment levels have increased, the manufacturing sector is expanding and consumer spending has increased moderately. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

 “Businesses in the Ninth District appear to be bucking some of the gloomy economic sentiment seen across the country,” Madden said. “Businesses expect increased sales, hiring and profits. In addition to the survey results, our statistical model predicts increases in income and employment.”

In addition to increased employment, the forecast models and survey respondents expect growth in personal income and consumer spending. Overall, the pace of personal income growth is expected to increase in 2011 compared with 2010. In 2012, personal income growth rates will slow somewhat from 2011 levels. Businesses that responded to the midyear outlook poll expect consumer spending to increase over the next 12 months. However, survey respondents forecast only modest growth in wages.

Farmers are somewhat upbeat with higher crop prices. However, a late, cool, wet spring is reducing expectations for a bumper harvest. Respondents to the quarterly agricultural credit conditions survey expect higher farm income and increases in capital investment.

More details on the economic forecast for Montana and the Ninth District can be found in the July issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

Midyear Outlook Briefing—Video

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

The Federal Reserve Bank of Minneapolis’ midyear economic outlook calls for continued solid economic growth in North Dakota through 2012. Based on the Minneapolis Fed’s statistical model, rapid employment growth is expected in North Dakota, coming in at over 4 percent in both 2011 and 2012, while the unemployment rate should remain level through 2012.

 “North Dakota’s booming economy is expected to continue through 2012,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the North Dakota outlook includes information from an inaugural midyear business outlook poll of 151 district businesses and the quarterly agricultural credit conditions survey of 139 district agricultural lenders.

Overall, the Ninth District’s economic recovery has performed better than the nation’s. Employment levels have increased, the manufacturing sector is expanding and consumer spending has increased moderately. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

 “Businesses in the Ninth District appear to be bucking some of the gloomy economic sentiment seen across the country,” Madden said. “Businesses expect increased sales, hiring and profits. In addition to the survey results, our statistical model predicts increases in income and employment.”

In addition to increased employment, the forecast models and survey respondents expect growth in personal income and consumer spending. Overall, the pace of personal income growth is expected to increase in 2011 compared with 2010. In 2012, personal income growth rates will slow somewhat from 2011 levels. Businesses that responded to the midyear outlook poll expect consumer spending to increase over the next 12 months. However, survey respondents forecast only modest growth in wages.

Farmers are somewhat upbeat with higher crop prices. However, a late, cool, wet spring is reducing expectations for a bumper harvest. Respondents to the quarterly agricultural credit conditions survey expect higher farm income and increases in capital investment.
More details on the economic forecast for North Dakota and the Ninth District can be found in the July issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

Midyear Outlook Briefing—Video

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

The Federal Reserve Bank of Minneapolis’ midyear economic outlook calls for continued modest economic growth in South Dakota through 2012. Based on the Minneapolis Fed’s statistical model, employment in South Dakota is expected to grow slowly in both 2011 and 2012, while the unemployment rate should drop to 4.4 percent in the fourth quarter of 2012. Average gains in personal income are also expected.

 “South Dakota is a little sluggish coming out of the recession,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the South Dakota outlook includes information from an inaugural midyear business outlook poll of 151 district businesses and the quarterly agricultural credit conditions survey of 139 district agricultural lenders.

Overall, the Ninth District’s economic recovery has performed better than the nation’s. Employment levels have increased, the manufacturing sector is expanding and consumer spending has increased moderately. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

 “Businesses in the Ninth District appear to be bucking some of the gloomy economic sentiment seen across the country,” Madden said. “Businesses expect increased sales, hiring and profits. In addition to the survey results, our statistical model predicts increases in income and employment.”

In addition to increased employment, the forecast models and survey respondents expect growth in personal income and consumer spending. Overall, the pace of personal income growth is expected to increase in 2011 compared with 2010. In 2012, personal income growth rates will slow somewhat from 2011 levels. Businesses that responded to the midyear outlook poll expect consumer spending to increase over the next 12 months. However, survey respondents forecast only modest growth in wages.

Farmers are somewhat upbeat with higher crop prices. However, a late, cool, wet spring is reducing expectations for a bumper harvest. Respondents to the quarterly agricultural credit conditions survey expect higher farm income and increases in capital investment.
More details on the economic forecast for South Dakota and the Ninth District can be found in the July issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

Midyear Outlook Briefing—Video

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

The Federal Reserve Bank of Minneapolis’ midyear economic outlook calls for continued moderate economic growth for Michigan’s Upper Peninsula through 2012. Based on the Minneapolis Fed’s statistical model, above average employment growth is expected in the U.P. in both 2011 and 2012, while the unemployment rate should drop to 8.7 percent in the fourth quarter of 2012.

“The above-average employment growth rates should start to chip away at the stubbornly high unemployment rates in the U.P.,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the Upper Peninsula outlook includes information from an inaugural midyear business outlook poll of 151 district businesses and the quarterly agricultural credit conditions survey of 139 district agricultural lenders.

Overall, the Ninth District’s economic recovery has performed better than the nation’s. Employment levels have increased, the manufacturing sector is expanding and consumer spending has increased moderately. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

 “Businesses in the Ninth District appear to be bucking some of the gloomy economic sentiment seen across the country,” Madden said. “Businesses expect increased sales, hiring and profits. In addition to the survey results, our statistical model predicts increases in income and employment.”

In addition to increased employment, the forecast models and survey respondents expect growth in personal income and consumer spending. Overall, the pace of personal income growth is expected to increase in 2011 compared with 2010. In 2012, personal income growth rates will slow somewhat from 2011 levels. Businesses that responded to the midyear outlook poll expect consumer spending to increase over the next 12 months. However, survey respondents forecast only modest growth in wages.

Farmers are somewhat upbeat with higher crop prices. However, a late, cool, wet spring is reducing expectations for a bumper harvest. Respondents to the quarterly agricultural credit conditions survey expect higher farm income and increases in capital investment.
More details on the economic forecast for the Upper Peninsula and the Ninth District can be found in the July issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

Midyear Outlook Briefing—Video

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.

The Federal Reserve Bank of Minneapolis’ midyear economic outlook calls for continued moderate economic growth for the state of Wisconsin through 2012. Based on the Minneapolis Fed’s statistical model, employment in Wisconsin is expected at above average rates in both 2011 and 2012, while the unemployment rate should drop to 7.3 percent in the fourth quarter of 2012. Average gains in personal income are also expected.

 “The above-average employment growth rates should start to chip away at the stubbornly high unemployment rates in Wisconsin,” said Toby Madden, regional economist at the Minneapolis Fed.

In addition to the forecasting model, the Wisconsin outlook includes information from an inaugural midyear business outlook poll of 151 district businesses and the quarterly agricultural credit conditions survey of 139 district agricultural lenders.

Overall, the Ninth District’s economic recovery has performed better than the nation’s. Employment levels have increased, the manufacturing sector is expanding and consumer spending has increased moderately. The Ninth District includes Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan.

 “Businesses in the Ninth District appear to be bucking some of the gloomy economic sentiment seen across the country,” Madden said. “Businesses expect increased sales, hiring and profits. In addition to the survey results, our statistical model predicts increases in income and employment.”

In addition to increased employment, the forecast models and survey respondents expect growth in personal income and consumer spending. Overall, the pace of personal income growth is expected to increase in 2011 compared with 2010. In 2012, personal income growth rates will slow somewhat from 2011 levels. Businesses that responded to the midyear outlook poll expect consumer spending to increase over the next 12 months. However, survey respondents forecast only modest growth in wages.

Farmers are somewhat upbeat with higher crop prices. However, a late, cool, wet spring is reducing expectations for a bumper harvest. Respondents to the quarterly agricultural credit conditions survey expect higher farm income and increases in capital investment.
More details on the economic forecast for Wisconsin and the Ninth District can be found in the July issue of the fedgazette, the Minneapolis Fed’s quarterly newspaper, as well as at minneapolisfed.org.

Midyear Outlook Briefing—Video

The Federal Reserve Bank of Minneapolis is one of 12 regional Reserve Banks that, with the Board of Governors in Washington, D.C., make up the Federal Reserve System, the nation’s central bank. The Federal Reserve Bank of Minneapolis is responsible for the Ninth Federal Reserve District, which includes Montana, North and South Dakota, Minnesota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Federal Reserve Bank of Minneapolis participates in setting national monetary policy, supervises numerous banking organizations, and provides a variety of payments services to financial institutions and the U.S. government.