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Contact: Karmi Mattson
Media Representative
(612) 204-5168
Karmi.Mattson@mpls.frb.org

News Releases

Banking Conditions in Ninth District States 2015 Forecast and 2014 Update

Minneapolis, March 6, 2015 Federal Reserve Bank of Minneapolis

Strong year forecast for Minnesota banks in 2015

Minnesota banks are likely to do well across key measures of earnings, loan growth and asset quality in 2015, according to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis. “Minnesota’s banks can look forward to another good year in 2015, thanks to a rebounding economy and a return to more normal performance following the financial crisis,” Feldman said. “I expect to see moderate improvement in profitability, returning to—or possibly surpassing—long-run norms for the first time since the crisis.”

Loan growth is expected to be between 5.6 percent and 9.6 percent, slightly better than the 2014 pace and above historic norms. The share of problem loans (as a percent of the resources banks must have to cover potential losses) is expected to come in at 4.8 percent to 8.8 percent, remaining far below historic levels.

Inputs to the annual forecast include data on recent performance of Ninth Federal Reserve District banks, analysis of trends in accounting statements and regulatory reports, statistical modeling and on-the-ground information gathered by talking with banking professionals.

2014 performance

Year-end data for 2014—from Ninth Federal Reserve District banks’ quarterly regulatory submissions, known as “call reports”—show that Minnesota banking conditions improved last year, consistent with the Fed’s forecast at the beginning of the year (see table below). “Loan growth was very strong, approaching the top of our forecast range,” Feldman said. “The level of problem loans came in at the lower—better—end of our forecast range, while bank profitability was at the lower end of the forecast,” he said. 

2014 Bank Performance Compared to Fed Forecast

Measure

Forecast Range

Midpoint of Range

2014 Actual

Problem Loans (as a percent of loan loss reserves)

5.5-9.0%

7.25%

7.01%

Profitability (return on average assets)

0.95-1.15

1.05%

1.00%

Net Loan Growth (over last year)

3.0-7.0%

5.00%

6.60%

Minnesota problem loans declined to 7 percent in 2014, down from 9 percent in 2013. This reduction occurred even though problem loans were already far below the state’s long-run median. Loan growth rates for Minnesota banks increased by 3.5 percentage points to 6.6 percent year-over-year. That level surpassed the historical median growth rate for the first time since the financial crisis.

Profits, as measured by the return on average assets at the median bank, improved a modest 5 basis points to 1 percent at year-end, still below the historical norm. Minnesota banks continued to report historically strong levels of capital and liquidity.

Data for Minnesota and the nation [pdf]

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

Montana banks likely to see a strong year in 2015

Montana banks are likely to see a strong performance in 2015, according to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis. “We expect this strong profit performance, and a continuation of favorable loan growth and problem loan levels, thanks to the performance of the Montana economy and a return to more normal banking performance post-financial crisis,” Feldman said.

Loan growth is expected to be between 6.4 percent and 10.4 percent in 2015, a slightly faster pace than in 2014. Problem loans (as a percent of the resources banks have on hand to cover potential losses) are forecast to end the year between 6.2 percent and 9.7 percent, about the same level as 2014 and very low compared to historical norms.

Inputs to the annual forecast include data on recent performance of Ninth Federal Reserve District banks, analysis of trends in accounting statements and regulatory reports, statistical modeling and on-the-ground information gathered by talking with banking professionals.

2014 performance

Year-end data for 2014—from Ninth Federal Reserve District banks’ quarterly regulatory submissions, known as “call reports”—show that Montana banking conditions improved significantly in 2014, consistent with the Fed forecast at the beginning of the year (see table below). “Asset quality and profitability finished the year in the middle of our forecast range, while loan growth approached the high end of the range,” Feldman said.

2014 Bank Performance Compared to Fed Forecast

Measure

Forecast Range

Midpoint of Range

2014 Actual

Problem Loans (as a percent of loan loss reserves)

6.5-10.0%

8.25%

8.44%

Profitability (return on average assets)

0.95-1.15%

1.05%

1.06%

Net Loan Growth (over last year)

3.5-7.5%

5.50%

7.36%

Montana banks reduced the median level of problem loans by 2 percentage points from a year earlier to 8.4 percent at year-end 2014. Montana bank earnings (measured by the return on average assets at the median bank) improved by 13 basis points from a year earlier, to 1.1 percent—better than the national median performance of .90 percent, but still below Montana’s 1.2 percent median performance since 2001.

Year-over-year net loan growth improved by 4.4 percentage points to 7.4 percent in 2014 and surpassed the 6.4 percent national median growth rate. Both capital and liquidity remain strong for Montana’s banks. 

Data for Montana and the nation [pdf]

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

Strong performance of North Dakota banks to continue in 2015 

North Dakota banks are likely to see relatively little change in their strong performance in 2015, according to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis. “Performance of North Dakota banks should soften a bit from very strong levels and growth, given recent weakness in the energy and agricultural sectors. I see bank profits moving up just a little in 2015, with little change in the level of problem loans and a potential for a small fall in loan growth,” Feldman said.

Bank profits, which ended 2014 well above the national median, are forecast to rise slightly this year to a range of 1.2 percent to 1.4 percent. Problem loans (as a percent of the funds set aside to cover potential loan losses) are expected to remain flat at their current very low level, ending the year between 2.1 percent and 5.6 percent. The rate of loan growth is forecast to slow slightly to between 5.6 percent and 9.6 percent.

Inputs to the annual forecast include data on recent performance of Ninth Federal Reserve District banks, analysis of trends in accounting statements and regulatory reports, statistical modeling and on-the-ground information gathered by talking with banking professionals.

2014 performance

Year-end data for 2014—from Ninth Federal Reserve District banks’ quarterly regulatory submissions, known as “call reports”—show that North Dakota banking conditions were exceptionally strong. “North Dakota’s loan growth rate surprised us on the upside, exceeding the top of our forecast range,” Feldman said. Problem loans and profitability approached the favorable end of the Fed forecast range.

2014 Bank Performance Compared to Fed Forecast

Measure

Forecast Range

Midpoint of Range

2014 Actual

Problem Loans (as a percent of loan loss reserves)

3.5-7.0%

5.25%

3.88%

Profitability (return on average assets)

1.05-1.25%

1.15%

1.22%

Net Loan Growth (over last year)

5.0-9.0%

7.0%

10.10%

The level of problem loans at the median North Dakota bank dropped 92 basis points to 3.9 percent—well below the national median of 7.8 percent—and the lowest level for North Dakota in the past 15 years. Earnings for the year registered a 1.2 percent median return on average assets, up 7 basis points for the year and a great deal stronger than the national median of 0.9 percent. After softening slightly in 2013, loan growth rebounded by 4.7 percentage points in 2014 to 10.1 percent, much stronger than the 6.4 growth rate at the median national bank. Capital and liquidity measures remained strong.

Data for North Dakota and the nation [pdf]

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

South Dakota banks to largely continue last year’s strong performance in 2015

South Dakota banks are likely to see profits inch upward in 2015, but otherwise conditions are likely to look much the same as in 2014, according to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis. “We expect bank performance to remain about the same in 2015, but given the slowdown in the agricultural sector, we see a chance of some slight weakening,” Feldman said.

Profitability, as measured by return on average assets, is expected to improve slightly to between 1.1 percent and 1.3 percent. The pace of loan growth is forecast to decline slightly to between 6.3 percent and 10.3 percent year-over-year, still above the state’s historical norm. Problem loans (as a percent of resources banks must have to cover potential losses on loans) are forecast to remain very low, between 1.8 percent and 5.3 percent, compared with the 2014 national median of 7.8 percent.

Inputs to the annual forecast include data on recent performance of Ninth Federal Reserve District banks, analysis of trends in accounting statements and regulatory reports, statistical modeling and on-the-ground information gathered by talking with banking professionals.

2014 performance

Year-end data for 2014—from Ninth Federal Reserve District banks’ quarterly regulatory submissions, known as “call reports”—show that South Dakota banking conditions continued to improve in 2014, consistent with the Fed forecast for the year on two key measures (see table below). “As we expected, earnings picked up slightly, ending the year at 1.1 percent, at the high end of our forecast range and considerably better than the 0.9 percent national median,” Feldman said.

The median South Dakota bank reported problem loans at 3.5 percent as of year-end, within the Fed’s forecast range. That was up 30 basis points from a year earlier, but still quite low by state historical standards and well below the 7.8 percent national median. “Year-over-year loan growth, though not as rapid as 2013’s pace, nevertheless was stronger than expected, coming in at 9.3 percent and surpassing the high end of our forecast,” Feldman said. Capital and liquidity both improved further from already strong levels in 2013.

2014 Bank Performance Compared to Fed Forecast

Measure

Forecast Range

Midpoint of Range

2014 Actual

Problem Loans (as a percent of loan loss reserves)

2.5-6.0%

4.25%

3.54%

Profitability (return on average assets)

.95-1.16%

1.06%

1.11%

Net Loan Growth (over last year)

5.0-9.0%

7.0%

9.26%

Data for South Dakota and the nation [pdf]

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

Modest improvement in profits forecast for banks in Michigan’s Upper Peninsula in 2015 

Banks in Michigan’s Upper Peninsula are likely to see profits rebound moderately in 2015, according to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis. “Improvement in general banking conditions as we move further from the financial crisis should have U.P. banks moving back to more historically normal profits and loan growth,” Feldman said.

Profitability of U.P. banks, as measured by return on average assets, is expected to finish 2015 between 0.71 percent and 0.91 percent. The level of problem loans (as a percent of capital and allowance) should remain flat after improving significantly in 2014; it is expected to finish the year between 11.6 percent and 15.1 percent. The pace of year-over-year loan growth is forecast to range from -0.1 percent to 3.9 percent, a bit above 2014.

Inputs to the annual forecast include data on recent performance of Ninth Federal Reserve District banks, analysis of trends in accounting statements and regulatory reports, statistical modeling and on-the-ground information gathered by talking with banking professionals.

2014 performance

Year-end data for 2014—from Ninth Federal Reserve District banks’ quarterly regulatory submissions, known as “call reports”—show that a key measure of U.P. banks’ loan performance improved considerably last year. The median level of noncurrent and delinquent loans as a percent of the resources banks have set aside to cover potential losses fell by more than 4 percentage points to 13.3 percent. “The decrease in problem loans surpassed our forecast on the favorable end, continuing the strong improvement we saw in 2013,” Feldman said. Nevertheless, U.P. banks’ level of problem loans continues to be much higher than the 7.8 percent national median.

Profits for U.P. banks were flat in 2014, consistent with the Fed’s forecast (see table below). Year-over-year loan growth was essentially flat at 0.9 percent and squarely in the middle of the forecast range.

2014 Bank Performance Compared to Fed 2014 Forecast

Measure

Forecast Range

Midpoint of Range

2014 Actual

Problem Loans (as a percent of loan loss reserves)

14.5%-18.0%

16.25%

13.30%

Profitability (return on average assets)

0.7%-0.9%

0.8%

0.73%

Net Loan Growth (over last year)

(1.0%)-3.0%

1.0%

.92%

A key capital ratio (median total risk-based capital) improved 8 basis points for the year to 19.0 percent, comparing favorably to the national median 12.2 percent. Use of noncore funding as a percent of total liabilities (rather than more stable traditional deposits) was 19.8 percent, up 42 basis points from 2013.

Data for Michigan and the nation [pdf]

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

Improvement forecast for bank performance for western Wisconsin in 2015 

Profits are expected to improve moderately in 2015 for the 55 banks in western Wisconsin that lie within the Ninth Federal Reserve District, according to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis. “Loan growth was very strong in this area in 2014 as banking conditions returned to normal, and we expect that performance to be reflected in better profitability in the coming year,” Feldman said. “Loan growth and problem loans should continue at better-than-normal levels in 2015.”

Profitability (as measured by return on average assets) is forecast to improve to between 0.9 percent and 1.1 percent for the median western Wisconsin bank in 2015. Little change is expected in the pace of year-over-year loan growth, forecast to end the year in the range of 3.6 percent to 7.6 percent. The forecast anticipates that problem loans (the median ratio of noncurrent and delinquent loans as a percent of capital and reserves) will remain at very low levels, between 7.5 percent and 11.0 percent, well below historical norms.

Inputs to the annual forecast include data on recent performance of Ninth Federal Reserve District banks, analysis of trends in accounting statements and regulatory reports, statistical modeling and on-the-ground information gathered by talking with banking professionals.

2014 performance

Year-end data for 2014—from Ninth Federal Reserve District banks’ quarterly regulatory submissions, known as “call reports”—show the pace of year-over-year loan growth improving by 4.6 percentage points to 5.6 percent, surpassing the Fed’s forecast earlier in the year (see table below). “This was a particularly strong performance, approaching the historical norm,” Feldman said.

2014 Bank Performance Compared to Fed Forecast

Measure

Forecast Range

Midpoint of Range

2014 Actual

Problem Loans (as a percent of loan loss reserves)

7.0-10.5%

8.75%

9.73%

Profitability (return on average assets)

0.9%-1.1%

1.0%

.90%

Net Loan Growth (over last year)

1.0-5.0%

3.0%

5.59%

The level of problem loans compared with the resources banks have to cover loan losses fell 1.8 percentage points to 9.7 percent, a historically low figure for this part of the district, but still above the national median of 7.8 percent. Earnings, as measured by the median return on average assets, were flat at 0.9 percent for the year, on par with the national median. Capital and liquidity remain strong.

Data for Wisconsin and the nation [pdf]

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

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