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]
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]
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]
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]
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]
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]
More details on 2012 banking conditions can be found on the following page: Banking Conditions in Ninth District States - Second Quarter 2012 Update.