Limited Gains for Minnesota Banks in First Quarter 2014
Minnesota’s 341 banks posted lower-than-expected profits in the first quarter of 2014, although, on the positive side, loan growth was robust. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Banks in Minnesota turned in higher loan growth this quarter compared to last, and the state’s conditions are generally strong compared to the rest of the country. That said, profits normally rise by a decent amount in the first quarter, but actually fell in this instance. Problem loans, which are already at very low levels, remained mostly flat.”
At the median, Minnesota bank problem loans as a percent of the resources to cover potential losses increased by about half of a percentage point to 9.53 percent in the first quarter, a minor change by historical standards. The ratio stands a bit below the national median bank’s 9.85 percent.
Minnesota bank earnings, as measured by the median return on average assets, fell by 1 basis point to 0.94 percent. Moreover, the main source of Minnesota bank earnings—the net interest margin—fell. Falling provisions had been a bolster to income, but the ratio of provisions relative to assets is now at zero. Flat earnings stand out in the first quarter, given that they normally improve at that time of year.
Loan growth continued to improve; the state median bank year-over-year net loan growth rate reached 4.62 percent in the first quarter 2014 and closed in slightly on the national rate of 5.20 percent.
Key measures of liquidity and capital remain strong. Bank liquidity, as measured by the median dependence on noncore funding (as opposed to more stable traditional deposits) compares favorably to historical and national rates despite a 19-basis-point increase to 13.22 percent. A key measure of capital, the median total risk-based capital ratio, increased 35 basis points. At 15.69 percent, the state median is healthy by regulatory and historical standards, but a bit lower than the national comparison.
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 Banking Conditions Generally Weaken in First Quarter 2014
At the end of the first quarter of 2014, the 61 banks in Montana reported greater levels of problem loans and decreased earnings with a relatively small improvement in loan growth. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Banking conditions worsened a bit to start the year in Montana. After three consecutive quarters of improvement, problem loans at Montana banks increased across many loan types. Earnings fell by quite a bit. Loan growth was up, but remains at relatively low levels.”
Problem loans held by Montana banks increased by almost 1.5 percentage points to 11.79 percent (as a percent of the funds set aside to cover potential losses on loans). Problem loans remain at a higher level in Montana than in the nation as a whole.
The state median bank return on average assets, a key measure of earnings, fell 12 basis points to 0.81 percent. This decline is fairly large. The median return for banks in Montana sits slightly below the national median rate of 0.83 percent.
Montana banks turned in substantially higher loan growth in the quarter; the year-over-year rate increased more than a full percentage points to 4.02 percent. Net loan growth continues to lag the national rate, though the gap between the state and nation is shrinking.
Key metrics of liquidity and capital remain at healthy levels. The total risk-risk based capital ratio increased 29 basis points to 17.91 percent, while the median banks’ reliance on noncore resources to fund the banks shrank by 22 basis points to 16.03 percent. Both capital and liquidity positions are stronger than national median ratios.
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.
North Dakota Bank Performance Softens Slightly in First Quarter 2014, but Remains Exceptionally Strong
North Dakota banking conditions compared well to the rest of the nation in the first quarter of 2014 despite increased levels of problem loans and lower profitability. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “North Dakota banks reported a reduction in earnings and more problem loans in the first quarter of 2014. However, loan growth accelerated compared to last quarter, and all key metrics for the state remain quite a bit stronger than for the nation as a whole.”
In the first quarter of 2014, problem loans as a percent of the resources banks have to cover losses increased by 85 basis points to 5.65 percent at the state median. That level remains very low compared to historical norms. By comparison, the national median finished the quarter at 9.85 percent.
North Dakota bank earnings weakened during the quarter. As measured by the median return on average assets, profitability decreased 5 basis points to 1.09 percent, stronger than levels seen in the financial crisis and more typical of the levels seen over the prior 25 years. Returns to banks in North Dakota remain well above the national median of 0.83 percent.
The median four-quarter net loan growth rate in North Dakota increased by more than 2 full percentage points from last quarter to 7.63 percent and outpaces the national median of 5.20 percent. This level remains below the peak from mid-2012.
Capital and liquidity measures are strong at North Dakota banks. Liquidity, as measured by the median bank use of noncore funds (instead of more stable traditional deposits), improved to a historically strong 12.41 percent of total liabilities. The total risk-based capital ratio, a key benchmark of capital adequacy, improved by 14 basis points to 13.87 percent.
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.
Small Improvement from Strong Position in South Dakota Banking Conditions in First Quarter 2014
Financial data reported in the first quarter of 2014 by the 70 banks in South Dakota showed some improvement in general and remain at a strong level overall. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “South Dakota bank earnings and loan growth moved higher. A slight increase in problem loans did not change the historically low level of problem loans in the state. As a whole, South Dakota banking conditions remain quite strong.”
In first quarter 2014, the median South Dakota bank saw an increase of 24 basis points in the level of problem loans (as a percent of the resources banks must have to cover potential loan losses). Despite this increase, the state continues to have the lowest level of problem loans in the Ninth Federal Reserve District. The 3.48 percent level is historically low for the state and is less than half the national median ratio of 9.85 percent.
South Dakota bank earnings, as measured by the median return on average assets, improved 8 basis points to 1.08 percent, continuing to outperform the national median rate of 0.83 percent. South Dakota was the only state in the Ninth District to have an increase in profits this quarter. Nonetheless, earnings remain below precrisis levels.
The state’s banks continue to outperform the district and nation in the year-over-year rate of change in the amount of outstanding loans. Loan growth reached 10.81 percent, double the national median ratio of 5.20 percent. This level of loan growth is quite high for the state by historic terms.
Key measures of capital and liquidity remain strong. The total risk-based ratio increased by 14 basis points to 16.09 percent, and noncore funding as a percent of liabilities declined more than 1 percentage point to 16.01 percent. Both measures compare favorably to the national medians.
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.
Upper Peninsula of Michigan Banking Conditions Generally Weaken in First Quarter 2014
Despite a fall in problem loans, banking conditions in the U.P. seemed to weaken in the first quarter of 2014. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Banks in the U.P. continue to face significant profit and loan growth challenges and are behind the rest of the nation and the Ninth District on key performance measures. These banks have some areas of strength, including good capital and liquidity positions and improvement in asset quality, but overall U.P. banking conditions are not strong.”
The level of problem loans at U.P. banks came down somewhat in the first quarter. The median value of problem loans as a percent of the resources banks set aside to cover potential losses decreased 68 basis points to 16.70 percent. However, the state median remains substantially higher than the national median of 9.85 percent.
Return on average assets, a key measure of earnings, declined by 8 basis points to 0.64 percent. The rate is a great deal below the national median of 0.83 percent as of the end of first quarter 2014. This level of returns is the lowest since 1990 (the point at which the analysis starts).
The U.P.’s rate of loan growth was 0.31 percent over the last four quarters. While the positive number means outstanding loan balances are increasing year over year (a welcome circumstance in recent years), it was a decrease of 72 basis points from the preceding quarter. The U.P.’s loan growth rate remains well below the rest of the nation’s 5.20 percent.
Key indicators of liquidity and capital remain strong. The total risk-based capital ratio improved by 22 basis points to 19.13 percent. The median use of noncore funding (as opposed to more stable traditional deposits) decreased by more than 2 full percentage points to 17.30 percent.
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.
Western Wisconsin Bank Conditions Weaken in First Quarter 2014
The performance of the 55 Wisconsin banks in the Federal Reserve’s Ninth District was weaker in the first quarter of 2014 than at year-end 2013. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “The level of problem loans held by banks in western Wisconsin increased considerably compared to last quarter. Earnings slipped a bit, and loan growth remains slow.”
For banks in the western part of Wisconsin, the level of problem loans (as a percent of the resources banks have set aside for potential loan losses) rose by a substantial 241 basis points to 13.96 percent. This level is similar to that of a year ago, despite earlier improvement in 2013. These levels are higher than the median measure in most of the district states and the nation.
Earnings (as measured by the median return on average assets) were down 5 basis points from the previous quarter to 0.87 percent. The rate compares favorably to the national median of 0.83 percent, but is low in historic terms for western Wisconsin.
The year-over-year loan growth for banks in the western part of Wisconsin fell a bit from year-end and remains sluggish at 0.88. This level is well below the national median ratio of 5.20 percent and is down 8 basis points from a quarter ago.
Liquidity and capital measures are both strong at western Wisconsin banks. Despite the increase of 76 basis points in the noncore funding dependence ratio to 18.27 percent, the metric still shows stronger liquidity in western Wisconsin than in the rest of the country. The total risk-based capital ratio declined by 6 basis points to 16.96 percent, but still exceeds the national median ratio of 16.42 percent.
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.
Twin Cities Banking Conditions Were Mostly Flat in First Quarter 2014
Twin Cities metro banks reported flat to small gains in performance in the first quarter of 2014. Profitability, loan growth and problem loans did not change much. According to Ron Feldman, executive vice president of Supervision, Regulation and Credit at the Federal Reserve Bank of Minneapolis, “Key measures of bank health in the Twin Cities were generally flat in this quarter. Twin Cities banks performed similarly to all other banks in the nation except on loan growth, which remains relatively weak.”
Problem assets, measured by the loans that are behind in their payments as a percent of the resources banks have set aside to cover potential losses, were close to flat, moving only slightly lower at Minneapolis and St. Paul banks in the quarter. The measure stands at 9.18 percent after a 32-basis-point decrease and is below long-term norms. The national bank median came in at 9.85 percent.
Return on average assets, a key measure of earnings, improved by the small amount of 5 basis points to 0.86 percent, edging past the national median ratio of 0.83 percent as of the end of first quarter 2014.
The metro area’s rate of loan growth was 1.34 percent over the last four quarters. That rate is barely changed from last quarter and is only about a fourth as strong as the national and state of Minnesota medians. The Twin Cities net loan growth rate remains far below long-term norms.
Key indicators of liquidity and capital remain strong. The total risk-based capital ratio increased by 43 basis points to 15.76 percent. The median use of noncore funding (as opposed to more stable traditional deposits) decreased about half of a percentage point to 12.98 percent.
Data for the Twin Cities Metro and the nation [pdf]
More details on banking conditions can be found on the following page: Banking Conditions in Ninth District States.