Banking Conditions in Ninth District States 2015 Forecast and 2014 Update

The Federal Reserve Bank of Minneapolis has published a report on banking conditions in Montana and other states in the Ninth District. You can read the full report here.

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.