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Banks in the Upper Midwest continue to see improvement in earnings according to the Office of the Comptroller of the Currency's Chicago office. The number of problem banks in the OCC's Central District continued to drop, and the condition of national banks and federal savings associations in the Chicago district is stabilizing, the OCC said in a press conference call Oct. 1
The OCC's Chicago district covers 517 institutions with national charters in nine states (Illinois, Indiana, Kentucky, Michigan, Missouri, Minnesota, North Dakota, Ohio and Wisconsin) holding a combined $192 billion in assets.
The number of problem institutions in the district dropped to 84 as of June 30 from 106 at the end of 2012; there were 142 such institutions at the end of 2011. According to OCC District Deputy Comptroller Bert Otto, that number is expected to drop further.
Otto also reported that "efforts to strengthen bank capitalization and profitability have been successful to date," and, thus, banks in the district "are looking to increase lending activity."
Looking to the future, examiners will "closely monitor credit risk selection and underwriting at upcoming exams, particularly in those banks growing their commercial loans rapidly," according to OCC Risk Committee Chairman and District Risk Officer John Meade.
Strategic risk heads the list of Chicago District concerns. Two-thirds of the district's banks are assessed as having moderate or high strategic risk. Credit risk management, credit and price risks for commercial real estate and other real estate owned, compliance and reputation risks, and operational risk also appear on the list.
Although northeastern Illinois had lagged behind the rest of the district's improvement over the last two years, conditions have improved. The analysis reveals that there are fewer delinquencies, lower loan losses and improved capital levels, leading to a reduced number of problem institutions.
In Illinois as a whole, nearly 80 percent of national banks have a composite rating of 1 or 2. The number of problem banks declined 10 percent in the first half of 2013; of these, half are stable or improving. CRE loan exposures pose a high concern as one-third of banks reported non-farm, non-residential and construction loan delinquencies higher than 5 percent.
Eighty-eight percent of Minnesota national banks were given a composite rating of 1 or 2, with steady improvement during the last six quarters. Earnings performance indicators in the state's 80 institutions are more favorable than district averages.
Most of North Dakota's national banks have a composite rating of 1 or 2. The state has the lowest problem bank level in the Chicago District, and asset quality and earnings metrics are much better than district averages.
In Wisconsin, 77 percent of institutions received a composite score of 1 or 2. Credit risk is high or moderate and increasing at nearly half of the banks. Wisconsin's earnings performance is slightly below the district average while capitalization ratios and asset quality are comparable.
By Mara Gawarecki