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NR 2014-71
Contact: Bill Grassano
(202) 649-6870

Focused on Operational Risk, Stronger Midwest Community Banks and Federal Thrifts Lay Groundwork for Improved Earnings, Loan Growth; Chicago, Minneapolis See Largest Improvement

CHICAGO — The Office of the Comptroller of the Currency today reported that the financial condition of community national banks and federal savings associations (collectively, banks) in its nine-state Central District improved in 2013 as banks focused on strengthening risk management systems to help boost their performance.

More than 85 percent of 491 community national banks and thrifts located in the OCC’s Central District are top-rated, 1 or 2, on the five-point scale, a level not seen since early 2009. The OCC also reported that the number of problem banks fell to 72 institutions in the Central District, down from a peak of 146 national banks and thrifts in 2011.

“The renewed emphasis by OCC-supervised institutions on their people, policies, and processes has quite clearly contributed to these encouraging trends,” said OCC District Deputy Comptroller Bert Otto. “The challenging economic conditions of the last several years highlighted the need for bankers to reconsider certain strategies and positions. As they’ve tackled these challenges, they’ve positioned themselves nicely to begin to capitalize on returning loan demand. I expect we’ll see some of that loan growth provide a further earnings boost in 2014.” Total loan growth across the district was 4 percent in 2013.

Throughout the Central District, the focus by banks on risk controls resulted in less examiner criticism and meaningful improvement in examination ratings. For instance, in Ohio more than 92 percent of banks had a composite rating of 1 or 2, up from 78 percent in 2009. In Wisconsin, the number of problem banks declined by half since 2010, the recent peak.

The pace of improvement in 2013 was most noteworthy in Chicago and Minneapolis, which saw the greatest decline in problem banks because of lower non-performing loan levels, reduced charge-offs, improving profitability and strengthened capital.

“Community banks and thrifts supervised by our Chicago team had been in survival mode for several years,” noted Nathan Perry, Assistant Deputy Comptroller in Schaumburg, Ill. “The level of problem banks has declined as risk management practices improved. Additionally, improvements in the real estate market and overall economic conditions have helped banks to work out of problem assets.”

The recovery for Minnesota institutions came sooner. While the number of problem banks peaked in 2010, the number has fallen by 70 percent since that time for those supervised by the OCC’s four local Minneapolis area examination teams. “Many OCC-supervised institutions recognized six to seven years ago that concentration levels had become excessive,” said Thomas Tott, Assistant Deputy Comptroller in Minneapolis. “Most made difficult decisions to shore up weaker borrowing relationships and shed non-strategic customers. Those actions helped speed the recovery in Minnesota.”

Operational risk management encompasses the administration of a bank’s people, policies, processes and systems, including information security and technology management. “Despite the strides evident in improved governance, we are noting some aspects of operational risk which warrant increased vigilance. This is particularly true in the area of cybersecurity; where, as these risks continue to evolve, we expect institutions to have a robust process to identify and mitigate the threats,” said OCC Risk Committee Chairman and District Risk Officer John Meade.

The OCC’s Central District supervises 491 banks, ranging in asset size from $3.3 million to $11.3 billion. Combined, these banks hold $191 billion in assets. The OCC’s Central District covers all or parts of nine states including Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, North Dakota, Ohio and Wisconsin.

For a breakout of conditions in each of the nine states, please see the attached fact sheets containing state specific information.

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