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Minnesota's community banks booked strong profits in Q2

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Minnesota's community banks booked strong profits in Q2

Minnesota's community banks and thrifts may have posted lower year-over-year profits in the second quarter, but the state's banks still managed to outpace the Midwest and U.S. by a wide margin.

Among Minnesota-based community banks and thrifts with less than $10 billion in assets, the median return on average equity was 11.44% in the second quarter, a 24-basis-point drop year over year but substantially higher than the 9.72% ROAE for Midwestern community banks and 9.59% for the U.S. as a whole. Similarly, the state's median 4.01% net interest margin outpaced the Midwest median by 24 basis points and the U.S. median by 18 basis points.

Minnesota's credit quality, loan and deposit growth was slightly worse than its peers, however. The state's nonperforming assets ratio was 0.75% in the second quarter, higher than both the U.S. and Midwest medians by 13 basis points. Meanwhile, deposits grew by only 2.5% year over year in Minnesota compared to 3.4% at the national level. Loans fared better, growing by a median 4.9% in the state, just shy of the national median of 5.0%.

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Saint-Cloud-based Stearns Bank NA, Minnesota's largest community bank by assets, posted better results in five of the six metrics examined for the second quarter. The only blemish was a 2.46% nonperforming assets ratio as of June 30. The bank grew deposits by 23.5% year over year and loans grew by 13.0%. The bank is geared toward commercial borrowers. At the end of June, commercial and industrial loans accounted for almost 69% of the company's total loan book, while nonresidential construction loans accounted for another 12% and nonresidential commercial real estate represented about 9%.

Minnesota's second-largest community bank, Bloomington-based Bridgewater Bank, also had a strong second quarter. It reported a 14.17% ROAE, and loans and deposits grew 21.9% and 18.3%, respectively, year over year. Bridgewater Bancshares Inc. completed an initial public offering in 2018, but its stock has lagged the broader market. Since the company's IPO on March 13, 2018, Bridgewater's shares have returned 5.4% through Sept. 23, compared to a 10.8% return for the S&P 500. Still, that performance was much better than the SNL U.S. Bank and Thrift Index's 7.9% drop over the same time period.

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After an active first half, when 10 whole-bank deals with a Minnesota target were announced, M&A activity has slowed. As of Sept. 11, there had only been one deal announced in the third quarter: Superior, Wis.-based NATCOM Bancshares Inc.'s acquisition of Duluth-based Republic Bancshares Inc. In 2018, 14 deals were announced with Minnesota bank or thrift targets.

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Unlike most of the rest of the U.S., Minnesota actually saw more branch openings than closures in the second quarter, with 11 new locations compared with nine closures. However, over the last 12 months to June 30, only 26 branches were opened in the state, while 38 were closed.

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Click here for a spreadsheet containing second-quarter 2019 financial information for Minnesota's community banks and thrifts.