Minnesota Bankers Define Terms for Growth in 2019
Jeanne Crain

Minnesota Bankers Define Terms for Growth in 2019

Despite concerns over trade and weakness in the agriculture sector, Minnesota bankers expect to see the state’s economy continue to grow this year.

The banking sector is a good barometer on how the state’s economy is likely to perform. It’s also a strong indicator for spotting strengths and weaknesses among industries within the economy.

Twin Cities Business asked several banking leaders in Minnesota to weigh in on their expectations for 2019. We asked them to comment on their economic outlooks for Minnesota. We also asked them to share what business trends they are seeing within their own companies. Their responses have been edited for length and clarity.

—Liz Fedor, Trending Editor

Jeanne Crain
President & CEO | Bremer Bank

Forecast for Minnesota’s economy in 2019:
We envision Minnesota’s economy to grow at a moderate pace in 2019. Many projections have GDP growing in the 2 to 3 percent range. Inflation remains at about 2 percent and the unemployment rate is declining. Most of our commercial clients continue to do well and generally have a positive outlook for 2019.

Construction and infrastructure investment continues at a reasonable pace. Multifamily and senior housing development remains strong, although some submarkets are reaching equilibrium. Manufacturing is generally strong and expected to remain steady in 2019, although many manufacturing companies face growth hurdles related to the tight labor market. Agriculture and industries negatively affected by the ongoing tariff negotiations with China present challenges to Minnesota’s economy. The residential mortgage market remains a bit choppy with a rising rate environment and potential new home buyers remaining in rentals longer.

Your bank’s expectations for 2019:
Overall, we anticipate moderate business loan growth in 2019. However, since the implementation of the new corporate tax code, the market remains quite liquid with businesses utilizing excess cash before accessing the loan market.

The manufacturing sector continues to expand which should lead to continued demand for capital equipment financing and real estate expansions. If interest rates continue to show signs of increasing, it could slow loan demand, but it also sometimes encourages borrowers to move forward with financing requests before rates increase more.

Although the commercial real estate market remains strong, we have seen leases on some projects filling more slowly than planned occupancy rates. Agriculture remains challenged with below break-even commodity prices and high input costs. We expect our agricultural business to be flat or to grow modestly as most producers are not expanding.

We’ve experienced an increase in loan payoffs due to business sales and a strong commercial real estate market. Business owners are being approached by active private equity investors who have the capital to make acquisitions. These sale transactions lead to acquisition financing opportunities and opportunities to provide wealth management solutions to customers who have experienced a liquidity event.

Carl Brandt
Regional Managing Director | Great Southern Bank

Forecast for Minnesota’s economy in 2019:
Our client base and our lending focus is primarily on commercial real estate development. Our clients remain bullish on the outlook for 2019, and I am in agreement. We see market conditions remaining favorable for continued development in market rate housing, affordable housing, medical office, retail, industrial, and senior housing.

The major headwind for development continues to be construction costs, driven by increased costs of materials and shortage of labor. I anticipate the hotel market to be somewhat soft in 2019, driven by the amount of new supply that has been developed. Occupancy levels may not dip, but given the amount of new supply, ADR (average daily rate) will be under pressure which will lead to lower net operating income.

We expect commercial real estate will continue to see growth in 2019 and beyond, as there is a significant amount of investment capital seeking to invest in real estate.

Your bank’s expectations for 2019:
We continue to see strong demand for new development in 2019, in most property types. Our clients see continued demand from expanding retailers, office tenants, industrial tenants, and continuing net population migration into Minnesota.

Our growth goals have remained steady for the last several years and I expect that to remain the same in 2019. Our growth strategy has been to maintain existing relationships but develop a few new relationships each year. This approach has rewarded us with steady repeat business with good relationships where we help our clients meet their goals. We see increased competition in the banking industry around providing full banking services to our clients, and that will be a focus for us in 2019.

Troy Rosenbrook
President | Highland Bank

Forecast for Minnesota’s economy in 2019:
Overall, the Minnesota economy appears poised for continued growth for 2019, albeit at perhaps a slightly lower rate than the past 12 to 18 months. The four largest sectors by GDP (finance, manufacturing, services and education/health care) all appear to be positioned well. Risks to these segments include those factors that can impact overall economic performance: full employment, interest rates, and tariffs. Additionally, there is the potential that certain segments of the commercial real estate market may be reaching levels that could be categorized as overbuilt, and residential real estate has shown some softness in new housing starts. There have been slowing sales as well as affordability issues.

Recent positive news on both interest rates and tariffs may soften the impact on economic results in 2019. Recent comments by the Fed chairman on approaching “neutral” on interest rates, tentative trade deals being struck with Canada and Mexico, delays in additional Chinese tariffs, and new talks on a Chinese trade agreement may result in fuel for the economy.

The ag economy, while less than 10 percent of the state’s GDP, continues to struggle both in terms of production agriculture and exports. Bankruptcies are on the rise.

Your bank’s expectations for 2019:
We remain cautiously optimistic about loan growth opportunities in 2019. We expect the economy to continue to grow, which should result in lending opportunities.

We expect a number of trends to continue: acquisitions and consolidation of businesses as a result of an aging ownership demographic and the influx on private capital funds; limited/cautious capital expenditures with many companies choosing to finance a greater portion of their purchases internally. As evidence of our continued optimism, we are expanding our capacity in the business lending area. We are reinvesting in our branches with remodeling plans for two locations. In short, we expect 2019 to look similar to 2018 with some notable unknowns having a greater impact on the final results.

Ken Brooks
President and CEO | Minnesota Bank & Trust

Forecast for Minnesota’s economy in 2019:
I meet with clients daily to gather insights about their various industries. Across all sectors, they’re looking at 2019 as a year of growth. Many of these businesses are hiring new employees to support their expansion and bringing in consultants to assist in scaling. There is some trepidation around agriculture as the impact of recent tariffs on the industry is yet to be wholly realized. While subsidies may provide some relief to the sector, there’s still a fair amount of uncertainty. This could certainly slow the growth of banks with strong agriculture concentrations and distract them from growing other business lines.

We’re seeing a lot of new construction, specifically throughout the Twin Cities metro, which is a great indicator. When we start to see a decline in these types of investments, it’s often a sign that a more widespread slowdown is approaching.

Your bank’s expectations for 2019:
I see a tremendous amount of growth opportunity for Minnesota Bank & Trust in 2019. We’re anticipating demand for working capital loans will continue to increase as owners across all sectors seek to expand their businesses. Throughout 2018, equipment financing was a prevalent need for our manufacturing and medical clients, a trend we anticipate will carry into 2019.

Aside from our core commercial strength, we’ll continue to focus on growing our private banking and wealth management divisions. We’re anticipating significant growth in this space and are actively recruiting top talent. Our clients value the holistic banking relationship these services provide.

Jim Collins
Minnesota Region CEO | Old National Bank

Forecast for Minnesota’s economy in 2019:
Minnesota’s economy in 2019 may very well mirror 2018. It was a year in which consumers spent more, companies invested in inventories, and state and local governments kept up on infrastructure projects. I think we will see similar activities in 2019.

We are certainly entering 2019 with questions around rising interest rates, trade tariffs, unemployment levels, and concerns about earnings growth. These concerns drive a lot of talk about an economic downturn and the timing of that downturn. I think we will see a slowdown in the global economy as well as a slight slowdown in the Minnesota economy, but I don’t believe we’ll go into a downturn or recession in 2019 or even 2020.

Because wages are rising, and unemployment is low, more people may be drawn into the labor force. This will help with productivity and current supply concerns. On the flip side, companies will need to become more efficient due to the tight labor market and continue to drop low-productivity jobs while shifting to more automation. I expect we’ll see information technology and professional business management industries continue strong in 2019, and most of the economy slowly continuing to grow.

Your bank’s expectations for 2019:
We are expecting a strong 2019. As we bring the brands of Anchor Bank and KleinBank together under the Old National Bank brand, we feel we are positioned well in the Minnesota market. We work with businesses in all life cycles. We are projecting low double-digit percentage growth in business loans and that is on par with our performance in 2018.

Kelly Skalicky
President | Stearns Bank

Forecast for Minnesota’s economy in 2019:
Stearns Bank, N.A., envisions continued economic growth in Minnesota and nationwide, especially in the growth of technology, business footprint, and market share through engagement of remote workforces. For 2019, we expect technology to continue to be the game-changer and likely a leading growth sector in Minnesota, and beyond. Throughout the last decade, innovation and technology has transformed and enhanced processes and products in every industry, which has simultaneously expanded the workforce to a talent pool capable of adding significant, unique contributions for growing business. These changes and expansion are rapidly advancing with every new innovation.

From health care to manufacturing to agriculture, industries are leveraging technology and remote talent for production efficiencies, safety improvements, customer convenience, and new delivery channels. As Minnesota businesses continue to invest in technology, retool, and become as efficient as possible, we are all in a better position to withstand any downturn in the economy.

Your bank’s expectations for 2019:
Business lending is poised for continued growth in 2019 as companies capitalize on a favorable economy driven by savings from the recent tax reform bill. Companies are investing in new technologies to increase efficiencies, expand their workforces, and increase product offerings. We expect to see the significant increase in expansion through acquisitions continue into 2019. Business customers are looking for increased return on excess cash deposits while desiring liquidity for maximum flexibility.

Phillip Trier
Market President, Twin Cities Commercial Banking Region Leader | U.S. Bank

Forecast for Minnesota’s economy in 2019:
We believe 2019 will be another good year for Minnesota’s economy. Unemployment is low, wages are gradually rising, consumers and business owners are confident, which are all signs of overall economic health.

Retailers based in Minnesota seem to have especially benefited from continued high consumer confidence. That’s likely to continue through the end of this economic cycle. The state’s agriculture industry is going to be impacted in the near term by trade dispute disruptions, especially in the soybean markets. Volatility in commodity prices also will likely impact farmers in Minnesota.

Minnesota medical device makers could be facing lower regulatory risks under the current federal administration, which should buoy that industry. Minnesota Iron Range mining projects have been moving toward approval, but there’s a long lead time before the state will see positive economic impact from those projects.

Finally, the pace of U.S. corporate earnings growth could slow in 2019 due to inflation, lingering trade tensions, a rising dollar, and margin pressures, but the diversity of Minnesota’s economy suits it well and should help it fend off many of these challenges in 2019.

Your bank’s expectations for 2019:
Business lending—across the country and state—was slow to materialize during the decade-long economic expansion due to uncertainty in the market. Then, in the past year, many companies grew without borrowing money because they could use profits boosted by their own tax savings.

In Minnesota, the slow demand for lending is illustrated by SBA-backed deals. The total loan value for all lenders in the Minnesota District hit a four-year low in fiscal 2018, at $444 million, down 14 percent from a year earlier. In 2019, we expect business lending to pick up as benefits of tax cuts diminish and owners turn to traditional sources of capital to expand.

Darin Zielsdorf
Twin Cities Business Banking Manager | Wells Fargo

Your bank’s expectations for 2019:
We are expecting another year of growth in this market. A Wells Fargo Gallup Small Business Survey from the fourth quarter of 2018 indicates that small business optimism is at an all-time high, at least dating back to 2003 when this index debuted.

Much of this optimism is based on strong revenues and cash flow from the small businesses surveyed. While the labor market is limiting many companies today, business expansion and business acquisition activity is still fairly strong.

I would expect modest growth in this area again in 2019. As businesses continue to grow and expand, working capital lines of credit become a vital resource. As our customers grow, we grow. We had a nice year of loan growth in 2018 and our credit pipeline looks pretty good at the onset of 2019.