MN Banks: Q1 Profits Up, Loan Quality Down

A senior vice president with the Federal Reserve Bank of Minneapolis told Minnesota Public Radio that the state’s banks are almost past the crisis period that began during the financial meltdown.

Minnesota’s 366 commercial banks saw an increase in profits in the first quarter of 2012, but the quality of their loans deteriorated, according to a banking report that the Federal Reserve Bank of Minneapolis released Monday.

Both trends are typical of the first quarter—but the report showed several other signs of year-over-year improvement and appears to be a positive sign of what’s to come.

“Compared with last year at this time, Minnesota banks reported stronger asset quality, improved profitability, and continued capital growth,” Ron Feldman, the Minneapolis Fed’s senior vice president of supervision, regulation, and credit, said in a statement. “Consistent with seasonal patterns, we saw asset quality get worse, while profit growth was strong. I continue to foresee improvement in Minnesota banking conditions for 2012.”

Feldman told Minnesota Public Radio (MPR) that Minnesota banks are almost past the crisis period that began during the financial meltdown. “We’re getting pretty close to the 20-year averages and medians,” he told the media outlet. “Another way of putting it is that we’re almost out of the crisis period for Minnesota as a whole. The things that really got us in trouble, we’re done with some of that.”

But Feldman also noted that Twin Cities banks, which reportedly did a lot of lending in the outer-ring suburbs, are still far from their historical trends.

According to the report, loan growth is improving. Minnesota banks experienced a 1.3 percent median rate of decline in their outstanding loans during the first quarter. The median rate of decline was 2.5 percent at the end of 2011.

Profitability, measured by the median return on average assets, jumped to 0.91 percent in the first quarter—up from 0.77 percent at the end of last year. The report indicated that such increases are typical of the first quarter.

Liquidity and capital among Minnesota banks also improved from the end of last year.

To see additional information about Minnesota bank performance in the first quarter, click here.