Twin Cities Banks Report Lower Profits, Slow Loan Growth
Statewide, Minnesota banks reported small improvements in earnings and loan growth during the third quarter, while Twin Cities banks posted decreases in both metrics, according to a report released Monday.
The Federal Reserve Bank of Minneapolis’ quarterly report indicated that, after steadily improving for four straight quarters, loan volumes at banks in the Twin Cities declined 0.12 percent, and their third-quarter profitability (defined as the ratio of net income to annual average assets) fell to 0.75 percent.
Although banks in the metro reported slow loan growth and decreasing profitability, Minnesota banks as a whole reported improved loan growth in the third quarter. Their year-over-year rate of change in outstanding loan balances increased, with a median net loan growth of 2.43 percent. Meanwhile, earnings (again, measured by the median return on average assets) also increased to 0.98 percent, better than the national median of 0.86 percent.
Throughout Minnesota, banks’ liquidity, capital positions, and agricultural lending were particularly strong.
“In a continuation of longer-run trends, the state’s banks reduced problem loans and improved loan growth,” Ron Feldman, executive vice president of supervision, regulation, and credit at the Federal Reserve Bank of Minneapolis, said in a statement. “The improvement remains steady but slow. Generally, Minnesota banking conditions compare well to the nation as a whole.”
According to the report, falling interest rates contributed largely to slowing profitability.
“I think that’s where there’s been challenges for banks,” Feldman told the Star Tribune.
Statewide bank profits remain abnormal compared with the 20-year historic trend. Until interest rates rise again, small banks will have to cut back on expenses and generate more income from service fees, according to the Minneapolis newspaper.