As they continue to emerge from the economic depths of the Great Recession, Minnesota's community banks are contending with fewer loans that have soured, the Federal Reserve Bank of Minneapolis concluded after a quarterly look at banking conditions in the state.
Among the about 350 community banks in Minnesota, the number of banks that were at risk of failing because of bad loans had dropped. But the banks' overall financial performance didn't improve much because profits and loan growth remain subdued, the Fed said.
"Around one fifth of the banks are in unsatisfactory condition," said Ron Feldman, the bank's executive vice president of supervision, regulation and credit. "And if you go back to the peak, which is about three years ago, it was 36 percent. So it's down a lot."
Loan growth at Minnesota's community banks has been weak, and since loans are a major financial engine for banks, profits also are lackluster.
"Profitability for banks has been less than what they were hoping for, I think less than they expected, and that continues," Feldman said.
Although the number of problem banks is still elevated by historic standards, bank ratings have improved dramatically this year, Feldman said.
Before the Great Recession, only about five percent of the state's community banks faced enforcement actions due to precarious financial conditions.
Feldman forecasts that within two years, bank ratings will return to more normal levels. Because banks would like to make more loans and boost profits, many are offering customers favorable loan terms, he said.
The Minneapolis Fed's report does not include data from US Bank, TCF, or Wells Fargo. While those banks have major operations in Minnesota, they are not chartered in the state.