Minnesota banks showing signs of improvement

The financial condition of Minnesota's roughly 350 community banks showed moderate improvements in 2013.

They are expected to do better this year, but not by much, experts in finance say.

Lenders are struggling to increase profits, in part because loan growth is lackluster, said Ron Feldman, executive vice president at the Federal Reserve Bank of Minneapolis.

"It's going to be an okay year, which people will take, because an okay year is better than a bad year," said Feldman, who releases a quarterly report on the financial conditions of Minnesota's community banks.

As the economy improves, Feldman said, businesses would normally take out more loans to expand or buy equipment. But he expects muted demand for loans this year, despite gains in Minnesota's economy.

"There's some sort of headwinds," he said. "Either borrowers don't want to borrow as much as they would otherwise, or firms are reluctant to make some of the loans they would've made before."

Feldman expects to see continued improvements in the number of problem loans banks contend with. As the share of delinquent loans shrinks, banks no longer need to set aside big reserves to cover potential losses, and that improves profitability.