Strong lending by Minnesota banks bodes well for economy

Banks in Minnesota and other states are signaling economic strength ahead, even as the nation's economy grew at an anemic rate of 0.2 percent in the first three months of the year, far less than economists were expecting.

At Minnesota's community banks, home mortgages, commercial loans and even farm lending grew more than at any time since the end of the Great Recession.

This is shaping up to be another really strong year for growth in loans to businesses, said Phil Trier, Twin Cities market president for U.S. Bank in Minneapolis.

Trier said medium-sized companies in particular — those with revenue of $20 million to $500 million — are borrowing a lot these days to finance everything from new equipment, acquisitions of other companies and new hiring.

"Many customers are feeling more confident in the economy, more confident in the future. Their business is growing," he said. "So they're increasing their commitments, their lines of credit, to accommodate additional growth."

Last quarter, year-over-year growth in middle market commercial loans in the Twin Cities metro area was more than 15 percent. Trier said expansion is strong across many industries.

"We're working with manufacturers and wholesalers and distributors and technology companies, and we're really seeing broad growth across the spectrum," he said.

Last quarter U.S. Bank's overall loan portfolio — including credit cards, auto loans, and home mortgages — grew more than five percent on the year. Wells Fargo also is reporting strong, broad-based loan growth.

Healthy demand for credit is good both for banks and the overall economy, said Ron Feldman, a senior policy advisor at the Federal Reserve Bank of Minneapolis.

"Particularly for community banks in Minnesota, firms are their primary customer," Feldman said. "So to the degree which they're making loans to the hardware store or the manufacturer that people work at, that's what builds the machines, that's what allows them to expand, and that's what keeps people employed."

Feldman said median loan growth across Minnesota banks is more than 6 percent. That's several points above historical levels and likely to increase this year, which points to more economic expansion, he said.

It's not just banks that are lending money hand over fist.

"We've had record loan growth over the past, I would say, six months," said Mark Everson, chief lending officer at Wings Financial Credit Union in Apple Valley.

Everson said consumer lending is strong across the board — from mortgages and home equity lines of credit to auto loans.

"The consumers are getting over the malaise of the recession or the housing crash," he said. "They're starting to see some equity build up in their homes again. Property values are creeping up, and there's some pent-up demand."

During the housing bubble, a number of banks offered home equity loans on which borrowers only had to pay interest for 10 years. As the principal comes due a decade later, many people are refinancing, Everson said. That's also driving growth at Wings Financial.

Everson said the credit union, which opened in 1938 to serve Northwest Airlines employees, has expanded beyond its basic banking services. These days, it also offers commercial real estate loans to developers building apartments, shopping centers and offices.

In a recent conference call with investors, U.S. Bancorp CEO Richard Davis said he expects even more borrowers will come knocking when the Federal Reserve starts sending stronger signals about an interest rate hike.

"When there is a real sense that it's about to happen there will be a tsunami effect particularly on the corporate and wholesale side of people wanting to lock down loan rates before they finally get stuck having missed that opportunity," Davis said.

For now, it appears that tsunami effect is several months off. Surveys indicate economists doubt the Fed will raise rates for the first time since 2006 before this autumn.