The farm slowdown and low interest rates are taking a toll on banks in Minnesota and surrounding states.

Profits and loan growth were barely better than flat for banks in the region, according to the Federal Reserve Bank of Minneapolis, and the level of problem loans rose slightly.

"We forecasted a relatively weak year compared to last year — flat or not improving for many of the metrics — and as of the first quarter, that's what we're seeing," said Ron Feldman, a vice president at the Minneapolis Fed.

The rest of the year will likely be slightly worse, according to Feldman's forecasts, with profits and loan growth flat and the share of problem loans rising slightly.

Low crop prices forced many Minnesota banks to let farm loans go unrepaid last year, and another year of low prices could move a growing number of farm loans into the problem loan column, which is a direct hit to bank profits.

The costs of inputs like fertilizer and seed that are baked into farming are too high for an extended period of low crop prices, and that problem is looming over farmers and their lenders, many of whom in Minnesota have heavy exposure to agriculture.

"We've got a lot of banks in the state that are heavily exposed to ag," Feldman said. "Income for agricultural producers is down, and is expected to be down going forward."

The weakness in the oil industry is also having an effect on banks in the region, though Minnesota's exposure to the Bakken is limited, Feldman said.

Low interest rates mean low margins — the spread between the interest a bank pays and the interest it collects.

Lending for commercial real estate in the Twin Cities, for instance, is very competitive, so banks can't push their margins up by raising prices on loans until the Fed starts raising interest rates.

"That's sort of bread and butter on how banks make money around here," Feldman said.

The closely watched Federal Open Market Committee met Wednesday and announced that rates would remain unchanged.

That committee meets again in late July.