Banks dispute strength ratings

Several southeastern Wisconsin bankers are critical of a recent study that ranks financial institutions by their financial strength., an online money and investing magazine, recently released its first-quarter Financial Strength Ratings, which in theory are designed to give depositors and financial professionals an indication of an institution’s risk of financial failure.

Banks such as Pewaukee-based Foundations Bank and West Bend-based Commerce State Bank were given grades of D and D-, respectively, on’s first-quarter rankings. Some more established banks, such as Sheboygan-based Community Bank & Trust and Cedarburg-based Ozaukee Bank, were given D+ and C grades, respectively.

Most of the A-rated banks on the list located in southeastern Wisconsin were small and don’t face much competition in their marketplace. The exceptions were Tri City National Bank in Oak Creek and Waukesha State Bank. Institutions such as Marshall & Ilsley Bank, Associated Bank, Park Bank and Citizens Bank were rated at the B level.

The rankings are derived by looking at the banks’ capitalization, asset quality, profitability, liquidity and operational stability, said Melissa Gagnon, director of insurance and banking ratings with Ratings, and Philip van Doorn, senior banking analyst with Ratings.

“In each (category), data from banks’ regular quarterly filings is inputted into our model,” Gagnon said.

Each letter grade is assigned a recommendation — buy, hold or sell. While the recommendations look like stock or bond picks, they’re really intended for potential creditors or depositors, who may be looking to purchase a jumbo CD of more than $100,000, van Doorn said.

Much of the data uses for its analysis is available at the FDIC’s Web site.

Banks in southeastern Wisconsin given low ratings say’s criteria may be overly simple and may not accurately examine banks that are relatively new to the marketplace.

“They’re looking at fairly straightforward data, but it doesn’t make sense from the perspective of a new bank,” said Joe Fazio, chief executive officer and co-founder of Commerce State Bank. “Our operations are sound, and we’re going through our third examinations now. You don’t pass through examinations by the FDIC without solid operations.”

John Hazod, chief financial officer of Foundations Bank, agreed.

“It’s not indicative of the bank from a financial security standpoint,” he said.

Van Doorn acknowledged that new banks are susceptible to low ratings under’s model, largely because they don’t have a long track record of operational stability. Additionally, new banks are more likely to lose money in their first few years of operations, she said.

The problem with a rating model like the one used by is that it doesn’t closely look at a new bank’s operations and the people running it, said Mike Steppe, partner and chief investment officer at Brookfield-based Brookfield Investment Partners LLC.

“It’s a quick model they’re using and probably not very accurate,” Steppe said. “The reason I say that is that you could look at a brand new bank that has raised $12 million in capital and has made no loans. That’s the safest bank in the United States. But if you weigh that on (’s) list, it will get a low rating.”

New banks will have recently received FDIC and state approval allowing them to open, Steppe said, another level of scrutiny not reflected in’s ratings.

However, brand new banks aren’t the only institutions in southeastern Wisconsin that received low ratings in’s first quarter rankings.

Sheboygan-based Community Bank & Trust was given a D+. Nicholas Nett, executive vice president and chief financial officer of the bank, said the ratings aren’t reflective of Community Bank & Trust’s good standing.

“The FDIC is the insurer of our deposits, and it has ratings for capital,” Nett said. “Our institution is well-capitalized, at the highest of the five levels the FDIC has.”

Community Bank & Trust had a spike in nonperforming loans in 2006, but the bank’s five year loan charge-off ratio is in line with its national peers, Nett said, which may have hurt it under’s criteria. The bank has also opened five new branch offices in the last five years – the most recent being in Greenfield last year.

“Our board and shareholders understand that bank earnings will not flourish until these offices become seasoned,” Nett said.’s ratings aren’t widely recognized in the banking industry, Nett said. Another service by Bauer Financial is looked at as more reliable, he said.

Ultimately, potential investors should look to the FDIC for their comfort, if they’re uneasy about placing dollars with a specific institution, bankers said.

“In the end, it’s the FDIC who insures our deposits,” Nett said. “We have FDIC coverage available for up to $20 million (for each individual).”

Paul Foy, president of Grafton-based Cornerstone Community Bank, which was graded with a C by, said most of the banks on the list that received A ratings were small banks that didn’t face much or any competition in their marketplace.

“It seemed to me that banks with A’s of our size were county banks,” Foy said. “We have something they don’t have … competition. When we price our loans, we have to wonder what our neighbors are doing. They don’t have to do that.”

Like Community Bank & Trust, Cornerstone Community Bank is considered well-capitalized by the FDIC, Foy said.

“We have good earnings, strong liquidity and our asset quality is very strong,” he said. “There’s not many banks in that C rating that anyone would lose a nickel out of.”


Bank ratings’s first-quarter 2007 Financial Strength Ratings for southeastern Wisconsin includes the following:


Bank    Grade    Recommendation

First Citizens State Bank    A    Buy
Oostburg State Bank    A    Buy
Tri City National Bank    A    Buy
Waukesha State Bank    A    Buy
Community State Bank    A-    Buy
Walworth State Bank    A-    Buy
Citizens Bank, Mukwonago    B+    Buy
Bank Mutual    B+    Buy
Park Bank    B+    Buy
Associated Bank    B    Buy
First National Bank    B    Buy
Marshall & Ilsley Bank    B    Buy
Mitchell Bank    B    Buy
Continental Savings Bank    B-    Buy
The PrivateBank    B-    Buy
Johnson Bank    B-    Buy
First Banking Center    B-    Buy
Marshall & Ilsley National TC    B-    Buy
Wauwatosa Savings Bank    B-    Buy
Commercial Bank    C+    Hold
First Bank Financial Centre    C+    Hold
First Business Bank Milwaukee    C+    Hold
Franklin State Bank    C+    Hold
Great Midwest Bank    C+    Hold
Legacy Bank    C+    Hold
Lincoln State Bank    C+    Hold
Maritime Savings Bank    C+    Hold
Town Bank    C+    Hold
Wisconsin State Bank    C+    Hold
Community Bank (Delevan)    C+    Hold
Bank of Elmwood    C    Hold
Banks of Wisconsin    C    Hold
Cornerstone Community Bank    C    Hold
Equitable Bank    C    Hold
Grafton State Bank    C    Hold
Investors Community Bank    C    Hold
Marine Bank    C    Hold
MW Bank    C    Hold
Ozaukee Bank    C    Hold
Port Washington State Bank    C    Hold
Sunset Bank    C    Hold
West Bend Savings Bank    C    Hold
Southport Bank    C-    Hold
Hartford Savings Bank    C-    Hold
Ridgestone Bank    C-    Hold
North Milwaukee State Bank    C-    Hold
PyraMax Bank    C-    Hold
Southport Bank    C-    Hold
Layton State Bank    D+    Sell
Community Bank & Trust    D+    Sell
First Wisconsin Bank & Trust    D+    Sell
InvestorsBank    D+    Sell
Fox River State Bank    D+    Sell
Associated Trust Co.    D    Sell
Foundations Bank    D    Sell
Guaranty Bank    D    Sell
Town & Country Bank    D    Sell
Commerce State Bank    D-    Sell

Other banks not headquartered in SE Wisconsin but active in the market

LaSalle Bank    B    Buy
TCF Bank    B-    Buy
US Bank    B-    Buy
Wells Fargo    B-    Buy
Northern Trust    B-    Buy
Chase Bank    C+    Hold
Irwin Union Bank    C    Hold
Anchor Bank, Madison    C    Hold
Amcore Bank    C    Hold

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