Few Wisconsin-based banks have been hurt by the significant downturn in the sub-prime mortgage market, but almost all have seen lower residential mortgage sales, a market that generated significant earnings in recent years.
To make up for the lost income, some banks are turning to new markets and products, including commercial and commercial real estate lending.
“Some might work harder to stay in their niche, and some might diversify to insulate themselves from a downturn in one particular sector,” said Kurt Bauer, president and chief executive officer of the Wisconsin Bankers Association. “Banks are being forced to be very entrepreneurial – that’s true today more than it ever has been. And that’s largely due to the fact that we have tax advantaged competitors, compliance costs and a soft economy.”
Brown Deer-based Bank Mutual has seen a decrease in fees generated by home mortgages, said Michael Crowley Jr., president and CEO.
“It’s definitely slower this year than the last few years,” he said.
Bank Mutual decided it needed to change the composition of its loan portfolio in 2006, during the robust home sale market, Crowley said. It now wants to grow its loans to commercial real estate and commercial business.
“We’re hiring some new people that can bring more production,” Crowley said. “That’s one of the things we’re trying to do to replace home loans, which is one we feel will be a lesser percentage of our total loan portfolio.”
Green Bay-based Associated Bank is looking toward home equity loans and commercial banking to make up for slower residential mortgage sales, said David Baumgarten, southeast region president and director of commercial banking.
“On home equity, we’ve continued to have special products and special pricing promotions out there,” he said. “On the commercial lending side, it’s more making sure that we’re consistent on our calling activities, so that when there is a new transaction we at least have an opportunity to look at it and bid on it.”
Associated Bank is increasing its numbers of commercial bankers in Milwaukee, Madison, Chicago and Minneapolis.
Similarly, Wauwatosa Savings Bank, which has seen lower volumes
in its mortgage subsidiary, is looking at its commercial banking division, launched early this year, to make up for some of its lost revenues, said Doug Gordon, president.
“In the commercial real estate market we’ve invested in real estate development like multi-family (housing),” Gordon said. “(New home) development will slow down with the inventory. We’ll be picking up more in the commercial area.”
However, Gordon said Wauwatosa Savings Bank’s decision to launch commercial banking was not connected to the slowdown in residential mortgages.
“We don’t try to fight the markets,” he said. “When you try to fight the markets, that’s when you make mistakes.”
While Oak Creek-based Tri City National Bank has seen a decrease in residential mortgages over the last few years, the bank won’t be making drastic changes, said bank president Ronald K. Puetz. Instead, Tri City will be focusing on retail deposits such as checking, savings and money market accounts, as well as commercial loans.
Tri City’s business loans look as if they will increase through the rest of the year, Puetz said.
“During the first quarter of the year, our loan growth declined from what it was in 2006,” he said. “However, that has rebounded in the second quarter, and we’re dealing with small businesses predominantly. We’re looking optimistically at the third quarter. On South 27th Street, from our location to the county line, things are moving out here.”
Madison-based AnchorBank, has 10 to 15 percent fewer residential mortgages so far this year, said Doug Timmerman, chairman of the bank and chairman of the board and president of Anchor Bancorp, the bank’s parent company.
“Our consumer lending and home equity lines have rebounded,” Timmerman said. “Our small business lending has picked up. Commercial real estate lending has held steady.”
Other banks are far more optimistic about residential mortgages and the potential for future sales.
Lincoln State Bank, one of seven banks owned and operated by New Berlin-based Merchants & Manufacturers Bancorporation Inc. (M&M Bancorp), has seen a similar slowdown in residential mortgages, said Joe Murry, the bank’s president. M&M Bancorp also owns Community Financial Group Mortgage, through which it offers residential mortgage services.
There isn’t much money to be made in residential mortgages now because there are fewer customers looking for them, and a large number of banks competing for those few customers, Murry said.
“There is a lot of competition out there looking for that dollar,” he said. “What we’re trying now with a lot of our product is to find that customer that doesn’t qualify for a mortgage that can get sold into the market, and do a one to three year ARM that we will keep in our portfolio, which we will expect to sell into the secondary market or re-price or find another place for them. That’s where we’re trying to gain some traction.”
Ultimately, Lincoln State’s bottom line has not been affected much because it relies more on commercial real estate and business lending, Murry said. For the rest of the year, Lincoln State will focus on those customers, as well as finding other products and services that will fit well with existing mortgage customers.
Although its residential mortgage sales have decreased by about 13 percent for properties with one to four units, North Shore Bank still sees potential with two markets – first-time home buyers, and those who bought homes with adjustable rate mortgages, said Richard Nadolski, senior vice president, mortgage loan administration.
“There is a whole strata of people who took those programs not necessarily knowing what they were getting into, and they didn’t necessarily have to,” Nadolski said. “Those are the folks we are trying to find. We are trying to
design products to help them because they didn’t need to be with those in the first place.”
