Wisconsin banks solidify balance sheets

Wisconsin banks reported combined net income of $256 million in the first quarter, up from $200 million in the same period a year ago, according to the Quarterly Banking Profile released by the Federal Deposit Insurance Corp.

The report included 264 reporting institutions, down from 271 last year. Total assets were $97.1 million, up from $96.7 million in the first quarter of 2012. Total deposits were $78.3 million, up from $76.9 million a year ago.

Despite the improvements, lending by Wisconsin banks remained flat, with $66.3 million recorded in total loans and leases.

The Wisconsin Bankers Association said lending is slow due to lack of demand.

“Banks are ready to lend. Pure and simple,” said Rose Oswald Poels, president and chief executive officer of the WBA. “Wisconsin banks have been strengthening their financial positions so they can better serve their communities. At the same time, they’ve reviewed and streamlined internal processes to meet upcoming regulatory changes. The result is a diverse banking system ready and able to meet the needs of Wisconsin’s consumers.”

For the quarter, Green Bay-based Associated Bank topped the state institutions, reporting $55.6 million in net income year-to-date. The bank has $22.9 billion in total assets.

Milwaukee-based Guaranty Bank was next, with $27.2 million in net income and $1.1 billion in total assets. Madison-based John Deere Financial came in third, with $18.7 million in net income and $1.9 billion in total assets.

Racine-based Johnson Bank reported $12.3 million in net income year-to-date and has $3.6 billion in total assets. Milwaukee-based Northwestern Mutual Wealth Management rounded out the top five with $6.6 million in net income and $177 million in total assets.

Oswald Poels pointed to a 30.5 percent drop in noncurrent loans and leases over the last year as evidence consumers are improving their financial positions. Noncurrent loans are loans that are 90 or more days past due.

State-chartered banks reported a 21 percent increase in net income year over year, according to the Department of Financial Institutions.

“State banks had another solid quarter,” said Peter Bildsten, secretary of the Wisconsin Department of Financial Institutions, the agency that oversees state-chartered banks. “Loan quality continues to improve. Ninety-five percent of state-chartered banks were profitable in the first quarter. With capital levels at a 10-year high, banks are well-positioned to handle additional loan demand. Wisconsin banks are in very good shape and that bodes well for the state’s economy.”

However, loan demand for the remainder of the year looks murky, according to the WBA.

“WBA will be watching loan demand in the upcoming year, with a focus on residential loans. Considering the new mortgage lending rules which go into effect Jan. 1, 2014, it is hard to predict what loan demand will look like in another year,” she said. “The new rules are likely to increase the cost of loans and the amount of time it takes to get a loan. They may even limit the choice of loans for consumers or the amount of loans issued.”

The WBA is concerned the mortgage lending rule changes could make it harder for an individual to get a loan, since one of the proposed rules would require a 20 percent down payment on homes. Community banks might also be limited in their ability to make balloon loans.

Oswald Poels said she expects the federal deficit, lack of political consensus and uncertainty in health care to continue to slow business loans.

“I do think we’re going to continue to see relatively weak demand,” Oswald Poels said. “Even yet today … we don’t have any information on the federal health care exchanges to even think about it to be able to make an informed decision.”

Businesses are holding onto the extra cash on their balance sheets, and have not been readily investing in new equipment, hiring and expansion, she said.

Looking forward, Oswald-Poels reiterated her beginning of the year expectation that Wisconsin banks will continue to consolidate. The mergers and acquisitions in the industry will be driven by the burdens of increasing industry regulation compliance, retirements and some bank failures, she said.

“Compliance burden without a doubt is driving it, but it’s also capital levels … the CEO from one of the banks (sold this year) wanted to retire,” Oswald-Poels said.

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Molly Dill, former BizTimes Milwaukee managing editor.

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