Wisconsin banks see their profits decline 11%

More funds allocated to loan-loss reserves

Although lending increased in the first three quarters of the year for Wisconsin banks, profits were down 11% as some institutions added more to loan-loss reserves, a report released Tuesday shows.

Altogether, the 227 banks based in the state posted earnings of $811 million in the January-through-September period, compared with $911 million in the same span last year, according to the Federal Deposit Insurance Corp.

While lending was up, to $77.6 billion in total loans and leases from $74.3 billion a year ago, banks also allocated additional money to reserves that cover potential bad loans. Adding to loan-loss reserves cuts directly into a bank’s profits.

Through Sept. 30 this year, Wisconsin banks had added $132 million to loan-loss reserves, compared with $48.2 million added during the same time in 2015.

Part of that boost was driven by troubled farm loans, which totaled $48 million in the first nine months of this year. That was up from $28.4 million in the same period a year earlier. In addition, the largest bank based in the state, Green Bay’s Associated Bank, has more than tripled its additions to loan-loss reserves this year as low oil prices have hampered some of the bank’s loans to the energy industry.

Also, banks allocate more to loan-loss reserves when their loan portfolios grow, as they’ve been doing at many banks in the state.

“Lending among all community banks has been up, and so I think the provision (for loan losses) increase that we’re seeing is really across the board and not necessarily heavily concentrated at any one size institution,” said Rose Oswald Poels, chief executive of the Wisconsin Bankers Association.

In the third quarter alone, Wisconsin bank profits were $292 million, down less than 2% from $297 million in last year’s second quarter.

Overall, Oswald Poels said in an interview, “The health of the industry has definitely been strong for a long time.”

Nationally, bank profits were up 3.9% through September compared with the same time a year ago, to $127.8 billion from $122.9 billion. In the third quarter, bank earnings in the U.S. rose $5.2 billion from the third quarter of 2015.

Among Wisconsin banks, Associated posted the highest net income through September, at $161.9 million. The bank with the biggest loss was First National Bank of Waupaca, at $2.9 million. It was disclosed this summer that First National Bank of Waupaca’s former top executive was accused by a national regulator of alleged misconduct that excessively benefited him at the expense and safety of the bank.