Wisconsin bank earnings dipped in 2016

Picture brightens in fourth quarter

“Wisconsin banks continue to move forward despite a wide variety of obstacles ...” ROSE OSWALD POELS, PRESIDENT AND CHIEF EXECUTIVE OF THE WISCONSIN BANKERS ASSOCIATION

profits for banks based in Wisconsin slipped about 7% in 2016, the state’s financial institutions ended the year on a good note, a report Tuesday shows.

Wisconsin’s 222 banks earned almost $1.1 billion last year, compared with nearly $1.2 billion for 243 banks in 2015, according to the Federal Deposit Insurance Corp.

The lower profits came even as total loans and leases grew by 3.5% to $77.5 billion from $74.8 billion in the prior year.

The picture turned brighter in the fourth quarter for Wisconsin banks, as they posted earnings of $290.8 million, up almost 17% from $249.2 million in the fourth period of 2015.

For the full year, a bigger allocation to loan-loss reserves than in 2015 cut into earnings. State banks added $163.8 million to reserves to cover potential bad loans last year, compared with $69.6 million in 2015. Adding to loan-loss reserves directly affects a bank’s profits. The larger addition to loan-loss reserves came even though the ratio of delinquent loans dipped to 1.08% from 1.11% a year earlier.

Rose Oswald Poels, president and chief executive of the Wisconsin Bankers Association, said part of the bigger addition to loan-loss reserves likely is banks gearing up for new accounting rules that will require financial institutions to hold more for loans that could turn sour.

“Banks have started to increase their loan-loss provisions

in part because of this change in the accounting rules that are coming,” she said in an interview.

Also in 2016, several state banks were acquired by banks or credit unions based outside Wisconsin, technically putting their earnings onto the books of other states.

While the net interest margin of Wisconsin banks — basically the difference between what a bank pays for deposits and what it charges for loans — rose last year to 3.13% from 3.07%, Oswald Poels said that margin could see pressure as deposit rates start to climb.

“Wisconsin banks continue to move forward despite a wide variety of obstacles challenging the industry, such as a prolonged low interest rate environment, compliance and technology costs escalating every year, and the number of bank mergers in Wisconsin continuing to increase,” she said in a statement.

The decrease in earnings in Wisconsin for the full year was in contrast to the U.S. banking industry overall, which saw a nearly 5% increase in net income.

For the quarter, banks nationally posted a 7.7% earnings increase.

“The banking industry had another largely positive quarter,” Martin Gruenberg, chairman of the FDIC, said in a statement. “Both quarterly and full-year earnings were up from the prior year, loan balances increased, overall asset quality improved, and the number of unprofitable banks and problem banks continued to fall.”

The number of banks on the FDIC’s national Problem Bank List fell from 132 to 123 during the fourth quarter, the fewest in more than seven years and down from the peak of 888 in the first quarter of 2011.

The largest bank headquartered in the state, Green Bay’s Associated Bank, also had the highest net income in 2016, at $225.3 million. Other non specialty banks with top net income: Racine’s Johnson Bank, $30 million; WaterStone Bank, Wauwatosa, $26.3 million; Fond du Lac’s National Exchange Bank & Trust, $25.5 million; and Green Bay’s Nicolet National Bank, $19.6 million.

Six Wisconsin banks reported losses for calendar year 2016, according to the FDIC report: Waupaca’s First National Bank, $6.5 million; Markesan State Bank, $5.2 million; Guaranty Bank, Glendale, $4.2 million; The Equitable Bank, Wauwatosa, $1.3 million; Community Financial Bank, Prentice, $405,000; and Columbia Savings and Loan Association, Milwaukee, $106,000.