Wisconsin Bankers Association: Wisconsin bank deposits grew, lending declined in 2nd quarter of 2009

For more information, contact Eric Skrum 608-441-1216 or eskrum@wisbank.com

Weakening economy reflected in lower Wisconsin bank earnings

(MADISON) A combination of lower loan demand, fewer qualified borrowers and increased bank operating costs led to a drop in total lending by Wisconsin banks in the second quarter of 2009, according to consolidated performance numbers released today by the FDIC.

Wisconsin bank earnings were also down with 1 out of 5 institutions reporting negative earnings, more than a 14 percent increase over the previous quarter.

On the positive side, total deposits continued an upward trend began a year ago as consumers seek the security of FDIC-insured deposit instruments. The state’s loan-to-deposit ratio is also a healthy 106 percent, down from 107 percent the previous quarter, but still much higher than 83 percent for all U.S. banks.

“These numbers are not a surprise,” commented Kurt R. Bauer, president/CEO of the Wisconsin Bankers Association. “Wisconsin bank CEOs predicted earlier this year in a WBA economic survey that 2009 would be a challenging year for earnings.” Bauer said that higher interest rates and fewer qualified customers have slowed the mortgage refinancing business that propelled earnings in the first quarter of 2009.

“There are many factors outside of the banking industry’s control influencing bank performance numbers,” Bauer explained. He said that the weakening Wisconsin economy has slowed commercial loan demand, reduced the number of qualified borrowers, and increased delinquencies for both commercial and retail bank customers.

“Higher operating costs and taxes are taking an increasingly bigger bite out of bank profits and available capital used to fund loans,” according to Bauer. He specifically cited the skyrocketing cost of FDIC deposit insurance premiums and the enactment of a combined reporting method of taxing Wisconsin businesses.

Other factors contributing to the lower earnings include banks continuing to build loan-loss reserves to hedge against potential future defaults and much higher regulatory compliance expenses.

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The Wisconsin Bankers Association is the state’s largest financial industry trade association, representing 300 commercial banks and savings institutions, their nearly 2,300 branch offices and 30,000 employees.