State, local banking industry strongEDITOR’S NOTE: This is the first of a two-part series on Wisconsin’s banking industry. “Bank” may be a four-letter word, but it’s not “b@^%.”
By: Shelley Nelson, Superior Telegram
EDITOR’S NOTE: This is the first of a two-part series on Wisconsin’s banking industry.
“Bank” may be a four-letter word, but it’s not “b@^%.”
In spite of a national foreclosure crisis and news of government bailouts, state and local bank officials say “bank” isn’t a dirty word when used in reference to traditional community banks.
“We wish we could trademark ‘bank’ because it’s been so generically used, and it’s been so damaged as a result — we want to reclaim it” said Kurt Bauer, president and chief executive officer of the Wisconsin Bankers Association.
Bauer said the term has been used even in reference to AIG, the insurance giant that was on the verge of collapse before the federal government delivered an $85 billion bailout. The company insured subprime loans generated by mortgage brokers who earned their money selling loans to people who couldn’t afford them, then left investors holding the bag for the unpaid debt.
“This generic use of the word bank in the national news media is problematic,” said David Stack, president of Superior Savings Bank. “Credit unions are not banks. These mortgage brokers are not banks. Wall Street investment banks are not banks; they’re not FDIC-insured banks.”
Community banks are traditionally Federal Depository Insurance Corporation-insured institutions regulated to accept deposits and provide loan and other financial services in a specific geographic area.
“We’re concerned that if you pay attention to what the national media’s talking about the banking industry, you’re probably going to get the impression that we all have one foot in the grave, that we’re not lending and that just isn’t the case,” Bauer said. “Wisconsin banks are doing quite well. We’re doing better than our peers nationally in a number of different categories, including capitalization, profitability, lending and deposits — all four of those are pretty important categories.”
Banks well capitalized
At one time, 16,000 licensed mortgage brokers were doing business in Wisconsin; today, fewer than 6,000 remain, Bauer said.
While the number of mortgage brokers has dropped dramatically, the state has only lost one bank to a failure to meet its obligations to depositors since 2000, according to FDIC data.
Nationwide, the rate of bank failures has been higher, but remains at less than 1 percent. Of the 8,258 FDIC-insured institutions, only 78 have failed since 2000, including 24 this year and another 24 in 2008, including one in Staples, Minn. Bank failures in five states hardest hit when the housing bubble burst — Georgia, California, Florida, Illinois and Nevada — account for nearly half of the bank failures.
Nationwide, Bauer said more banks are expected to fail; however, the vast majority of Wisconsin banks remain well-capitalized and able to meet obligations.
In Wisconsin, a bank hasn’t failed in nearly six years, since a village of about 800 people in Lafayette and Iowa counties southwest of Madison lost a bank on May 9, 2003. Within days of the FDIC being named receiver of First National Bank of Blanchardville, a Madison-based bank, Park Bank, assumed the institution’s deposits and reopened it as a branch office the following week.
However, not all Wisconsin banks are out of the woods. The Journal-Sentinel reported Thursday that Milwaukee’s Marine Bank could soon be under federal and state orders to deal with bad debt, maintain adequate capital and improve other business practices. The bank’s parent company, CIB Marine Bancshares Inc., reported a loss of $34.4 million in 2008, and defaulted on some of its trust-preferred securities because it is unable to pay $39.1 million in interest on them, according to the Milwaukee Journal-Sentinel.
The number of banks that have failed has been far less in this downturn than in the 1980s, but the asset value of the banks that have failed has been far greater, said Bruce Thompson, vice president of National Bank of Commerce in Superior.
While Marine Bank is on the verge of failure according to FDIC definition, its parent company is not among the institutions that have taken “bailout” money from the U.S. Treasury.
Park Bank of Madison, which assumed the deposits and liabilities of Wisconsin’s only failed bank this decade, has accepted $23.2 million in federal money.
Contrary to public belief, the federal government’s program to inject money into banks to enhance lending is not a “bailout,” but an investment in the bank, Bauer said. He said receiving the infusion of cash comes with strings attached. The program injects capital into the banking system through the purchase of preferred stock and banks that accept the money must pay the U.S. government a 5 percent annual dividend on a quarterly basis before other shareholders receive dividends, Bauer said. After five years, the dividend on Capital Purchase Program shares increases to 9 percent.
Nationally, 5 percent of community banks are receiving an infusion of cash from the federal government. Only 4 percent of Wisconsin banks — 13 of the 283 FDIC-insured institutions — participated in the Capital Purchase Program. None are based in Superior, Douglas County or any of the northernmost counties of the state.
The northernmost bank in Wisconsin to receive the federal program dollars is in Medford about 200 miles southeast of Superior. Mid-Wisconsin Financial Services of Medford accepted $10 million of the $2.8 billion distributed in Wisconsin. Most of the institutions taking part in the voluntary federal program have operations based in Green Bay, Manitowoc, and the greater Milwaukee, Madison and Lake Winnebago/Fox River Valley areas.
The 12 Wisconsin banks that participated in the program before April 1 received 1.5 percent of the $187.5 billion distributed nationwide. On April 10, one additional bank in Milwaukee accepted $5.1 million from the federal government.
By comparison, Illinois, where seven banks failed since 2000, accepted 2.3 percent of the nationwide distribution, and Minnesota banks accepted 3.7 percent or $7 billion, according to the U.S. Department of the Treasury. The largest share, about $80 billion, was distributed to banks in New York, and none in Vermont or Montana has accepted any of the money.
Milwaukee-based M&I Bank, Wisconsin’s largest bank with operations also in Arizona, Minnesota, Missouri, Kansas, Oklahoma, Nevada, Florida, and Illinois, accepted the largest distribution in the state, $1.7 billion — less than 1 percent of all revenue distributed by the U.S. Treasury.
Superior has been luckier than most in the economic downturn.
“We’re really fortunate in this area,” Thompson said. “Fundamentally, there’s three waves of issues that have hit the housing market. One was when it was superheated, there were investors flipping houses — buying to resell because values were going up. Superior, Wis., has never had much activity in that area. There’s not a lot of people moving in so there’s not a lot of ability to do that sort of thing. So we escaped it on that front. The next is the repricing on the ARM (adjustable rate mortgages) sort of things, and frankly, we’ve not had a lot of movement in our community. There’s a steady amount of movement, but people, when they get into financial products, they’re in it for the long haul. … Third being the job loss issue.”
Superior’s not dependent on a small number of large industries, so job loss — while present — doesn’t affect people en masse, Thompson said.
Learn how bank lending practices locally have staved off foreclosures and created opportunities for community banks in Friday’s edition of the Superior Telegram.