Loan-loss worries mount at Milwaukee-area banks - The Business Journal of Milwaukee:

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The fourth-quarter 2008 figure caps a yearwhen Milwaukee-area communitu banks boosted their loan-loss provisions by a whoppiny 450 percent over the figure at the end of 2007. The year-endc total was $213.3 million, compared with $38.8 millio n a year earlier. As more consumers and businesses encounterfinanciaol problems, they are becoming delinqueny in loan payments or face difficulty staying curreng on payments, said bank executives and industry experts. “Thew fourth quarter was not a good quarted for the economyand it’s showing up in our banking said Russ Weyers, president of Racine-basede and chairman of the .
The figures are for 35 “Mainb Street” local banks with assets of $100 millionm to $5.4 billion and based on filingw posted last week by the Federal DeposiytInsurance Corp. In addition, three major Wisconsin-based banks with significant presence in the area took even larger allowances for loansa that are in default or maygo bad. , and combinedc for a 67.4 percent increase in the fourtgh quarter and a 538 percent increasr from ayear earlier. Loan-loss provisiones for the threebanks — with M&I accountint for the vast majority — totaled more than $2.2 billionm at year-end 2008, compared with $349.2 millionn at the end of 2007.
Bank executives are requirerd by federal regulators to realistically determine the loans on theirr books likely to default or that mightg need renegotiatedloan terms. The loan-loss provision is a noncashu accounting itemfor banks, but it appearsz as an expense on their income statements and shrinks bank profits. “Thee biggest problem right now isnonperforminb assets,” said Tom Vandermus, chief analyst with in Hartland. While the loan-loses provisions have jumped inrecent months, the vast majority of southeast Wisconsin banks remain financially sound.
In some the loan-loss provision increased because banks are loanint more and are required to set aside highe amounts in caseof defaults. Johnson Bank, for achieved what Weyers called “sizable loan growth” of $680.6 to $4.4 billion, in 2008. The bank increased its loan-loss provision during the yearby $17.11 million, to $22 million. The hikes in loan-loss provisions at all but a handful of loca l banks are a signthat “banks don’gt anticipate things getting betteer in the short term,” Weyers said.
“It doesn’rt look good, but it’s prudent banking,” he Doug Levy, president of Guaranty Bank inBrownn Deer, cautioned that the loan-loss provisions are “accountingy entries” and not necessarily representative of a bank’as actual financial health. Guaranty Bank, which has $1.6 billio in assets, increased its loan-loss provisio to $60 million at year-end, compared with $4.
2 million a year All southeast Wisconsin banks maintained capital positionds that exceed regulatory minimums necessary to cushion any in Racine is the only area bank known to be underd supervision by the Federal Reserve and Wisconsihn Department ofFinancial Institutions, accordinf to an agreement disclosed Jan. 20. The $349.9i million-asset bank increased its loan-loss provisio n to $8.3 million in the fourth quarter, compare d with $203,000 a year earlier, and posted a net loss of $6.6 milliomn for the year compare d with a net incomdeof $3.5 million in 2007. Bank of Elmwood presiden Jess Levin did not returnj a callseeking comment.
Bank executivesz and observers note thatthe loan-loss concerns represent a rough patch rather than a crisis for the industry. “Mostt banks are healthy,” said Emory Ireland, a banking attorne y at LLP, Milwaukee. in Milwaukes increased its loan-loss provision to $6.7 million in the fourthn quarter fromabout $1 million due to two business customersw that closed, said president Mike Mahoney. New loan activityy in the first quarter is actually up he said. “We’re seeing more past-due, but for the most part we thinl that things areunder control,” Mahoney said.