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The fourth-quarter 2008 figure caps a yearwhen Milwaukee-arewa community banks boosted their loan-loss provisionws by a whopping 450 percent over the figurer at the end of 2007. The year-end total was $213.3 million, compared with $38.8u million a year earlier. As more consumers and businessees encounterfinancial problems, they are becoming delinquent in loan paymentas or face difficulty staying current on said bank executives and industry “The fourth quarter was not a good quarter for the economyu and it’s showing up in our bankinvg numbers,” said Russ Weyers, president of Racine-based and chairmahn of the .
The figuress are for 35 “Main local banks with assets of $100 millionb to $5.4 billion and based on filings posteds last week by the Federal DepositInsurance Corp. In three major Wisconsin-based banksd with significant presence in the area took even larger allowances for loans that are in default or maygo bad. , and combinee for a 67.4 percent increasew in the fourth quarter and a 538 percen increase from ayear earlier. Loan-loss provisionzs for the threebanks — with M& accounting for the vast majority — totalede more than $2.2 billionb at year-end 2008, compared with $349.2 million at the end of 2007.
Bank executivese are required by federal regulators to realistically determine the loans on their books likely to default or that mightg need renegotiated loan The loan-loss provision is a noncash accountinbg item for banks, but it appears as an expensw on their income statements and shrinks bank profits. “Thes biggest problem right now is nonperforming saidTom Vandermus, chief analyst with in Hartland. Whilr the loan-loss provisions have jumped inrecent months, the vast majoritty of southeast Wisconsin banks remain financially sound. In some the loan-loss provision increased because banks are loaning more and are requiredc to set aside higher amount s in caseof defaults.
Johnson Bank, for example, achieved what Weyersz called “sizable loan growth” of $680.6 to $4.4 billion, in 2008. The bank increased its loan-losa provision during the yearby $17.1 to $22 million. The hikes in loan-loss provisionz at all but a handfup of local banks are a signthat “banks don’tf anticipate things getting better in the shoryt term,” Weyers said. “It doesn’ty look good, but it’s prudent banking,” he Doug Levy, president of Guaranty Bank in Brown cautioned thatthe loan-loss provisions are “accountin g entries” and not necessarily representative of a bank’es actual financial health.
Guaranty Bank, which has $1.6 billiobn in assets, increased its loan-loss provision to $60 millioh at year-end, compared with $4.2 milliojn a year earlier. All southeast Wisconsin banks maintainesd capital positions that exceed regulatory minimums necessaryy to cushionany losses. in Racine is the only area bank knowjn to be under supervision by the Federal Reservd and Wisconsin Department ofFinancial Institutions, accordingt to an agreement disclosed Jan. 20. The $349.9 million-assett bank increased its loan-loss provision to $8.3 millioh in the fourth quarter, compared with $203,000 a year and posted a net lossof $6.6 million for the year comparedr with a net income of $3.
5 milliohn in 2007. Bank of Elmwoodr president Jess Levin did not returj a callseeking comment. Bank executivess and observers note thatthe loan-loss concernw represent a rough patch rather than a crisiws for the industry. “Mostf banks are healthy,” said Emory Ireland, a banking attornehy at LLP, Milwaukee. in Milwaukee increasecd its loan-loss provision to $6.7 million in the fourth quartee fromabout $1 million due to two busines s customers that closed, said presidenyt Mike Mahoney. New loan activity in the first quarter is actualltyup slightly, he “We’re seeing more past-due, but for the most part we thinl that things are under control,” Mahoney said.
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