Despite a healthy dose of uncertainty in the banking sector during the quarter, Wisconsin banks saw growth in their loan portfolios and total deposits during the second quarter, according to FDIC data and analysis from the Wisconsin Bankers Association.
“In the second quarter of 2023, Wisconsin banks showed continued strength and profitability. Banks continue to meet the borrowing needs of individuals, families, and businesses,” said Rose Oswald Poels, president and chief executive officer of the WBA. “Deposits have held steady, and delinquencies remain low. While inflation, interest rates, and geopolitical issues remain concerns for the remainder of 2023, banks are prepared for future risks and are poised to support their communities through possible economic challenges.”
Net loans and leases grew 3.22% from the first to the second quarter and 10.03% year-over-year, according to the WBA. It was the strongest quarterly growth in loans since the third quarter in 2022. The WBA noted loans increased across residential, commercial and industrial, and agricultural categories.
The state’s smaller banks, those with less than $1 billion in assets, saw stronger loan growth of around 4.6% from the first quarter while the larger banks were up 2.6%. Year-over-year, however, the larger banks saw stronger growth.
Wisconsin banks did see a 6.71% increase from the first quarter in assets either more than 90 days past due or in nonaccrual status with those assets now totaling $433.6 million. The increase represents about a little more than a basis point increase as a percentage of total assets.
Total deposits at Wisconsin banks were also up 1.51% from the first quarter and 1.09% year-over-year to reach $119.9 billion. Deposits had ramped up over the course of the COVID-19 pandemic, topping out at $120.3 billion in the third quarter of 2022.
Wisconsin banks with more than $1 billion in assets saw total deposits rise 1.66%, outpacing growth at smaller banks of 1.21%. Year-over-year, the smaller banks saw deposits decline 3.43% while the larger banks were up 3.52%, according to FDIC figures.
Across all banks, the past two quarters have seen deposits decline by 0.28% and 1.56% as inflation has cut into the savings of consumers and businesses. The WBA noted the easing of inflation has seen bank customers able to save more.
Rising interest rates, the Federal Reserve’s main tool in combatting inflation, has certainly had an impact on the banking sector this year, most notably in the collapse of Silicon Valley Bank.
For Wisconsin banks, rising rates have translated to a higher yield on earning assets, reaching 4.87% for the first half of 2023, up from 3.31% in 2022. The 156-basis point shift has been driven by larger banks, which have seen a 179-basis point increase compared to 108 basis points at smaller banks.
The cost of funding earning assets has also increased from 0.25% a year ago to 1.63% as of June 30. Larger banks have seen a 158-basis point increase in cost of funding while smaller banks have seen a 98-basis point jump.
Those shifts brought on by rising interest rates have translated to slightly higher net interest margin for Wisconsin banks at 3.24%, up 17 basis points from a year ago.
However, overall net income for Wisconsin banks has declined 9.7% to $791 million for the first half of the year. Small banks were hit harder with a 10.8% decrease compared to a 9% decrease at the larger banks.
Large banks saw greater growth in their net interest income – up 12.5% compared to 4% at smaller banks – and despite broader challenges from inflation saw noninterest expense decrease as a percentage of average assets.
Smaller banks, on the other hand, saw their noninterest expense increase 12 basis points as a percentage of average assets in addition to a smaller increase in net interest income.
