Madison-area residents looking for a bank that’s considered financially stable can pretty much close their eyes, point a finger and see where it lands on the list — if the latest ratings from Bauer Financial are any indication, at least.

Of 68 banks with branches in south-central and southwest Wisconsin, 64 are ranked as either five stars, “superior,” or four stars, “excellent.” Three are listed as three-and-a-half stars, “good.”

The star ratings are based on the banks’ Dec. 31, 2016, financial reports submitted to the Federal Insurance Deposit Corp. They are the highest marks that local banks have received in at least a decade, since before the Great Recession.

Only one bank serving the Madison area — Guaranty Bank, based in Milwaukee — had a poor showing of zero stars from Bauer.

“We’re looking primarily from a depositor’s perspective,” said Karen Dorway, president and director of research for Bauer Financial, an independent bank research firm in Coral Gables, Florida. “If the bank is profitable enough to cover their infrastructure, they can still have one of our top ratings.”

Nine banks drew higher marks than a year ago, including Oregon Community Bank. Since 2012, the Oregon, Wis. bank has moved up from two stars to a five-star rating from Bauer.

Back in 2010, federal regulators issued an order to the bank to shore up its management, tighten loan policies, and decrease its bad loans. The bank, formerly called Oregon Community Bank & Trust, tallied $11.7 million in delinquent loans by Dec. 31, 2009, or 7.4 percent of its total loan and lease portfolio, even after writing off $6.4 million in bad loans. In 2010, the bank reported a net loss of $3.4 million.

By the end of 2016, the bank had sliced its delinquent loans to $407,000, or 0.18 percent of all loans and leases, with $88,000 recovered from loans that were considered uncollectible. Net income for 2016 was $3.8 million.

“We have had several years of very successful growth,” said Steve Peotter, the bank’s president and CEO. “In 2016, we have had loan growth and deposit growth. We have made an effort to retain capital.”

That included eliminating dividends to bank stockholders in 2013 “to reinvest the money in the bank,” Peotter said.

After closing one of three Oregon locations in 2013, Oregon Community Bank opened a new branch in Waunakee three months ago: Waunakee Community Bank.

Bank officials started searching for a location about two years ago, Peotter said. “We wanted to find the community that was the right fit. We had already done quite a bit of business in Waunakee,” he said.

“It’s been amazingly successful,” Peotter said. New clients and deposits have “exceeded our wildest expectations.”

While other banks are closing branches, “I think adding locations helps us to stand out ... and grow with our clients,” he said.

Oregon Community Bank had assets of $257.6 million and 52 employees as of Dec. 31, 2016, up from $199.2 million in total assets and 29 employees on Dec. 31, 2009.

Peotter notes the bank was one of only two in Wisconsin on the S&P Global’s 2016 list of the 100 top-performing community banks with less than $1 billion in assets. The Oregon bank was No. 87; Citizens State Bank of La Crosse was No. 86.

Home Savings rebounds

Another local bank showing improvement in the Bauer Financial ratings is Home Savings Bank, Madison.

In the past year, it has risen from two stars, “problematic,” to three-and-a-half stars, “good,” on Bauer’s chart.

While Home Savings’ delinquent loans have risen slightly, to $370,000 from $199,000 a year ago, the bank swung to net income of $155,000 as of Dec. 31, 2016, compared with a net loss of $455,000 for 2015. It is the first time the bank has shown a year-end profit since 2006.

Home Savings CEO, president and chairman Jim Bradley said the bank has worked to grow its loans and reduce expenses. A big factor was changing from a mutual savings bank — owned by depositors — to a stockholder-owned bank three years ago.

“It brought an influx of capital that we’ve been able to leverage to grow the size of the bank. That’s an important factor in our success,” Bradley said.

The stock offering, in April 2014, was aimed at selling shares to Home Savings customers and employees and to the local community. It had gross proceeds of about $9 million.

Bradley said the higher Bauer rating is good news but he also is gratified by the “outstanding” rating Home Savings received in its last FDIC assessment under the Community Reinvestment Act.

The bank “demonstrates an outstanding record of helping to meet the credit needs of its assessment area, including low- and moderate-income neighborhoods, in a manner consistent with its resources and capabilities,” the April 2015 report said.

Another area bank with a big boost in its Bauer rating this year was Farmers & Merchants Bank in Tomah, which jumped to five stars from three-and-a-half stars last year. Farmers & Merchants ended 2016 with net income of $1.6 million, up from $1.2 million in 2015, and 1.98 percent of its loans were delinquent, down from 2.23 percent a year ago.

Few banks

lose ground

Only two area banks of the 68 reviewed slipped in their ratings from Bauer Financial this year.

Associated Bank, Green Bay, the largest Wisconsin-based bank, dropped to four stars from five and Wisconsin River Bank, Sauk City, fell to three-and-a-half stars from five stars.

Associated’s net income for 2016 rose slightly, to $225.3 million from $222.1 million in 2015, but delinquent loans also increased, to nearly $284 million, or 1.4 percent of all loans and leases, from $189.7 million, or 1 percent.

“Associated is still a really strong bank, but its capital levels are just a little bit lower now,” said Bauer’s Dorway. “Nonperforming loans are up just a smidge but still at a very manageable level.”

She said the star rating fell after Associated’s net income for the 2016 first quarter was down from the previous March and 1.53 percent of loans were not fully paid.

Wisconsin River Bank also had an increase in its net income, but unpaid loans quadrupled over last year to $2.6 million, or 2.85 percent of all loans, from $618,000, or 0.7 percent.

That’s not an excessive amount but it is a “fairly large increase in that short a period of time,” Dorway said.

Guaranty Bank saw a decrease in its noncurrent loans, but they are still at a level much higher than most area banks. The $36.6 million in delinquent loans, as of Dec. 31, 2016, was down from $49.7 million, a year ago but still represented 5 percent of all loans.

Perhaps more significantly, Guaranty — whose Bauer star rating has been 0 since 2013 — reported a net loss of $4.2 million as of Dec. 31, more than 10 times the $390,000 net loss a year ago.

‘Things are

pretty frothy’

Overall, Wisconsin banks are doing well, with only 1.8 percent statewide rated as “troubled” or “problematic,” by Bauer.

Even so, bankers are generally cautious about the future.

“Earnings quality is generally pretty good,” said Jon Bruss, founder and CEO of Fortress Partners Capital Management, Hartland. “Most of the banks in Wisconsin have pretty fat capital ratios.”

Homes are selling quickly and at higher prices than in the past. “Things are pretty frothy right now,” he said.

But: “Whenever things look rosy, good bankers start looking for problems,” said Bruss, who also serves as an adviser for several community banks.

Bruss said now that the Federal Reserve has raised interest rates and indicated they may bump them up again this year, banks will likely follow suit and that could “begin to pinch” some borrowers.

“I think that we may well begin to see some softness in credit quality,” he said. “If the bank does not do a thorough enough job of testing the cash flow of borrowers, as interest rates go up, the ability of the borrower to pay will go down.”

Farmers who have taken out loans may be affected, in particular. “Milk prices have come back a little bit from last year ... but not a lot,” Bruss said. “As interest rates go up, some of these farmers are really going to struggle.”

Bauer’s Dorway said consumers have fewer banks to choose from today. Twenty years ago, there were about 10,000 banks nationwide. Today there are fewer than 6,000.

Several hundred banks failed during the Great Recession; so far this year, only three have been closed. But mergers and acquisitions continue.

Three Wisconsin financial institutions merged into others last year, including the acquisition of Madison’s AnchorBank by Old National Bank of Evansville, Indiana. In January 2017, Middleton Community Bank merged into Monona State Bank.

Oregon Community Bank’s Peotter said banking, overall, in Wisconsin is very successful right now.

“It’s a good time to be in community banking,” he said.

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Area bank ratings

These ratings for selected banks operating in south-central Wisconsin are provided by Bauer Financial and are based on data filed Dec. 31, 2016, with the Federal Deposit Insurance Corp. 5- superior; 4 - excellent; 3.5 - good; 3 - adequate; 2 - problematic; 1 - troubled; 0 - lowest rating

Institution Headquarters End of 2016 End of 2015
American Bank & Trust Cuba City 5 5
American National Bank Beaver Dam 4 4
Associated Bank Green Bay 4 5
BMO Harris Bank Chicago 4 4
Badger Bank Fort Atkinson 5 5
Bank Mutual Brown Deer 5 5
Bank of Brodhead Brodhead 5 5
Bank of Deerfield Deerfield 4 4
Bank of Lake Mills Lake Mills 4 4
Bank of Mauston Mauston 4 3.5
Bank of Milton Milton 4 4
Bank of New Glarus New Glarus 5 5
Bank of Prairie du Sac Prairie du Sac 5 5
Bank of Sun Prairie Sun Prairie 5 5
Bank of Wisconsin Dells Wisconsin Dells 5 5
Bankers Bank Madison 5 5
Baraboo National Bank Baraboo 4 3.5
Blackhawk Bank Beloit 5 5
Capitol Bank Madison 5 4
Citizens First Bank Viroqua 4 4
Clare Bank Platteville 5 5
Community First Bank* Boscobel 5 5
DMB Community Bank DeForest 4 4
Farmers & Merchants Bank Orfordville 5 5
Farmers and Merchants Bank Tomah 5 3.5
Farmers & Merchants State Bank Waterloo 4 4
Farmers & Merchants Union Bank Columbus 5 5
Farmers Savings Bank Mineral Point 5 5
Farmers State Bank Hillsboro 5 5
First Business Bank Madison 4 4
First Community Bank Milton 5 5
First National Bank & Trust Beloit 5 5
First National Bank at Darlington Darlington 5 5
Greenwoods State Bank Lake Mills 4 5
Guaranty Bank Milwaukee 0 0
Highland State Bank Highland 5 5
Home Savings Bank Madison 3.5 2
JP Morgan Chase Bank Columbus, Ohio 4 4
John Deere Financial Madison 5 5
Johnson Bank Racine 5 5
McFarland State Bank McFarland 5 5
Middleton Community Bank Middleton 5 5
Monona State Bank Monona 5 5
Mound City Bank Platteville 5 5
National Bank of Waupun Waupun 5 5
Oak Bank Fitchburg 5 5
Old National Bank** Evansville, Ind. 4 4
Oregon Community Bank & Trust Oregon 5 4
Park Bank Madison 5 5
Partnership Bank Cedarburg 4 3.5
Peoples Community Bank Mazomanie 5 5
Peoples State Bank Prairie du Chien 5 5
PremierBank Fort Atkinson 5 4
Richland County Bank Richland Center 5 5
Royal Bank Elroy 5 5
Settlers Bank DeForest 5 4
Starion Financial Bismarck, N.D. 5 5
State Bank of Cazenovia Cazenovia 5 5
State Bank of Cross Plains Cross Plains 3.5 3.5
State Bank of Reeseville Reeseville 5 5
Timberwood Bank Tomah 5 5
Town Bank Hartland 5 5
U.S. Bank Cincinnati 4 4
Union Bank & Trust Evansville 5 5
United Community Bank Poynette 5 5
Wells Fargo Bank Sioux Falls, S.D. 4 4
Wisconsin Bank & Trust Madison 5 5
Wisconsin River Bank Sauk City 3.5 5
* Livingston State Bank merged into Community First Bank, Boscobel, on Dec. 5 ** Old National Bank acquired Madison-based AnchorBank on May 1
Source: Bauer Financial

Judy Newman is a business reporter for the Wisconsin State Journal.