Banking & Finance

Rose Oswald Poels

With potential recession looming, Wisconsin banks are in good shape

As 2022 comes to a close, BizTimes Milwaukee managing editor Arthur Thomas caught up with Rose Oswald Poels, president and chief executive officer of the Wisconsin Bankers Association, to talk about how the state’s banks performed this year, and the outlook for 2023. The following conversation is edited for length and clarity.

BIZTIMES: What kind of year has 2022 been for

Wisconsin banks?

ROSE OSWALD POELS: “Overall, it has been a really good year for the banking industry. We continue to make a lot of loans, we have a lot of liquidity, deposit balances are still high, they have been trickling off in the last couple of months, but for most of the year they’ve remained at unusually high levels, so that just means that banks have that much more money to lend out into their communities.

“As I mentioned, we are starting to see a little drop off in deposit balances. It’s gradual, certainly not anything drastic, but I think as people are really feeling the pinch of higher prices in food costs, energy costs, things that really hit our pocketbooks every day, we are seeing consumers spending their excess savings to pay for some traditionally basic necessities.”

Does that work in both directions? People are keeping money in savings because there’s inflation, and they know, ‘I’m probably going to need that money,’ so they’re less likely to go spend it on discretionary things. At the same time, they start eating into their savings because costs are going up.

POELS: “Yeah, I think with the dramatic increase in interest rates and sort of the impact that’s having on prices generally, the second half of this year, we’ve seen consumers be a little more cautious in their spending and using their money to pay for necessities. Credit card balances are going up, but that doesn’t mean they’re not still shopping. I think retail numbers are still looking very strong and certainly from a bank’s perspective, loan defaults, for example, and credit card defaults, are still very, very low, so there’s no immediate concern that consumers are imprudently spending their money. They’re being cautious, at least here in Wisconsin, and our banks are seeing that reflected in regular payments on all types of loans.”

What has the rising interest rate environment meant for bank finances?

POELS: “For most banks, I think they’ve been able to take advantage of the greater net interest margin. ... The loans that are variable rate in nature, they are able to reprice those as interest rates have gone up, and they haven’t had to increase their deposit interest rate payouts at the same pace. With competition being what it is, rates are going up for CDs and savings accounts to benefit consumers, but they’re not going up at quite the same pace that loan rates are. In the short term, banks are certainly benefiting from that greater spread in net interest margin after frankly living with years of having really tight net interest margin, so it’s a little bit of fresh air for our members to see that spread grow a little. How long it will stay really does remain to be seen. Are we going to be in a recession next year? Will consumers struggle to keep pace with their loan payments like they’re doing today?”

Talk about that potential recession for 2023. How is the health of banks heading into this period of uncertainty?

POELS: “Banks today are in a very strong, healthy position. I mentioned earlier the high deposit balances, overall capital levels are very healthy going into what could be a recession next year, so they are in a very strong position to weather some hurdles in the form of greater consumer loan defaults and payments. They also are very well diversified.”

How has loan demand evolved over the course of the year and where do your members see it heading into next year?

POELS: “During this year, overall lending has been strong. Definitely saw the decline in home mortgage lending, so those numbers quarter-over-quarter and even year-over-year are down. Ag lending, generally, is a little bit down as well. That’s not completely surprising. Farmers also are in a very healthy, strong cash position, and so a lot of farmers have chosen to use their savings instead of borrowing to put crops in the ground or to pay for some equipment. And then commercial loan demand continues to be up a little bit.

“I think heading into 2023 – now that we’ve had the election and for the most part things are generally status quo – I think people at least understand what the next few years politically look like, which always brings a little more stability to business owners and their decision making. Looking ahead to 2023, we expect business loan demand to continue to remain steady. I think we’ll continue to see slower home mortgage lending and interest rates continue to rise. The Fed is certainly forecasting they’re going to keep going up, it does put pressure on the housing market.

“Overall, bankers are predicting a recession next year, so I think they’re also making sure they manage their own financial statements to be able to withstand some of that. To the extent that maybe there’s a little less loan demand than what the last few years have seen – particularly in home mortgage lending – they have to make adjustments maybe on the expense side in order to help mitigate and keep their overall financial picture strong. They’re definitely making adjustments, but as I said earlier, they’re very well positioned for this potential recession.”

On lending practices and willingness to lend money, how has that evolved over the course of this year and where do you see that going next year? Are there going to be generally tighter conditions going forward?

POELS: “The broad guidelines of credit underwriting haven’t really changed for banks throughout time, frankly, but obviously people’s individual situations do change, and so, as they go through a risk review of a business borrower or a consumer borrower, they’re looking to make sure that that individual is in a good financial position themselves. Do they have a good business plan? How long have they been in business? Do they have savings that help withstand some emergency situation? Are there supply chains still affecting this particular business, and what does that look like for their revenues ahead? And then doing some kind of stress testing against the business itself on how well they’re able to withstand a recession if one would come.”

Anything else to highlight about the outlook for banking heading into next year?

POELS: “The only other area is the merger activity of the banking industry. This year, we definitely saw a pretty healthy pace of merger activity; we had 12 announced mergers this year of a Wisconsin bank. Looking ahead, I do think we’ll continue to see mergers occur, I do think it will slow down a bit because of the economic environment and as it becomes a little more uncertain what a bank’s own balance sheet might look like, which affects pricing of a bank when they’re looking to sell. So, I expect M&A activity to continue, but maybe not quite at the pace that it was this year.” n

PRESENTS

FEBRUARY 23, 2023 | 7:30-11:00AM ITALIAN COMMUNITY CENTER

Show your support for our future workforce and high-quality education

INSPIRE. CONNECT. LEARN

You may already support a high-performing school and you know about the great work occurring with many of the Milwaukee’s highperforming schools as they are preparing our future workforce. However, if you are curious and want to learn more, join us at the Milwaukee Education Spotlight event on February 23, 2023. BizTimes Media’s Milwaukee Education Spotlight event will introduce and connect high-performing schools in Milwaukee and their leaders with the broader business community in the region. It will feature education and business leaders and schools that are having success across education sectors. They will share insights about what works, existing challenges and how businesses can become more involved.

Confirmed speakers:

Krysta DeBoer, Executive Director, Center For Urban Teaching Brittany Kinser, President/Executive Director, City Forward Collective Anthony McHenry, CEO, Milwaukee Academy of Science Robb Rauh, CEO, Milwaukee College Prep Andrea Roberts, Program Administrator, GPS Education Partners

Summit Credit Union

1709 Landmark Dr. Cottage Grove, WI 53527 Contact: 800-236-5560 FinancialWellness@summitcreditunion.com SummitCreditUnion.com/FinancialWellness

The stronger people are financially, the stronger we are as a community. That’s the driving principle behind every credit union. At Summit Credit Union, we live that commitment by providing free, nationally recognized financial education to hundreds of thousands of people, Summit members and nonmembers alike.

Invest in your team, at no cost

That leads us to something you don’t get from a financial every day — a way to invest in your own people (and at no cost!). Our Financial Wellness for Employees by Summit program invites employers to partner with us to help make sure everyone is as good with their own money as they would be with anyone else’s.

Happier, healthier employees

A 2022 Wellness Barometer Survey by BrightPlan indicated 72% of employees reported that they are stressed about their finances, which in turn has affected workers’ mental and physical health as well as workplace productivity. Financial Wellness for Employees by Summit helps people face their financial realities with confidence. And that pays off for both the employer and the employee, who is happier and healthier (and more productive) at work — and in life!

Easy, customized program

This is a customized, easy-toadminister program for companies that want to lead the way in employee benefits. For example, in fitting the program to your company’s needs, we might include on-site coaching events to address your employees’ overall areas of interest. At the same time, we would offer online, on-demand education that’s tailored to each unique individual. That flexibility to deliver top-notch financial education to your employees at home or in the workplace — at no cost — is empowering. And empowerment is what financial wellness is all about.

Celebrating innovators and entrepreneurs

Each year, BizTimes Media recognizes top innovators and entrepreneurs in southeastern Wisconsin.

At the recent Innovation + Entrepreneurship Forum, Wayne Oldenburg, founder of Glendale-based Oldenburg Group was named the Lifetime Achievement Award winner. He joins a prestigious list of past BizTimes Media Lifetime Achievement Award winners including Harry Quadracci of Quad/ Graphics, Robert Kern of Generac, George Dalton of Fiserv, Stephen Marcus of The Marcus Corp., Sheldon Lubar of Lubar & Co., Michael Cudahy of Marquette Electronics, real estate developer Gary Grunau, Valerie Daniels-Carter of V&J Holding Companies Inc., and Jon Hammes of Hammes Co.

Oldenburg started Oldenburg Group in 1981. Over the years, the company has made mining equipment, commercial lighting and military products. At one point in the late 1980s and early ‘90s, the firm made the Inc. 500 list of the fastest-growing companies in America for five straight years. Portions of the business were sold in 2006 and again in 2016 but the lighting business remains. Oldenburg has given back, too, through board service and by providing free office space to nonprofits.

Theresa Nemetz, the founder and president of Great Lakes Shore Excursions and Milwaukee Food & City Tours, received the Regional Spirit Award. Nemetz’s businesses showcase the best of Milwaukee to thousands of visitors annually and she has grown the operation to other cities around the Great Lakes.

ENTREPRENEURSHIP AWARD WINNERS INCLUDE: » Jeremy Fojut, co-founder and CEO, Like|Minded » Justin Nicols, founder and CEO, Sift Healthcare » Glenn Reid, founder and CEO, Marathon Machines Inc.

INNOVATION AWARD WINNERS INCLUDE: » Advanced Ionics » Rapid Radicals Technology » Wearable Technologies

Read more about the Lifetime Achievement, Regional Spirt, Entrepreneurship and Innovation award winners in this special section.

MESSAGE FROM SPONSOR:

As Wisconsin’s largest family-owned financial services company, we’re proud of the legacy we’ve built, serving families and businesses for over 50 years. What matters most is doing what’s right – for our customers, associates and our communities. Our roots are here; our focus is here; our decisions are made here.

Johnson Financial Group is a privately owned financial services company offering business banking, wealth and insurance solutions through Johnson Bank, Johnson Wealth and Johnson Insurance Services.

Our business team is honored to serve you and looks forward to connecting soon. For more information visit, JohnsonFinancialGroup. com/business.

MATT HASS VP, Small Business Banking Manager 262.523.8272 | mhass@johnsonfinancialgroup.com

Meissner Tierney Fisher & Nicholss.c. has an exceptional history of providing high-quality legal services for over 170 years. With a sophisticated practice committed to careful and effective legal representation across a broad spectrum of clients, we maintain a reputation for both competence and integrity. The firm represents its clients in a wide variety of matters, ranging from the challenges of a start-up enterprise to the opportunities and pitfalls businesses encounter, and ultimately to smooth succession. We provide clients with critical advice and judgment to help them make sound business decisions to protect and grow their companies.

MESSAGE FROM SPONSOR:

SCOTT T. REIGLE 414.273.1300 str@mtfn.com | mtfn.com

JAMES M. SOSNOSKI 414.273.1300 sjm@mtfn.com | mtfn.com