Corey Chambas, member of Madison Breakfast Rotary and CEO of First Business Financial Services

Corey Chambas, member of Madison Breakfast Rotary and CEO of First Business Financial Services, was warmly welcomed by the club. He enlightened club members about the complex issues and problems banks have encountered in the current recession. Small and medium sized banks had losses throughout '08 and a terrible 4th quarter. Big banks recovered more quickly in '09 because of their investment banking activities.

Problems for the smaller banks include non-accruing loans. While Dane County is better than the rest of the industry, there's been a big increase in loan payments overdue more than 30 days. Reserve loss is serious as banks have had to dig into reserves, a drain on bank earnings. Charge-offs are large throughout the country with Wisconsin as bad as the US but Dane still pretty solid. Most of these are due to failures in construction and development (C&D) --5% or more charge offs when usually close to 1%. 18% of C &D loans are delinquent. Since banks run on very small net interest, there is little room for charge-offs leading to big losses.

Commercial real estate is a loom- ing problem; it now forms a large portion of bank's portfolios. He foresees more problems with residential real estate in the future and detailed why.

Chambas went on to explain the perception that "banks aren't lending". The amount that banks must hold in capital has increased and at a time when reserves are dropping because of problems already cited. When capital needs go up, loaning ability drops. This occurs if banks are losing money or if regulators require higher capital reserves. Both are active now. Bankers need to be very attentive to risk. With many loans delinquent, they must avoid more losses. He gave a banker's views of the likelihood to make a loan describing models of well and badly managed companies.

Chambas's overview of the state of the banking industry included many slides, graphs and some tables of statistics. E-mail him to get copies of these if you'd like more detail.