The banking industry continues to be a central player in driving economic growth across the state. Through the third quarter of 2017, Wisconsin’s 212 headquartered financial institutions held well over $80 billion in net loans and leases, an improvement of over 5% from the prior year. This steady, continued growth in the industry’s loan portfolio coupled with a similar steady decline in noncurrent loans and leases is evidence to support the fact that Wisconsin’s economy is healthy and growing.

Nearly 99% of Wisconsin’s head-quartered financial institutions are profitable as of the third quarter of 2017, and nearly 64% of these same institutions saw earnings gains. Lending by Wisconsin headquartered financial institutions is up year-over-year in almost all categories, according to third quarter 2017 numbers released by the Federal Deposit Insurance Corporation (FDIC). Total deposits at these same financial institutions is also up from the prior year to a total of nearly $88 billion. Financial institutions continue to be trusted by consumers to protect their hard-earned money which is evidenced by the continued growth in total deposits. Given the health of our state’s economy and the attraction of new businesses to our state, I expect these trends to continue at a steady pace in 2018.

Average net interest margin, which is a key measure of bank profitability, continues to hold steady in the third quarter of 2017 at 3.46% for Wisconsin headquartered financial institutions, higher than the national average of 3.30%. Looking ahead to 2018, I expect there to be continued steady interest rate hikes by the Fed under incoming Chair Jerome Powell in 2018 as his philosophy related to interest rate hikes is similar to that of current Fed Chair Janet Yellen. As interest rates continue to rise, this presents challenges for Wisconsin’s financial institutions as their core funding costs will continue to rise against a larger portfolio of long-term assets. As of the third quarter of 2017, the cost of funding earning assets grew to .50% while the long-term assets (5+ years) on the books of these financial institutions increased nearly 7% from the prior year. In addition, traditional financial institutions face growing competition from unregulated online lenders, tax-advantaged institutions, and certain fintech companies.

Merger and acquisition (M&A) activity among Wisconsin’s financial institutions continues, and I expect the pace to increase in 2018 compared to 2017. The number of headquartered financial institutions in Wisconsin fell in the third quarter of 2017 from the prior year by 6.6%, from 227 to 212. This was largely due to the heavy pace of M&A activity that was announced in calendar year 2016. At that time, heavy regulatory burden and rising technology and compliance costs, coupled with succession issues and general fatigue among bankers contributed to the pace of M&A activity.

In 2018, I am hopeful that we will begin to realize the easing of regulatory burden as well as tax relief with the passage of prudent reforms in Congress. These actions will help contribute positively to the earnings of financial institutions, which may help drive stronger M&A activity. In addition, those institutions with very strong core deposits will become increasingly attractive to institutions that don’t have high core deposits as a way to satisfy funding needs. I expect M&A activity in 2018 to affect closer to 10% of our state’s headquartered financial institutions. Our financial institutions power Wisconsin for the betterment of individuals, businesses, and communities. Financial institutions uniquely help local communities grow and thrive through the loans they make to, and the trusted wealth management advice they share with, individuals and businesses. In addition, the banking industry contributes significant financial and human resources to countless local causes and charities. It is in the interest of our entire state to support state and federal legislative policies that keep diverse financial institutions healthy and operating in Wisconsin. Meaningful regulatory and tax reform are two key legislative agenda items that must be passed at the state and federal level to help our industry.

With the continued strong economy moving into the new year, and the assumption that legislation will pass which starts to ease regulatory and tax burdens, I expect financial institutions to have another successful year in 2018.

Rose Oswald Poels is the President and CEO of the Wisconsin Bankers Association. Founded in 1892, WBA is the state’s largest financial industry trade association, representing nearly 250 commercial banks and savings institutions and their almost 2,300 branch offices and 23,000 employees