Most community banks in southern Wisconsin remain financially strong despite writing fewer home mortgages due to the housing market slowdown, according to the latest scores by two bank-rating firms.

No area banks received the worst ratings from either TheStreet.com or Bauer Financial, based on first-quarter data. The ratings measure each bank 's financial strength and stability, which are important to the ability to survive tough economic times.

Mortgage writedowns and rising loan-loss reserves at the nation 's largest banks have received the most attention, but smaller banks also have been hit by the real estate slowdown and related problems, said Philip van Doorn, senior banking analyst at TheStreet.com Ratings.

"Smaller community banks are now starting to feel the pain, " he said. "A majority of the smaller banks suffering in the downturn had significant residential construction portfolios. "

The number of problem banks is multiplying nationwide, said Karen Dorway, president of Bauer Financial. She said 281 banks with two-star rankings or less are on Bauer Financial 's problem list, up 61 percent from the previous quarter.

More than 67 percent of all banks rated earned four or five stars to qualify for Bauer Financial 's recommended list, Dorway said.

Advice to depositors

"The key is to do a little homework before you open an account at a bank you don 't know and certainly before depositing $100,000 into any bank, " she said.

Van Doorn said depositors with balances above insurance limits of the Federal Deposit Insurance Corp., such as school districts and businesses that make large seasonal deposits, could lose some of their money if a bank fails. Wisconsin has a special fund to cover losses above $100,000 for municipalities and school districts.

"Depositors whose banks have ratings below a C might have cause for concern, especially if the institution has a recent history of a decline in capital, earnings or asset quality, " van Doorn said.

From an investor perspective, TheStreet.com ratings emphasize capitalization, asset quality and profitability while including liquidity and stability. Bauer Financial ratings emphasize stability and take more of a depositor perspective, Dorway said.

Banks rated adequate

Among 74 banks operating in south-central and southwestern Wisconsin, none rated less than the "adequate " rating of three stars by Bauer Financial and no banks rated E, the lowest ranking by TheStreet.com.

Nine area banks earned A rankings while four banks were rated D or lower by TheStreet.com. Fourteen area banks received the top five-star rating from Bauer Financial while nine received the lowest area ranking of three stars.

Dorway said Wisconsin ranks 37th in the nation for the number of problem banks, with three banks, or less than 1 percent, rated two stars or less by Bauer Financial. She said Georgia, which ranks first, had 12.6 percent of its banks with the worst ratings.

Outpacing their peers

"Wisconsin banks are outpacing their peers, " said Kurt Bauer, president of the Wisconsin Bankers Association. "They 're weathering the downturn better than their peers in the Midwest and nationally. "

He said less than a half percent of Wisconsin banks were involved in subprime mortgages.

Premier Bank of Fort Atkinson was the only area bank with both an A+ rating from TheStreet.com and a five-star rating from Bauer Financial.

"We have a good staff, " said bank president and chief executive David Bienfang. "We have very sound underwriting requirements and minimal charge-off activity. We 're blessed with a good mix of mortgage and commercial loans. "

Bienfang said the bank also has a good efficiency ratio and ranks well in the number of employees per million dollars in assets.

Banks not the same

"There have been times in the past where people thought all banks were the same, " he said. "Maybe people are taking a closer look. It 's more important now than it was five to 10 years ago because you didn 't have some of the problems then. "

Mike Jones, senior vice president of lending at the Bank of Prairie du Sac, said stability, consistency and financial strength are the key characteristics of his bank, which received an A rating from TheStreet.com and a five-star rating from Bauer Financial.

"We have a diversified portfolio, " he said. "We really look at it from a long-term what 's good for the customer base, not the flavor of the day. "

The economic slowdown has brought some stress to the bank 's loan portfolio and executive vice president Pat Yanke said some customers were affected last month by flooding.

With a D- rating from TheStreet.com and a 3.5-star rating from Bauer Financial, Milton Savings Bank was one of the lowest-rated area banks.

President Jerry Turner said the slow mortgage market has hurt the small 104-year-old bank, which has assets of about $17.5 million.

"We 're just riding the storm out, " he said. "We 've experienced some growth this year in our loan portfolio, but the interest margins still aren 't there. "

Turner said he 's concerned about how the planned closing of the General Motors Janesville plant will affect his bank and others in the area.

The emphasis of TheStreet.com rankings on profitability hurts the ratings of nonstock banks like Home Savings Bank of Madison, which is a mutual bank owned by its customers.

But economics professor Russ Kashian of UW-Whitewater said profitability is critical even to the growth of nonstock banks or nonprofit credit unions. Credit unions often define profit as surplus funds.

Increasing bank growth

"In order for the bank to grow, it needs to grow retained earnings, " Kashian said. "If I am a bank loan officer, my loan size is restricted by my asset size. Bigger assets (means) bigger loans (and) more opportunity. "

James Johannes, director of UW-Madison 's Puelicher Center for Banking Education, said it 's very dangerous and misleading to compare banks only on profitability.

"Profitability is important for stockholders and banks trying to build up their capital ratios, but that does not translate directly into a bank being a good bank, " he said.

Johannes said whether a bank 's capital-asset ratio is strong enough to handle its risks is a key factor and that customers also should choose a bank based on whether the deposit and loan menus meet their needs

He said depositors with accounts of less than $100,000 have fewer worries because their money is FDIC-insured.