September 28, 2008 in Business

Area banks weathering the storm

Assets holding steady; loans still available
By The Spokesman-Review

Bailout plans met with skepticism

Local bankers expressed some doubt and resentment regarding the bailout plan taking shape in Washington, D.C.

Sterling Financial Corp. Executive Vice President Dan Byrne recalled the performance of the Resolution Trust Corp., which was created in the late 1980s to work through the wreckage of the savings and loan industry.

As the assets on its books accumulated, he said, the RTC started to dump them. That drove down the value of the assets of healthy institutions, he said.

The effort eventually cost taxpayers $140 billion, almost triple the projected price tag.

Byrne said he is concerned the U.S. Treasury will repeat the RTC’s error by not being patient enough to hold the securities it may acquire as part of a bailout long enough to get full value for taxpayers.

That said, he added, “I’m not sure there’s a better solution in terms of putting liquidity and confidence back into the marketplace.”

Inland Northwest Bank President Randy Fewel questioned whether Treasury will purchase troubled loans from small institutions.

“They’re not going to buy any of Inland Northwest Bank’s troubled assets,” he said.

Fewel also complained about the scrutiny community banks undergo while the investment banks now looking for help took a pass.

State National Bank Chairman Greg Deckard agreed.

“I’m disappointed that the regulation of these investment banks has not been commensurate with the regulation community banks have been under,” he said.

Wall Street credit woes have not yet filtered down to Riverside Avenue in Spokane or Sherman Avenue in Coeur d’Alene, Inland Northwest financial leaders said last week.

Loans for restaurants, income properties or construction may be problematic, but money is readily available for other business purposes. Demand remains solid.

Consumers, meanwhile, are looking at rising mortgage rates, and perhaps less bank willingness to raise their credit card limits.

At Numerica Credit Union, President Dennis Cutter said a few members are turning in the keys to their gas guzzlers. In one unfortunate case, a member behind one payment who lost her job brought in the keys to her home.

“We probably could have kept her in that house,” he said. “Members are kind of on the edge of their seats.”

Numerica, unlike most credit unions, is an extremely active business lender, ranking second only to Mountain West Bank of Idaho so far this year in the number of loans guaranteed by the U.S. Small Business Administration.

Business owners are being cautious, Cutter said, but interest rates – 6.25 percent to 7.25 percent – remain attractive.

Demand for SBA guarantees usually increases as the business climate softens. This year has been no different.

Branch Manager Ted Schinzel said the Spokane office is on track to guarantee 636 loans worth a total $125 million in the fiscal year that ends Sept. 30. In the 2007 fiscal year, his office did 654 loans for $94.9 million.

“The Spokane region is doing much better than the rest of the U.S.,” Schinzel said, crediting business diversification, real estate values that so far have held up better than those in other regions, and traditionally conservative lending practices.

Bob Beck, who heads the Mountain West Bank SBA lending program, said the Spokane office could do even more loans had its staff not been pared to three as the federal agency centralized loan processing and other functions.

Although Mountain West wants more documentation and equity for its business loans, Beck said the Spokane Valley office that opened last year has exceeded bank objectives.

State Bank Northwest Chairman Greg Deckard said his small bank – $110 million in assets – has prospered as business owners look for the kind of relationships they cannot find with large institutions.

Capital ratios have reached record levels, he said, giving State Bank the resources to respond to new loan demand. In the last two months in particular, loan demand has been excellent, he said.

Deckard said examiners poring over industry books have been wary of construction and commercial real estate loans.

“All the banks are taking a good look at credit quality,” he added.

Officials at Inland Northwest Bank and Sterling Financial Corp. said they are proceeding cautiously.

Inland President Randy Fewel said loan volume exploded by 30 percent over the past 12 months. The bank will limit further growth while profitability catches up.

Fewel was among several officials who said deposits have increased as consumers look for safe harbors.

“I’ve never seen so many people so concerned about FDIC insurance,” he said.

Sterling Executive Vice President Dan Byrne said loan applicants may not receive the full amount they want, and they may pay higher fees.

Still, he said, “We’re actively lending.”

Washington Trust Bank President Jack Heath said loan growth already has exceeded the 7 percent budgeted for 2008.

Farmers with cash generated by higher commodity prices have been in the bank less, he said, but otherwise demand has been up across the board.

Heath said sinking values on lots purchased for later development have been the only sore spot in the loan portfolio, and most of those are in Boise, where national homebuilders dumped their inventory when they left the market.

Compared with the problems plaguing banks in other markets, and notwithstanding Thursday’s takeover by regulators of Washington Mutual Bank, “It’s a pretty good time to be a banker based in the Northwest,” Heath said.

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