Caldwell: Prudent Wheatland a star in banking circles

Wheatland Bank earned a profit last quarter, as it has for every quarter since it was founded in Davenport 32 years ago.

The holding company, Community Financial Group Inc., raised $3.7 million in mid-summer without any prompting from regulators who have been, let us say, emphatic in the case of other area institutions.

Eastern Washington and North Idaho have been extremely fortunate that no banks have had a Friday night visit by the Federal Deposit Insurance Corp., which has so far closed 14 in Washington and one in Idaho. Not that it hasn’t been close.

Wheatland is among just four Eastern Washington banks – and the only one in Spokane – with a Bauer Financial Group five-star rating for financial soundness. But its branches in downtown Spokane, the North Side, and Spokane Valley have only 1 percent of all bank deposits in the county, and probably a like share of loans.

Chairman, president and chief executive officer Sue Horton says she intends to change that.

Wheatland has reaped a small mountain of deposits from its traditional base in dryland farming country. Four Columbia Basin branches started from scratch in 2008 have become money magnets, too.

But one of the ironies of being a bank rooted in farm country during some of agriculture’s best years in a long time is your customers borrow less when they have a binful of cash. Horton says ag-related loans typically represent about 40 percent of Wheatland’s business.

So the bank has capital to spare for new lending. Very prudent new lending.

A modest 3 percent of Wheatland loans are delinquent, Horton says, because the bank stuck to an old rule-of-thumb for commercial real estate lending; no more than 300 percent of total capital. Some banks doubled or tripled that ratio, only to be burned by their over-reaching.

The bank expanded into the Basin three years ago with an equally cautious strategy, she says.

Instead of buying banks or branches at pre-recession earnings multiples, and waiting a decade for the payoff, Wheatland opened loan production offices with a team assembled from other banks, and grew those offices into bank branches. Two weeks ago, Wheatland dedicated a $2 million building in Wenatchee. A twin opened a year ago in Yakima.

Horton, frequently ranked among banking’s most powerful women, manages risk as if she were playing with her own money. As one of the Wheatland insiders who owns a substantial piece of the bank, she is. That group has been willing to forgo the highs enjoyed by competing banks when times were good to avoid the lows nearly fatal to some, she says.

As a certified public accountant auditing savings and loan institutions early in her career, Horton saw up-close what happens to financial institutions that forget their roots. Many thrifts were wiped out when they strayed from their traditional mission of home-lending.

Because Wheatland stuck to fundamentals, bank shareholders last month received a 5 percent annual stock dividend, up from 4 percent. Wheatland earned $1.1 million in 2010 on assets at year-end of $262 million. Both were 9 percent increases over 2009.

Horton says she admires the independence and steady, community-based banking that has earned Washington Trust a dominant position in Spokane, where it has more than twice the deposit share of the next two largest banks.

But to offset the decline in farm-country loan demand, Horton says Wheatland wants a bigger piece of the action in Spokane, and has the resources to go get it. She hired a new chief banking officer, Mike Palmer, to help make it happen – the Wheatland way.

“We didn’t make it this far to change our operating procedures,” she says.

Why risk it?