Business - Business News

POSTED: Sunday, Nov. 01, 2009

While deposits are up, local banks continue to work through lending woes

It's been a traumatic year in the banking industry and there may be more trauma in the coming months, but local experts are beginning to see at least some signs of improvement.

There are still many issues confronting those who operate banks and credit unions these days: foreclosures on residential projects and homes; bankruptcies; the weight of other non-performing assets are all making it difficult for some to function properly as lending institutions. So far this year, more than 100 banks across the U.S. have been taken over by the Federal Deposit Insurance Corporation, including three in Washington.

However, at least the panic of last fall has dissipated, giving the industry a chance to recover.

"It has stabilized, but at a low level," said Bruce Clawson, senior vice president and division manager at Banner Bank, which is based in Walla Walla but has six branches in Whatcom County.

"There is a lot of hard work ahead, however, and it's going to take time."

While the lending side of institutions with branches in Whatcom County has been fraught with problems - Bellingham-based Horizon Bank, Everett-based Frontier Bank and Spokane-based Sterling Savings Bank are all operating under cease-and-desist orders from the FDIC, seriously curtailing lending activity - getting customers to put money into accounts has actually been a bright spot. Despite the recession, Whatcom County deposits in local banks rose 3.8 percent in the past year to $3.2 billion. Deposits at the six local credit unions in the past year rose 11.8 percent to $748.8 million.

Some of the activity could be from people pulling money out of the stock market and putting it into bank accounts, but people are also saving money, said Dennis Long, CEO of Aberdeen-based Bank of the Pacific, which has four branches in Whatcom County.

In March and April, Bank of the Pacific saw deposits rise across all its branches by $45 million, the biggest growth the bank has seen for a two-month period.

"This has been a recession where people are focused on paying off debt and growing their savings," Long said.

With the banks falling into trouble during the financial meltdown last fall, some consumers made the switch to credit unions, which were able to avoid much of the initial mess. Whatcom Educational Credit Union continues to see significant growth in its membership, with 58,575 members as of June 30. Four years ago, membership was around 37,000.

"We were on a good growth rate because of our expansion before the financial trouble hit; that momentum has helped us through the past year," said Wayne Langei, CEO of Bellingham-based WECU, which has 11 branches in the county.

However, the economic woes are impacting credit unions as well. At WECU, delinquencies in auto loans and other consumer loan products have risen this year. WECU hasn't been hit too hard by home foreclosures yet, but Langei said he expects they will rise as well.

"It's been a difficult year, and next year will be a difficult year," Langei said.

Banks based in Washington state that became heavily involved in residential real estate projects during the bubble continue to struggle mightily. Both Horizon Bank and Frontier Bank have been searching for outside investors but have yet to find suitors. Last week Frontier posted a $141 million third quarter loss, and has lost nearly $224.9 million this year. Horizon Bank has not yet reported its latest results ending Sept. 30, but for the first half of 2009 losses were at $71.4 million. As a result, Horizon fell into the "significantly undercapitalized" category in the eyes of federal regulators at the end of June.

While banks and credit unions will continue to work on improving lending issues, the industry will also need to see some recovery in residential real estate. From a bank standpoint, there continues to be an oversupply of residential lots and homes for sale.

"While there are some indications the national recession might be over, it doesn't mean it is in Washington state or in residential construction," said Clawson. "There is still some correction that needs to take place."

Financial institutions are also worried one other shoe may drop - commercial real estate. So far, foreclosures on empty commercial buildings haven't had the same impact as residential, but there has been speculation that it is coming.

"I think it is a concern; we're waiting to see what happens there. The Achilles heel for community banks in Washington has been residential projects," Long said.

MARKET SHARE OF LOCAL BANKS

The amount of Whatcom County total deposits in each bank, percent change in the past year and local market share. The latest deposit numbers are as of June 30, 2009:

Horizon Bank: $778.2 million, up 3.6 percent. Market share: 24.6 percent.

Peoples Bank: $596.1 million, up 13.4 percent. Market share: 18.8 percent.

Bank of America: $334.5 million, up 6.7 percent. Market share: 10.6 percent.

KeyBank: $260.5 million, up 12.2 percent. Market share: 8.2 percent.

Banner Bank: $223 million, down 12.5 percent. Market share: 7.1 percent.

US Bank: $184.2 million, up 3.1 percent. Market share: 5.8 percent.

JP Morgan Chase: $167.2 million, down 20.4 percent (when it was Washington Mutual). Market share: 5.3 percent.

Whidbey Island Bank: $125.3 million, up 12.6 percent. Market share: 4 percent.

Wells Fargo Bank: $124.1 million, up 21.4 percent. Market share: 3.9 percent.

Bank of the Pacific: $105.3 million, up 24.6 percent. Market share: 3.3 percent.

Sterling Savings Bank: $90 million, down 7.4 percent. Market share: 2.8 percent.

Frontier Bank: $71.8 million, up 15.4 percent. Market share: 2.3 percent.

Washington Federal Savings: $43.1 million, down 1.6 percent. Market share: 1.4 percent.

Skagit State Bank: $41.2 million, up 9.9 percent. Market share: 1.3 percent.

Business Bank: $18.8 million, down 55.8 percent. Market share: 0.6 percent.

Columbia State Bank: $1.4 million, up 7.7 percent. Market share: 0.04 percent.

SOURCE: FDIC

CREDIT UNION GROWTH

The amount of Whatcom County total deposits at each credit union, percent change in past year, number of members and percent change from previous year. These numbers are as of June 30, 2009:

Whatcom Educational Credit Union: $461.8 million, up 14.2 percent. Members: 58,575, up 7.3 percent.

Industrial Credit Union: $117.4 million, up 7.8 percent. Members: 21,137, up 1.3 percent.

North Coast Credit Union: $110.9 million, up 11.8 percent. Members: 13,891, down 8.1 percent.

GaPAC Community Federal Credit Union: $41.7 million, up 3.2 percent. Members: 4,297, down less than 1 percent.

Pacific Northwest Credit Union: $13.9 million, up 3.7 percent. Members: 2,297, down 2.8 percent.

Ferndale Refinery Credit Union: $3.1 million, down 11.4 percent. Members: 2,000, unchanged.

SOURCE: NATIONAL CREDIT UNION ASSOCIATION