Local banks weathering economic storm

The concern continues to revolve around two questions: Is my money safe? Can I still get a loan? Bankers continue to assure clients that the answer is yes to both. Consumers could be heartened by the FDIC's decision last week to raise the insurance cap from $100,000 to $250,000, but convincing people they have money to loan has been more difficult.

A factor in Wall Street's tumble last week was concern about credit freezing for banks, but so far that involves the trading of commercial paper, which is different from credit that banks give to businesses or new homeowners.

The way it's described by many economists is there are several different faucets pumping money into the economy. The faucet where banks lend to each other is the one that seems stuck.

"We would love to make a loan; that is what banks do. Our criteria is not any different than it was a year or two ago," said Dennis Long, CEO of The Bank of the Pacific, headquartered in Aberdeen. "One of the biggest challenges is the consumer fears from the headlines they see. The term 'bank' gets used rather loosely, tying us to the toxic subprime loans that hurt investment institutions. We never made a subprime loan or purchased mortgage-backed securities."

Given the magnitude of last week's drop at the markets, however, concern is that other faucets will start freezing up. Because of this freeze potential, banks are going to focus on taking care of the customers they have now and not aggressively pursuing new lines of credit, said Don Zimmerman, president and CEO of Business Bank, which has branches in Whatcom and Skagit counties.

"We have to work with the capital we have, and not expect to be able to find credit from other areas until this liquidity issue is resolved," Zimmerman said. "It is very important right now to maintain the customers we have."

Banks also base loans on what's happening in the economy in terms of supply of demand. There is an excess of residential real estate projects, for example, so it would be much harder to get a loan for a residential development or a condominium building than a year ago.

"Right now banks will be looking to reduce real estate inventory in their portfolio; we are looking to increase our portfolio in areas such as commercial, industrial and agriculture," Zimmerman said.

One troubling spot that appears to be easing is banks' vulnerability to risky real estate loans. The federal government has taken steps to shore up financial markets, and banks that were giving out risky loans have stopped doing so, Wallace said.

"There will still be little things that will pop up, but the major issues have been identified and are being addressed," Wallace said.

DEPOSITS INCREASE IN WHATCOM COUNTY

Locally, deposits increased nearly $200 million between June 2007 and June 2008, according to a report released last week by the FDIC. Among the top 10 banks in terms of local deposits, Horizon Bank, Peoples Bank and Wells Fargo increased market share, while Bank of America, Key Bank, Washington Mutual, U.S. Bank and Whidbey Island Bank saw slight decreases. Two banks, Columbia State Bank and Seattle Savings Bank, entered the local market in the past year.

The order of the first eight banks was unchanged from last year; Wells Fargo jumped over Bank of the Pacific and Sterling Savings to grab the ninth spot.

The market share report only goes through the end of June, so it is not known yet what the impact the past few weeks will have on banks doing business in Whatcom County. Zimmerman noted banks are now being hit with higher FDIC assessments and regulators are taking a closer look at how well capitalized banks are. He noted Business Bank is well capitalized according to Risk Based Capital ratio formulas, as are most banks that are doing business in Whatcom County.

"This is a time where we need to be careful, but I'm confident the local banks will work through it," Zimmerman said. "Greed, corruption and lack of oversight led to what happened, and we're all paying the price of it."

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