The rationalization of federal fisheries has created a healthier environment for Alaska banks to underwrite commercial fishing industry loans.

Alaska’s banks had a healthy 2014 in spite of the nervousness over falling oil prices, spurred by increased consumer market confidence and commercial construction. 

The five Alaska-based banks together grew their total assets 9.3 percent from $5.4 billion in 2013 to $5.9 billion in 2014. Net income grew a collective 11 percent, from $55 million in 2013 to $61 million in 2014.

Luke Fanning, a loan officer at First National Bank Alaska and commercial fisherman, said the banks have plans to use flush deposit balances to up their game in the fishing world.

“Seafood is the number one employer in Alaska, and banks recognize that, and they’re hungry for loans,” Fanning said.

Northrim Bank had a record-setting 2014, enhanced by two acquisitions and an improving commercial real estate climate.

Northrim’s total assets in 2014 were $1.4 billion, 19 percent more than $1.2 billion in 2013. Net income climbed to $19.4 million, up 42 percent from $13.6 million in 2013. Northrim Bank president and chief executive officer Joe Beedle said his bank is interested in increasing their loan portfolio’s representation of the fishing industry to 10 percent.

“Right now,” said Beedle, “our (commercial fishing loan rate) is about 1 percent. No loan is too small and as high as $5 million to $10 million. We can’t perfect permits, but we’ll work with (the Commercial and Agricultural Bank of Alaska) for a limited entry permit assignment. Quota shares are something we can perfect.”

Beedle said his company has always had heavy representation in fishing, but the time is right to expand. Northrim’s acquisition of Alaska Pacific Bank gives it a toe-hold into the fishing-heavy Southeast market of what Beedle calls “four-way fishermen.”

“A four-way fisherman can work year around,” said Beedle. “They have limited entry permits for salmon or herring, they have quota for black cod and halibut, they fish crab.”

Bankrolling the fishing industry has never been as reliable an investment as residential mortgages or commercial real estate.

“Commercial fishing will always carry a higher amount of risk than many other business ventures,” wrote Jim Andersen, loan manager for the Alaska Division of Economic Development, which specializes in fisheries loan programs. “Not all lenders have the expertise or the appetite for the amount of inherent risk in the industry.

“While today’s loan environment is improved over what it had been for several years after the (1990s and early 2000s) crisis, it is still a challenge for some fishermen to find financing to meet their needs,” he wrote.

Four-way fishermen represent a stabilization of the industry that has made commercial fishing loans more attractive, as fewer numbers of larger and more diversified fishermen accumulate capital. Instead of a single crabber in a 24-hour derby, today’s fishermen can hold both state permits and federal quota to prosecute relatively steady harvests of different species throughout the year.

Many Alaska state fisheries operate on a limited entry system, which offers a set amount of permits for 68 fisheries in inland waters up to three miles off the coast. The National Oceanic and Atmospheric Administration has established rationalization in most Alaska federal fisheries, which assigns fishermen individual fishing quota, or IFQ. Federal fisheries occur in the U.S. Exclusive Economic Zone, or EEZ, from three to 200 miles off the coast.

When the quota system was first begun in the federal fisheries off Alaska, a common fear was consolidating too much quota in too few hands. Commercial Fishing and Agricultural Bank, or CFAB, president Lea Klingert said consolidation isn’t necessarily an evil.

“Regardless of whether or not it was right or wrong, it seems to have worked in the financial realm,” Klingert said. “Right now, the options for fishermen are better than they’ve ever been. For everything but permits, over the last several years the fishery has shrunk through rationalization. Over the years, the stronger and the better managed members of the fleet have survived, so the players today are financially stronger than they’ve been in the past. And the industry is very healthy.”

Records from the Commercial Fisheries Entry Commission, or CFEC, show a rise in self-financed limited entry permit transfers.

Of 425 permits transfers in 2014, 76.3 percent were self-financed, 1.4 percent financed by banks, 14.9 financed by state Division of Economic Development loans, 2.5 percent financed by CFAB loans, 0.2 percent financed by the transferor, 1.8 percent financed by processors, and 2.9 percent financed by some combination of the six.

The number of transfer permits financed by banks has dropped steadily since 1980. In 1980, banks financed 11.9 percent of all permit transfers. In 2014, only 1.4 percent of transfers were financed by banks. The average number of bank-financed transfers from 1980-2014 is 5.2. percent.

Conversely, the number of self-financed transfers has risen. In 1980, only 40.7 percent of all transfers were financed by the permit holder. In 2014, 76.3 percent were self-financed, for a 1980-2014 average of 68.2 percent.

Alaska state and federal fisheries carry three major capital investments: limited entry permits for state-run fisheries, quota for federal fisheries and vessel financing. Only the State of Alaska through the Division of Economic Development and CFAB can use permits as collateral, so banks and federal loan programs have a more difficult time underwriting permit loans than federal quota or vessels.

Alaska financial institutions like Northrim and First National Bank Alaska focus on loans for smaller multi-use vessels and quota, while large Outside banks like Bank of America, Wells Fargo, and Northwest Farm Credit have more capital and reach to underwrite factory trawlers, processors, and community development quota, or CDQ, groups.

The CDQ program gives 10 percent of federal allocations to 65 villages within 50 miles of the Alaska coast. Angel Drobnica, who represents the Aleutian Pribilof Island Community Development Association, said securing the group’s primarily Wells Fargo loans has gotten easier in recent years as the group’s capital has grown.