Uncertainty in some economic sectors benefits Alaska’s financial institutions

By Molly Dischner

Morris News Service – Alaska

By many metrics, Alaska’s financial institutions are doing well.

All of the state’s banks posted an increase in total assets for the second quarter of 2012 compared to the second quarter of 2011.

First National Bank Alaska saw the largest second quarter increase: 6.8 percent.

That number crept up some more in the third quarter, said Director of Corporate Communications and External Affairs Cheri Gillian, reaching the bank’s highest-ever level.

“We just for the first time exceeded $3 billion in total assets,” Gillian said.

The bank has seen an increase in total assets due to its entire portfolio — loan portfolio, cash and various other contributors, Gillian said.

At Northrim, total assets increased 1.8 percent for the second quarter of 2012, compared to the year prior.

Northrim Chief Financial Officer Joe Schierhorn said the increase was driven primarily by a growth in loan balances, and the bank saw loan growth in every category.

Denali State Bank saw a 2.9 percent second quarter increase year over year.

Denali President and CEO Steve Lundgren said the bank is having a good year, but the driving factor behind the increased assets is that people aren’t investing elsewhere.

“I think assets are up because people are nervous about what to do with their cash,” he said.

Uncertainty in other sectors — like stocks and global market factors — can make the stability of a bank very attractive.

At Alaska USA, the largest credit union in the state, total assets have been steadily growing, hitting $5 billion for the third quarter of 2012.

Ketchikan-based First Bank had a 2 percent yearly increase for its second quarter total assets, while Alaska Pacific had a 2.5 percent increase, and Mt. McKinley bank had a 5 percent increase.

President Craig Ingham said Mt. McKinley has seen deposits grow, and may have a record earning year when they close out.

“We’re just having a stronger year,” Ingham said.

Ingham said the health of local banks is a sign that Alaska’s economy didn’t tank the way other places did. Another sign of that, he said, is in unemployment statistics. Alaska usually has higher unemployment than elsewhere in the country; right now, it’s lower.

“It’s certainly a sign of a stable economy,” Ingham said.


 Loan performance

Despite some depressed demand, loan performance overall is looking good.

Northrim saw an 8.4 percent increase in total loans and leases for 2012, the highest of any of Alaska’s banks.

At Denali State Bank, total loans and leases were up 8 percent for the second quarter compared to the same time in 2011. In part, that was driven by an increase in commercial loans because it was nearing summer and construction season. Lundgren said the bank expected to end the year with a pretty similar amount of loans as it has in past years.

“My view of our Fairbanks economy is our economy’s kind of flat,” Lundgren said.

Denali also had fewer past due loans, but more in nonaccrual for the second quarter. Lundgren said some of that was seasonal, and improved in the summer.

“We see some improvement in the summertime because more people are working,” Lundgren said.

Total loans and leases were down at Mt. McKinley Bank for the second quarter although the bank has seen increases in some sectors.

“We’ve seen an uptick in some lending activity on the commercial side, which has been an encouraging sign,” Ingham said.

While the number of loans 30-89 days past due has increased, Ingham said they still represent about the same percentage of the bank’s loans.

The bank also saw a huge decrease in charge-offs compared to 2011. Those fell more than 89 percent year over year for the second quarter.

“Loan losses have been very, very minimal,” he said.

Instead, loans are moving from nonaccrual back into payment status, Ingham said.

Alaska USA’s total loan value also was up for both the second and third quarters of 2012, compared to prior quarters and a year ago. Alaska USA Senior Vice President, Corporate Administration, Daniel McCue said the credit union was on record pace for originating first mortgage loans. Alaska USA also had an increase in car loans that contributed to the total growth.

“Alaska USA has continued to grow its car loan portfolio consistently over the last several years,” McCue said.

First National Bank also saw a slight increase, 0.9 percent, in total loans and leases, and significant recovery of nonaccrual loans, Gillian said.

“We like to make good loans because that’s what moves Alaska and Alaskans forward,” Gillian said.

Loans and loan performance at community banks play a key role in the economy, Northrim President and CEO Joe Beedle said. Across America, community banks hold 10 to 11 percent of the country’s loans, but 40 percent of the loans to small businesses.

Each of those loans has a greater impact through the multiplier effect.

“The economy … really needs community banks, and needs to keep them healthy,” Beedle said.



Loans and leases aren’t the only thing propelling Alaska’s banks.

Lundgren said refinancing due to low mortgage rates is the driving factor behind Denali State Bank’s 8.2 percent increase in net income year over year for the second quarter.

First National and Northrim also saw substantial growth in their noninterest income, due in part to mortgages.

Gillian said First National’s increase was a direct result of low mortgage rates.

For the third quarter, Northrim’s noninterest income contributed about 28.2 percent of its total revenue, compared to 26.2 percent in the second quarter, and 24.5 percent for the third quarter of 2011.

Northrim earns noninterest income from financial services affiliates, electronic banking and other sources. 

Schierhorn said the contributors to that increase include Residential Mortage, Northrim Benefits Group, a receivables purchasing business, and wealth-management affiliates.

Mortgages have done well as a result of low interest rates, with residential lending actually increasing. Schierhorn said Northrim owns 25 percent of Residential Mortage.

Northrim also owns 100 percent of a Bellingham, Wash.-based receivables purchasing company, which was up 19 percent year-over-year. Northrim Benefits, the health insurance brokerage company of which Northrim is a partial owner, was up 14 percent year over year in the third quarter.

The bank also had revenue from various customer transactions, including electronic banking, certain deposit charges and NSF fees.

Beedle said Northrim has worked hard at diversifying its revenue stream, which offers some protection from challenges in one sector or another.

Northrim’s 28 percent noninterest income is higher than other banks throughout the Pacific Northwest that Northrim considers its peers, Beedle said. At those institutions, other revenue is typically 12 percent to 16 percent.

“We feel that’s a factor that distinguishes us from our peers,” Beedle said.

Diversification is nothing new. Northrim got into mortgages in 1998.

“We have been doing that for the last 14 years,” Beedle said.


Future challenges


Despite the growth, bankers say they’re still concerned about the future.


New federal regulations are one of the big concerns. Banks must comply with additional oversight and reporting as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in the wake of the financial crisis.


“Much of that wasn’t caused by community banks, yet we’re struggling as community banks to implement these regulations,” Lundgren said.


Beedle said that one of the current challenges for banks are greater equity requirements, meant to avoid a systematic failure.


“The regulatory environment wants more capital, wants less risk for government,” Beedle said.


In the future, banks may not see as much return on equity, and may look at higher taxes, Schierhorn and Beedle said.


The increased costs of operation are particularly difficult given the small margins that community banks operate on.


Gillian said First National Bank is seeing businesses wait to see how various economic issues play out – whether they’re waiting on North Slope development, the national election, or other issues is unknown, but likely all play into it.


“Folks are still sitting back a little and holding on to their cash,” she said.


 Molly Dischner can be reached at molly.dischner@alaskajournal.com.