I went to an interesting City Club meeting earlier today at Bellingham’s Northwood Hall, featuring Brad Williamson, director of Washington Department of Financial Institution’s Division of Banks. He talked about the banking industry in this state and its future. Here’s the (link) to the article.
Because I write for both the print and the online editions, the article has to be a certain length. I wanted to add some other ideas expressed at the meeting that I couldn’t fit into the story:
– Williamson talked about why construction loans (which has gotten quite a few banks in trouble) are much riskier than many other types of loans. When a bank lends out money for a construction project, it could be years before it starts getting paid back because the project needs to be built, then leased. So unbuilt/undeveloped projects mean the bank usually has to write off most or the entire loan.
– Why are banks attracted to construction loans? While riskier, they are also hugely profitable, Williamson said. They have a high return with less work than some other types of loans.
– There could have been less bank failures if more private equity investment was allowed, but government regulators were wary because that was part of the problem with the savings and loan crisis in the late 1980s and early 1990s. Private equity is generally involved for short-term profits, and banks need longer term solutions.
– Bruce Clawson of Banner Bank was also a speaker at City Club, and he provided some insight about the Whatcom County. In addressing a question about the lack of lending taking place right now, he said it boils down to three issues:
1. Standards are tighter to get a loan;
2. Applicants are less credit-worthy because the recession has brought down credit scores in a variety of ways;
3. Businesses that are eligible for a loan are reluctant to take on more debt for expansion until they have more confidence in the economy.
I’ll post more information about the meeting (including some stats) in future posts.
Dave,
As you know, the FDIC understands that community banks are unique; in fact, so unique that the FDIC recently established an advisory committee on community banking. A key aspect of community banking is the strength of the relationships these banks have with members of the community.
At least in Bellingham, Horizon Bank suffered from souring relationships with a segment of its community. I wonder if Horizon’s perceived mistreatment of its community in any way caused its demise.
Washington Federal has taken over Horizon’s troubled assets and, in many cases, its troubled relationships. From my perspective, WAFed has not handled these troubled relationships any better than Horizon. I wonder how other members of the community feel.
Hi Larry,
I wondered about customer relationships when I was putting together the bank market share column I did a couple weeks ago (Here’s the link: http://www.bellinghamherald.com/2010/10/17/1671068/bank-failures-shift-2010-whatcom.html).
Washington Federal’s local deposit total after taking over Horizon was significantly lower compared to Washington Fed/Horizon deposits the previous year, making one wonder why a lot of customers pulled out deposits. Washington Fed’s Tom Kenney noted, however, that there were other factors.
In its deal with the FDIC, the bank only bought a portion of Horizon’s assets and liabilities. During its final months of existence, Horizon tried to survive by offering certificates of deposit at interest rates much higher than the market average, in order to raise capital. After Washington Federal took over, it adjusted the CD rates closer to the market rate, which led many customers, including those through brokered deposits, to pull out.
That also shows up in the market share of other banks. The market share of Peoples Bank went up year-over-year, but not enough to equal the difference of the Horizon/Washington Fed transition.
I guess moving forward a check of Washington Fed’s local deposits might be an indication of how community members feel about the bank.
As you know, one of the “souring relationships” that Horizon Bank suffered from was a result of the bank’s role as developer of the Fairhaven Highlands 739-unit project on Chuckanut Ridge. There are many reasons to oppose this project, including those I have listed in my comment letter on the Draft EIS (especially p. 4, Section III.A, “Holistic view & themes) @
http://www.cob.org/documents/planning/growth/fairhaven_high/eis%20info/deis/public%20comments/31-DEIS-0236.pdf.
These reasons still exist, yet Washington Federal has stepped in as developer without any sensitivity to the community’s concerns. Naturally, these souring relationships continue to sour, but now the anger is directed at WAFed. Being much larger, WAFed may very well be more immune to this anger. In fact, they don’t seem to care at all.
Perhaps that’s a winning strategy for the bank. Only time will tell. There’s much more to say, which will likely be posted in an article on the Northwest Citizen website (http://nwcitizen.us/)