Banks gain as loans improve

Posted: Monday, March 21, 2011

Alaska-based banks put a lot of bad loans to bed in 2010 to boost their bottom lines.

The state economy remains stable, but other than a home refinancing boom caused by record low interest rates, loan demand is still soft. The six Alaska-based banks had a collective 14.3 percent increase in net income in 2010 versus 2009 while their total loan portfolios increased by 1.8 percent to $2.53 billion.

Every bank posted net income gains versus 2009, according to Federal Deposit Insurance Corp. reports.

First National Bank Alaska increased its net income by $3.2 million to $40.4 million; Mt. McKinley Bank of Fairbanks posted its second straight record year for net income with just more than $4 million; and Alaska Pacific Bank of Juneau made a $3 million swing from a loss in 2009 to a $1.05 million profit in 2010.

Community banks, which generate most of their income from loan interest, were able to increase 2010 net income year-over-year across the board in Alaska despite soft demand thanks largely to fewer nonperforming loans, less real estate owned through foreclosure, a sharp decline in charge-offs and reductions in cash set aside for loan loss allowances.

"We had a good year in 2010 because one, our economy didn't take the same kind of hits as many places in the Lower 48 and we also benefited by the re-finance boom in the housing market," said Mt. McKinley Bank CEO Craig Ingham of his second record year. "Loan demand was pretty good, not robust by any means, but our loan losses were minimal and that all combined for another great year."

At First National Bank, nearly the entire gain in net income was due to a $3 million reduction in its loan loss allowance. Loan loss allowances are set aside from bank proceeds, making any reduction a direct gain to the net income.

Only two of the six banks reduced their loan loss allowances compared to the end of 2009, but four were able to reduce the allowances from the third to fourth quarter of 2010. Loan loss allowances collectively declined by nearly $1 million from the third to fourth quarters.

The stabilization of the Alaska economy after the global financial crisis in late 2008 stands out when examining loan performance at the six state-chartered banks.

Charge-offs, or losses to bad loans, went from $20.4 million in 2009 at the six state banks to $8.6 million in 2010, a 57.6 percent decrease.

The charge-offs in 2010 are roughly in line with $8.1 million during pre-recession 2007.

Loans in nonaccrual -- those more than 90 days past due and no longer earning interest -- were down a collective 31.8 percent at the six state banks. Nonaccrual loans declined from $71.5 million in 2009 to $48.7 million in 2010.

First Bank of Ketchikan closed its books for 2010 with no loans in nonaccrual status, reduced its loan loss allowance by about $200,000 and increased its net income for the year by 3.1 percent to $6.4 million.

The number of loans 30 days to 89 days past due were down even more. The six Alaska banks had a 53.8 percent decrease in this category from $13.8 million in past due loans at the end of 2010 compared to $28.3 million in 2009.

"What you're really seeing is the banks up here were pretty aggressive in assessing risk they might have in their portfolio, rather than to sort of wait and see what comes," said FNB chief financial officer Jason Roth. "It's one of those things where you recognize a loss as soon as you can, rather than wait and have to recognize the loss at the worst possible time."

Northrim Bank became a $1 billion bank again in 2010 after just slipping below that threshold for total assets in 2009. Northrim closed out 2010 with about $1.05 billion in assets, and also led the six state banks in loan portfolio growth.

Northrim increased its loan portfolio by 5.9 percent in 2010 to $679.5 million -- helping boost its net income by 10.8 percent to $10.2 million -- and added cash to its loan loss allowance.

Although its loan portfolio is about half the size of First National Bank, Northrim's loan loss allowance of $14.4 million is nearly equal to FNB's $15 million and is up $1.3 million from the end of 2009.

"I think it turned out a little better than we expected thanks to our subsidiary residential mortgage office," said Northrim founder and CEO Marc Langland of 2010. "Their refinance volume helped. It was more than we expected, so that was a help on this year's earnings. We also had more loan recoveries than we expected going into the year."

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