Local banks shift strategy

N. Scott Trimble/The Columbian Vancouver-based First Independent Bank says its loans to individual customers and medium-sized businesses have jumped 30 percent.

The U.S. Treasury secretary frets that banks aren’t lending, a Nobel Prize winning economist warns that consumer access to credit is on the wane, and financial weekly Barron’s Magazine blames the global economic plunge on tight credit around the world.

But even as large banks such as Washington Mutual are bought up and local banks write down bad real estate loans, most of the community banks in Clark County say they’re lending more, not less. But they’re lending to lower-risk borrowers.

Compared to a year ago:

n Vancouver-based First Independent Bank’s loans to consumers and medium-sized businesses are up more than 30 percent.

n Pacific Continental Bank, which has a single branch in Clark County, increased the loans on its books by 15 percent, to $924.5 million, as of Sept. 30, compared to a year earlier.

n Net loans at Vancouver’s Riverview Community Bank increased 12 percent to $770 million as of Sept. 30, compared to a year earlier — even with a sharp drop in real estate lending.

“We’re still loaning money,” said Ray Davis, chief executive officer of Umpqua Bank, which has three Clark County branches and a fourth scheduled to open in downtown Vancouver in 2009. “And we are looking to make more loans.”

Through mid-October, bank loans across the U.S. — commercial, industrial, and even real estate — are up, compared to a year ago, according to a review of federal data by the Minneapolis Star-Tribune.

So if banks are lending in Clark County and across the country, where’s the crunch?

It’s hard to see from the outside, but chilly capital markets are affecting the bottom line at locally operating banks. And with real estate and the economy in a slump, the loans available to Clark County businesses and consumers have already undergone subtle changes.

Much of the global credit crunch originates outside of banking, and is never felt directly by consumers, said Brett Bryant, executive vice president for personal and business banking at First Independent Bank.

“Capital market lenders, like pension funds and financers, have dried up,” Bryant said.

Historically, these nonbank institutions bought loans from banks as a form of investment — and in the process, these capital market lenders infuse banks with cash.

Because these capital market lenders are not buying certain types of loans, First Independent has had to refinance some real estate and development loans that it had hoped to sell off, Bryant said.

Meanwhile, lending and borrowing between banks is also becoming a challenge for financial institutions that cannot prove they are well capitalized.

Cowlitz Bank, which operates as Bay Bank in Vancouver, is able to lend and borrow on interbank markets, said Richard J. Fitzpatrick, chief executive officer. “But money is more expensive, which means we’re seeing higher interest rates, which are being passed on to borrowers,” Fitzpatrick said.

It could be worse, said Greg McBride, senior financial analyst at Bankrate.com, a news site that covers the banking industry.

“If banks won’t lend to each other at all, it eventually gets tougher for consumers to get credit, because banks can’t come up with money to lend to them,” McBride said. That was a real risk prior to the federal government bailout, which loosened lending just a little, he said.

Bryant of First Independent agreed. Credit markets are continuing to thaw, Bryant said.

Still, tight credit continues to squeeze banks from above. At the same time, defaults on real estate loans and declining real estate values are squeezing from below.

Columbia River Bank, which has one Clark County branch, recently re-examined many of the loans on its books. Largely because of the real estate behind many of its loans had lost value, it moved $25.4 million into its loan loss reserves. The move bumped Columbia River down from the Federal Deposit Insurance Corp.’s “well capitalized” tier of banks, into “adequately capitalized.”

That designation makes it harder for The Dalles, Ore., bank to get access to credit, said Terry Cochran, president and CEO.

“To return to well capitalized, we need to increase deposits and we need to keep our loans from growing,” Cochrain said. So unlike most banks serving Clark County, Columbia River has pulled back on lending until deposits are higher.

Even banks that remain well capitalized have cut back from real estate and development lending.

“We’ve experienced an unprecedented drop off in real estate loans,” said Bryant of First Independent.

“There aren’t many developers looking for money to develop land or build speculative residential houses any more,” said Ron Wysaske, president and chief operating officer of Riverview Community Bank. And those developers will have a hard time finding banks to loan to them, he said.

To keep lending as they cut back on real estate and development loans, banks are making more loans to businesses and to consumers.

But there’s a conundrum in this lending — more money is being loaned, but it may be harder to qualify to borrow.

“On loans to mid-sized businesses, we’re being a little more selective,” said Bryant, of First Independent. “The data shows that the economy is shrinking. We know we’re going into a recession, and there are certain businesses that will be affected more than others.”

Yet these loans have climbed by 31 percent.

“Underwriting and restrictions are tougher than they used to be,” said Wysaske of Riverview. “For a long time, businesses and borrowers that maybe shouldn’t have been able to get loans were getting them. Money was easy. I think that when you look at it in that context, a lot of those people can no longer get financing, because underwriting and restrictions are tougher than they used to be.”

It’s not yet clear what the long-term outlook is for banks and borrowers, but McBride of Bankrate.com forecasts a future that looks somewhat like the more recent past.

“Credit became so easy that people viewed it as an entitlement,” McBride said. “We’ve returned to traditional lending principles. It will be painful in the short term, but long-term, consumers will be on firmer financial footing. That will bode better for the economy.”

Courtney Sherwood: 360-735-4553 or courtney.sherwood@columbian.com.