Banks issuing deferrals as economic impacts arrive
Alaska’s banks generally had a solid start to 2020 but what’s in store for the rest of a tumultuous year is anyone’s guess.
First National Bank Alaska, the state’s largest local bank, ended the first quarter of the year with assets totaling nearly $3.86 billion, up from approximately $3.81 billion to start the year.
FNBA netted $14.1 million in the first quarter, which is in line with the bank’s performance in recent quarters, according to figures in reports published by the Federal Deposit Insurance Corp.
Anchorage-based Northrim Bank held more than $1.67 billion in total assets on March 31 — a 2.4 percent increase during the quarter — and generated $2.3 million in net income during the first quarter.
In Fairbanks, Denali State Bank surpassed the $300 million mark in assets, finishing the first quarter with $306 million in total assets for an increase of 3.4 percent in the first quarter. Denali also netted $552,000 during the quarter.
Denali State Bank CEO Steve Lundgren said in an interview that the community bank finished the first quarter “on budget” and has since seen its loan portfolio grow by nearly 20 percent, largely due to participating in the Small Business Administration’s Paycheck Protection Program, which provides low-interest loans to small businesses seeking help for payroll and other fixed costs to weather the coronavirus-induced economic upheaval the country is facing.
According to Lundgren, Denali has processed about 430 PPP loans totaling roughly $41 million. He said most of that cash went into the bank in the form of deposits.
The vast majority of PPP loans are expected to convert to grants as long as borrowers use the financial aid on qualifying expenses and don’t reduce their workforce after receiving the funds.
Despite the ostensible economic shutdown that caused Alaska’s unemployment rate to jump from 5.2 percent in March to 12.9 percent in April, according to the state Labor Department, Denali has not seen a corresponding spike in loan delinquencies or charge offs, according to Lundgren.
“I tell my staff, I tell my board that’s because we process a significant amount of loan deferrals,” he said, adding that most of the deferrals are for three months.
Lundgren said Denali customers have mostly been proactive and requested help if they saw personal financial trouble on the horizon. The true test to the effectiveness of the bank’s help — and that from government on all levels — will be in late summer when those payment deferrals expire.
Denali leaders in May used an increase in revenue to fund their loan loss reserve for the entire year, according to Lundgren. The bank had a loan loss allowance of $3.3 million in the first quarter, according to the FDIC reports.
“I’m cautiously optimistic that as the state continues to open up we won’t see many delinquencies,” he said.
Northrim Chief Lending Officer Michael Huston said he couldn’t speak to what bank leaders are seeing internally in the second quarter until the final numbers are published, but added there is a general concern among financial analysts nationwide about banks’ ability to handle the stress that could be coming.
“I think there’s a fair amount of concern about credit quality among banks,” Huston said.
Wells Fargo Alaska Commercial Banking Market Executive Joe Everhart said in an interview that he was among the many close observers who had a very positive view of the Alaska economy as recently as late February. However, he now expects the state’s economic recovery from the pandemic to lag behind the rest of the country because Alaska’s economy is largely built on industries that have been hit hardest by the global shutdown — oil and tourism.
Wells Fargo loan officials began reaching out to borrowers early and processed many 90-day loan deferrals, according to Everhart. He said they’re starting to work on the steps for the next 90 days if business conditions don’t quickly improve.
Officials for the very large national bank are adapting their policies to where they’re working, Everhart said, noting the bank is even processing some 14-month payment deferrals for businesses, such as those in the tourism sector, that might not have meaningful revenue until a year from now.
“To expect a customer to have income to make payments when they don’t have revenue is challenging,” he said.
There are still reasons to be optimistic amid the challenges and uncertainty, according to Huston.
“I think most of our customers are working with their customers. We’re all in this together,” he said.
Everhart also noted that through various aid programs Alaska residents, businesses and local governments are cumulatively expected to receive roughly $3 billion in federal assistance — a lot of money for a small state.
“I have to think that’s going to provide a great backstop in this (economic) storm,” he said.
Elwood Brehmer can be reached at [email protected].