Bank income reflects PPP loan processing

  • Northrim Bank Executive Vice President and Chief Lending Officer Mike Huston is seen at his home workstation in April. Northrim distributed more than 2,500 Paycheck Protection Program loans totaling about $350 million — loans that converted to grants if businesses followed the program guidelines — which accounted for 28 percent of the more than $1.2 billion distributed statewide. (Photo/Courtesy/Northrim Bank)

Being the conduit for large amounts of government aid helped Alaska’s banks largely weather the first months of the pandemic.

The largest local banks in the state all grew their net income in the second quarter compared with the start of the year, some substantially.

Anchorage-based Northrim Bank increased its net income several fold from $2.3 million to $10.4 million in the second quarter, while Denali State Bank of Fairbanks more than doubled its net profit, going from $552,000 in the first three months of the year to more than $1.4 million in the second quarter, according to figures published by the Federal Deposit Insurance Corp.

First Bank in Southeast nearly doubled its bottom line for the quarter, also netting more than $1.4 million.

First National Bank Alaska, the largest in-state bank, saw more modest income growth of 2.9 percent to $14.4 million, in line with recent quarters.

Northrim Chief Financial Officer Jed Ballard said the bank tried to take full advantage of the “tremendous opportunity” presented by the Small Business Administration’s popular Paycheck Protection Program, which was administered by financial institutions of all sizes across the country for the SBA.

“We really boxed above our weight class in terms of the volume of PPP loans that Northrim did,” Ballard said, noting the bank distributed more than 2,500 PPP loans totaling about $350 million — loans that converted to grants if businesses followed the program guidelines — which accounted for 28 percent of the more than $1.2 billion distributed statewide. Northrim holds about a 12 percent market share among Alaska’s banks, according to Ballard.

The bank also attracted new customers by offering PPP loans to everyone, whether they were already Northrim customers or not, according to Ballard.

It all added up to several months of weekend work for many bank employees.

“It was several years worth of loans in a three-month period,” he said. “All departments of the bank kind of transitioned into the lending department. It was a great team effort all the way around.”

Denali State Bank did the most PPP loans in Interior Alaska, its region, which helped drive the bank’s revenue, CEO Steve Lundgren said in an interview. He said the bottom line results for Alaska’s banks could have been greater yet if not for a general move in the industry to increase loan loss allowances, or the amount of money set aside to cover uncollected payments, which eats directly into a banks profitability.

“That’s taken a big jump because we just don’t know what’s going to happen,” Lundgren said.

Underlying asset growth was also strong during the quarter. Denali State Bank grew its total assets by 22 percent to $376 million, while Northrim and FNBA both grew by 19 percent. Northrim eclipsed the $2 billion mark in the second quarter while FNBA is approaching $4.6 billion in assets.

The widespread negative effects of the coronavirus pandemic showed up in some, but not all of the banks’ underlying indicators.

FNBA saw the total of its loans one to three months past due go from $5.7 million in the first quarter to $15.5 million in the second, which President Doug Longacre said in a prepared statement was the direct result of government-mandated economic and travel restrictions aimed at slowing the spread of the virus.

FNBA loan officers were consumed by a backlog of loan modification requests and PPP applications and could not reach out to other customers in need of help before problems making payments arose, according to Longacre.

“Now that we’ve moved past the flurry of loan modifications and PPP loan production, our officers are again proactively working with customers to help them mitigate potential loan payment issues. And, I’m pleased to note, our current past due loan volume is greatly improved,” Longacre said.

Northrim’s Ballard and Denali’s Lundgren said their banks have not experienced the same challenges FNBA has, at least for now. Both said the situation has not been as bad as they once expected.

The amount of past due loans held by Northrim fell 75 percent in the quarter to $861,000, while Denali State Bank saw its total fall 35 percent to $784,000.

Total loans in nonaccrual increased 24 percent for FNBA to more than $12.7 million, while the metric generally held steady for Northrim and Denali State bank at about $15 million and $1.7 million, respectively.

First Bank saw both its past due and nonaccrual totals drop significantly during the quarter.

“Our delinquency and repossessions and foreclosures have just been so much better than we could’ve predicted,” Lundgren said.

He anecdotally attributed part of the disparity between the downright bad raw economic indicators of unemployment and job losses and Denali’s strong performance to the belief that people who are still employed are still spending money, much of it within the state given the current risks and challenges of travel.

Ballard said historically low interest rates are encouraging home and business owners to refinance mortgages and other loans, which is also a fortuitous way to save money when faced with an uncertain future.

“We’ve had really just incredible, incredible production over there at our residential mortgage (department),” he said.

Lundgren added that he’s seen a significant spike in home renovation projects in the Interior as well.

Ballard additionally surmised that while many businesses in the state continue to struggle — particularly those in the tourism sector — for a multitude of reasons, some business owners who were able to access part of the roughly $3.5 billion of federal aid that came to the state have used that money to buy time to revamp their business.

“Companies have restructured their operations to help with cash flow needs. Entrepreneurs are very resourceful,” he said. “You see this around the country. Companies are just doing business in different ways to generate revenue and meet the needs of customers.”

Elwood Brehmer can be reached at [email protected].

Updated: 
09/24/2020 - 9:43am