Low rates, PPP loans drive bank gains for 2020

Homebuyers taking advantage of record low interest rates and businesses utilizing federal disaster funds led to a banner year for Alaska’s banks.

The three largest Alaska-based banks all saw increases in annual income and achieved total asset growth greater than 15 percent in 2020.

Anchorage-based Northrim led the way with 29 percent year-over-year asset growth to more than $2.1 billion. First National Bank Alaska, the largest Alaska-based institution, surpassed $4 billion in assets and nearly reached $4.7 billion on 23 percent growth.

Ketchikan-based First Bank grew by more than 16 percent to $689 million in assets by years-end.

Jed Ballard, chief financial officer for Anchorage-based Northrim, said the bank likely had its busiest fourth quarter for mortgages ever.

Throughout the year bank officials reported a strong consumer response to sub-3 percent mortgage rates even when the pandemic led long-term plans to be paused in many other aspects of life.

“There were just a lot of folks over the past year that upgraded square footage or number of bedrooms — whatever they wanted,” Ballard said in an interview.

The Alaska Housing Finance Corp. reported 30-year mortgage rates starting at 2.75 percent March 23.

The rate-driven buying spree extended beyond homes to other large items such as cars and recreational vehicles, according to bank leaders.

Northrim, which netted $32.9 million for a 59 percent annual income increase, also saw the Small Business Administration ramp up processing of forgiveness applications for the immensely popular Paycheck Protection Program in December, according to Ballard.

Best known as PPP, the agency has used it to offer widely forgivable loans to small businesses across the country.

That allowed the bank to realize the fee income from the transaction immediately.

“When (loans) are forgiven you no longer need to amortize it so you get it all in one fell swoop,” Ballard said.

He noted the second round of PPP applications closes March 31 unless Congress extends it. As of March 21, the SBA had approved more than 3.1 million loans totaling $195 billion in this year’s round of PPP funding, leaving roughly $90 billion available.

Northrim increased its total loan and lease portfolio 41 percent in 2020 to $1.6 billion. FNBA similarly recorded nearly 10 percent portfolio growth to more than $2.2 billion and First Bank added loans for 14 percent growth to $241 million to end the year, according to the bank’s filings with the Federal Deposit Insurance Corp.

Wells Fargo Alaska Market Executive Joe Everhart said the national bank’s Alaska portfolio performed “remarkably well” through the economic downturn of last year and continues to.

“Wells Fargo and a lot of banks were really proactive with deferrals and loan extensions,” Everhart said, adding that the stimulus funds, such as PPP loans, have helped keep large numbers of small businesses afloat.

Northrim leaders still expect to handle a significant amount of applications in the second round of PPP loans even with added restrictions on the funds, according to Ballard.

“There’s still a lot of folks out there that need money, but overall it hasn’t been as bad as originally anticipated,” he said.

He noted many tourism-centered companies in Southeast will continue to have extremely tight cash flows through much of this year if a second cruise ship season is ultimately called off or drastically reduced.

Traditional borrowers largely made their payments in 2020 as well despite the income disruptions brought by business activity restrictions at various times of the year.

FNBA experienced a 3.6 percent increase to the value of loans up to 89 days past due to $2.7 million over the year, while Northrim’s past due volume was cut nearly in half to $889,000 and First Bank held no loans up to 89 days past due, according to the FDIC filings.

FNBA did have a rough doubling of its loan volume in nonaccrual; however, it was a return to more normal levels at $13.6 million to end the year. Northrim finished 2020 with $11.1 million in nonaccruing loans, a 27 percent decline and First Bank went from nothing to $781,000.

Despite the continued strong financial performance and largely improving COVID-19-related metrics, there is still an air of uncertainty among many bank leaders as is evidenced by a 10 percent increase in their loan loss provisions to end the year each by FNBA, Northrim and First Bank.

Ballard said he doesn’t believe the mortgage boom is sustainable because relatively few new homes are being built in Alaska, adding that interest rates are bound to rise at some point.

He added that the with the profits came long hours for many bank employees throughout 2020; a lot of the work came from handling deferrals early in the year and later processing PPP loans. It was a significant strain on banks’ IT staff as well, Ballard noted, calling the year an “all hands effort.”

“The profits are one thing but the actions are something else, so it was a really tough year,” he said.

Everhart said it’s too soon to forecast much on whether the commercial real estate market will take the long-term hit many expect following the pandemic. He noted that while many office-based companies are downsizing their footprint as employees choose to work from home permanently, some of Wells Fargo’s clients that require an onsite workforce have had to increase their workspace to provide more space for their employees.

He expects visitor-based businesses along the Railbelt to have a better 2021 even if the cruise traffic doesn’t materialize.

“The hope is that we see people on railcars and on busses, using hotels and restaurants from the Kenai Peninsula to Anchorage and Fairbanks,” Everhart said.

Elwood Brehmer can be reached at [email protected].

03/24/2021 - 9:05am