Everett, Wash.
Published: Sunday, April 27, 2008

Locally based banks brace for loss of millions of dollars

The banks have loans out to developers and have set aside money to protect against those that won't be paid back.

By Eric Fetters
Herald Writer

 Empty lots waiting for new construction show tangible proof of the slowdown in Snohomish County's home-building industry. So do the most recent financial statements at locally based banks.

"About half of our loans are related to construction and land development, so we have significant exposure, not just in Snohomish County, but throughout Washington and Oregon," said John Dickson, president and chief executive of Everett's Frontier Financial, the holding company for Frontier Bank.

Frontier, Cascade Bank and City Bank all reported in recent weeks that they set aside more money during the first quarter of the year to protect against potential bad loans.

At Cascade Bank, Barclays North alone owes $12.6 million in loans, the developer confirmed. Patrick McCourt said the loan will be taken care of soon.

"It will be paid off in the next two weeks," he said.

Cascade, in its first-quarter statement, said another unnamed borrower owes $4.2 million. Those two outstanding loans accounted for 97 percent of the bank's bad loans as of March 31.

In response to the rise in nonperforming loans, Cascade increased its loss reserves by $2.4 million in the first quarter. Carol Nelson, Cascade Financial's president and chief executive, pointed out that 1.5 percent of the bank's overall loans were nonperforming. That's a much smaller percentage than at many banks these days, she said.

"It's not going to take down the local banks," Nelson said of the rise in bad loans to home developers and builders, adding that all three publicly traded banks in the county still posted profits in the latest period.

Dickson said the bad loans represent a similarly small percentage, 1.67 percent, of overall loans at Frontier.

In the first quarter, Frontier set aside $9 million to offset bad loans. That compares with just $1.5 million put away for such provisions in the year-ago quarter.

Frontier also is one of Barclays North's creditors, and rumors about the developer's debts to the bank spiraled out of control recently. Dickson went to the unusual step earlier this month of publicly revealing, with Patrick McCourt's blessing, that the company owed Frontier "less than $300,000." In a conference call last week, he added that Barclays was a significant borrower until some of Barclays' loans were assumed by more solvent borrowers.

City Bank in Lynnwood set aside $500,000 in the first quarter for bad loans, compared with no provision in the year-ago period. The bank said it charged off $125,000 in bad debt during the quarter.

Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.
© 2009The Daily Herald Co., Everett, WA