2010: Consolidation and acquisition for banking
Just as in other parts of the nation, the landscape of the county's banking industry was shaken by the extended recession, plunging home sales and property values, and the soaring number of defaulted real estate mortgages and building loans.
Failed banks with headquarters in Snohomish County in 2010 included Frontier Bank of Everett (now owned by Union Bank in San Francisco) and North County Bank of Arlington and City Bank of Lynnwood (both of which became branches of Whidbey Island Bank, based in Coupeville).
Other failed Washington banks with branch offices in Snohomish County included Shoreline Bank (now taken over by GBC International Bank of Los Angeles), Seattle-based Evergreen Bank (now operated by Umpqua Bank of Roseburg, Ore.) and Horizon Bank (taken over by Washington Federal Savings and Loan Association of Seattle).
Whether more banks in the state or county might find new owners in 2011 is only speculation. For now, it appears the worst of the bank-closing storm has subsided to a few scattered dark clouds. Several banks are still on the “watch” lists of the Washington Department of Financial Institutions and the Federal Deposit Insurance Corp. but all seem to be getting their finances in order.
That doesn't mean, though, that there won't be more name changes in the banking industry, both locally and nationally.
Brad Williamson, director of Washington's Division of Financial Institutions, told the Snohomish County Business Journal in early December that mergers and acquisitions will likely continue but the moves will be made for market positioning rather than saving failing banks.
“In the future there's probably a handful of banks that could fail but I think we're through the majority of failures,” he said. “However, I think banking industry consolidation will continue over the next two to three years as some institutions find that strategic mergers could create a better marketing future.”
As for the sometimes confusing regulatory terminology used in disciplining or closing down troubled banks, Williamson said there is little difference in meaning between “cease and desist,” “consent order” and similar formal directives issued by regulatory agencies.
“Names vary between state and federal agencies but all of them basically mean the banks are working to build up their capital and get their finances in order,” he said, noting that the FDIC's initial use of “cease and desist” orders, for instance, were sometimes interpreted by the general public to be excessively frightening.
On a positive note, Sterling Savings Bank of Spokane has had its “cease and desist” order from October 2009 lifted by banking authorities, an acknowledgement of Sterling's successful efforts to recapitalize and meet specific operating requirements. Sterling has branches in Stanwood, Lynnwood and Mountlake Terrace (in the former Golf Savings Bank branch that is now part of Sterling Savings).
Cascade Bank, First Heritage Bank, Bank of Washington, Bank of the Northwest (formerly Bank of Everett until merging with sister banks into the Bank of the Northwest, headquartered in Bellevue) and Coastal Community Bank have all agreed to continue operations under DFI and FDIC “consent” agreements now in place.
According to DFI's end-of-2010 listings, Homestreet Bank (based in Seattle) and Mountain Pacific Bank (based in Everett) continue to operate under “cease and desist” orders issued in early 2009 to bring their financial operations in line with state and federal banking requirements.
In 2011, slowly recovering national, state and county economies may bring some relief from the deep recession but economic observers offer their traditional warnings about the unpredictability of predictions.
Nationally, the American Bankers Association is predicting more bank consolidations in 2011 as many financial institutions continue to shake off the weight of defaulted real estate loans and continue to attract new capital to meet bank monitoring agencies' requirements for maintaining financial strength.
Hampering the banking industry's recovery at all levels is a still weak national economy. Until there is a strong economic recovery, uncertainty may keep borrowing demands low even though banks are more prepared to lend, according to industry reports.
For instance, Washington state's chief economist, Arun Raha, took a cautious stance in his year-end 2011 outlook message prepared for the Washington State Economic and Revenue Forecast Council.
Raha said the economic outlook weakened in the second half of 2010 and predicted the recovery will be “painfully slow.” Revenue collections for the state since the June forecast have come in $192 million below what was expected.
“For the 2009-2011 biennium, revenue is expected to be $770 million lower than predicted earlier and $669 million lower for the 2011-2013 period,” he told business groups throughout the state in November and December presentations. At year's end, the state was facing an estimated $1.1 billion deficit in its current budget and $5.7 billion in the 2011-13 biennium, despite cutbacks in state spending and services in 2010.
Overall, Raha said, the private job sector growth in the state at year end mirrored the national pattern: weak and hesitant.
However, he noted that the asset quality of Washington regional banks is improving as nonperforming loans are cleared from the books and weaker banks have merged into stronger banks. Also, Raha said, credit conditions for small business are “improving, but remain tight.”
Putting the severe 2010 reordering of the banking landscape in Snohomish County into perspective, however, it's clear that bank failures and mergers primarily affected small to medium-sized banks that held large amounts of real estate debt. When the sub-prime mortgage debacle began imploding, the real estate industry and the banks that supported it took the brunt of the financial collapse, compounded by the resulting unemployment and recession.
Many banks that avoided heavy dependence on real estate loans, such as Coastal Community Bank, remained strong and even grew as troubled banks failed. The inherent strength of Whidbey Island Bank, which had some branches in the county, led to it taking over City Bank and North County Bank's branches and business. First Heritage Bank adjusted their loan portfolio and refocused their operations on small businesses and personal banking to gain new strength and expand markets.
Larger banks had an economic storm buffeting them, too, but were financially strong enough to continue operations without “cease and desist” orders or mergers, including Bank of America, Wells Fargo, KeyBank and US Bank.
After the bank failure shakeout in Snohomish County in 2010, the entire banking industry has a new strength and resilience for 2011. Still, financial experts predict the stabilized banking industry will continue to be challenged by the effects of a weak national and state economy. Until economic and political uncertainties are resolved, the robust recovery that banks seem to be prepared for will continue to elude them.