In Washington state’s banking climate, only the strong survive

Published 7:47 pm Tuesday, July 6, 2010

The rich get richer and the poor get shut down in the country’s recession-plagued banking industry.

It’s a part of the American economy where basic laws of nature apply: The fit survive. And the weak are gobbled up quicker than you can say “forced sale.”

It’s no different in Washington.

The state’s banking landscape has been drastically altered by a string of regulator-forced closures over the last few years, starting with the headline-making failure of Washington Mutual in 2008.

What’s less publicized is the effect bank failures have on more healthy financial institutions. The spoils of failed banks can lead to a feeding frenzy for well-capitalized institutions looking to expand and grow in a down market.

In other words, a recession isn’t such a bad time for banks that haven’t fallen out of grace with regulators.

Coastal Community Bank, an Everett-based institution with just nine branches, proved that last week. The bank hired two executives from Frontier Financial Corp., the parent company of Everett-based Frontier Bank, which failed in April.

But that’s not the only thing Coastal Community pulled from the ashes after Frontier was acquired by Union Bank of California. Bank officials report they’re seeing a deluge of deposits from Frontier and other community banks recently shuttered and sold.

Unhappy with new ownership, some customers take their accounts elsewhere.

Coastal’s new accounts have doubled in the last year, according to bank officials.

“We’re asking these customers to come to us, and our staff is opening new relationships daily,” Eric Sprink, CEO of Coastal Community Bank, said last week.

A report released last month by Foresight Analytics predicted that nine more banks will likely fail in Washington in the last half of 2010. That estimate was the fourth-highest of any state in the country.

The benefits of those failures aren’t always indirect.

Some financial institutions are on a buying spree, snatching up depositors at federal auctions and leaving the Federal Deposit Insurance Corp. to deal with bad assets.

Oregon’s Umpqua Bank is one of the most notorious bargain hunters. The Roseburg-based bank purchased its fourth failed bank on June 18 — Nevada Security Bank.

Umpqua has already purchased three of Washington’s failed banks, starting with the Bank of Clark County in early 2009.

Earlier this year, Umpqua bought Tacoma’s Rainier Pacific Bank and Seattle’s Evergreen Bank. Its parent company reported $10.5 billion in assets at the close of the first quarter of 2010.

Things change quickly in a financial ecosystem where getting to the top of the food chain takes cash on hand and a diversified loan portfolio.

Hunters can become the hunted quickly; all it takes is a less-than-stellar audit or a few major deals that crumble.

At one point, Everett’s Frontier was poised to be a buyer.

Last year, the bank touted a pending merger with a New York-based acquisitions firm as a sign that it would soon be in a position to acquire struggling competitors in Washington and Oregon.

The deal would have provided a $427 million cushion for the beleaguered bank, which was already under close regulator scrutiny after mounting real estate loans that soured along with the construction industry.

The deal wasn’t approved in time for a federal deadline, and the acquisitions company was forced to dissolve and return its millions to investors in October 2009.

Just six months later, Frontier fell prey to a larger animal: California’s Union Bank.