Alaska banks position themselves for rising rates and inflation

Yields have moderated significantly from many earlier this year highs for Alaskan banks, but lending activity remains strong as people have money to spend.

The record drop in earnings matches the end of the US Small Business Administration’s hugely popular paycheck protection program, said Jed Ballard, chief financial officer of Northrim Bank. The lenders behind PPP loans have been able to meet the fees that are typically spread over the life of a loan from the outset when the loans are canceled, as expected.

Northrim has processed over $ 600 million in PPP loans in just over a year. At First National Bank Alaska, total PPP loans since the inception of the program stood at $ 588 million through the third quarter, according to the bank’s quarterly income statement.

Northrim has also been able to leverage the PPP business by turning these borrowers, often new to the bank, into customers in other areas, according to Ballard. While overall loan volumes have fluctuated in recent quarters as PPP loans move in and out of institutions’ books, he said long-term business is also strong.

“We are doing very well; what’s really positive for me is the growth of our core loans across the state, ”said Ballard.

Northrim ultimately made nearly $ 8.9 million in the third quarter, following $ 8.3 million in the second quarter after several profits of over $ 10 million.

The statewide lender increased its asset base by about 6% in the quarter to just over $ 2.6 billion. Northrim has grown its assets and deposits by roughly a quarter over the past year.

Alaska’s largest bank, First National Bank Alaska, increased third-quarter net income to nearly $ 14.4 million after three periods of around $ 13 million, but it was still late a year ago when the then $ 4.7 billion bank reported $ 15.5 billion. million euros in the third quarter of 2020. FNBA has also increased its assets by almost 20% over the past year.

The return on FNBA’s assets has gradually declined to 1.11% over the past year. Northrim’s average yield fell to 1.40% in the third quarter after hitting 2.31% a year ago.

Steve Lundgren, CEO of Denali State Bank in Fairbanks, also said that PPP lending activity has resulted in community bank income “being unusually high this year,” adding that fee income will be difficult to replace. Denali grossed $ 1.3 million in the third quarter, which basically matches its previous several quarters.

The Bank of the Interior region also saw significant increases in its total assets; its base has grown by around 20% so far this year to over $ 462 million.

First Bank in Southeast Alaska also continues to perform well despite significantly reduced cruise seasons over the past two summers that have deeply affected one of the region’s largest sectors of the economy.

The Ketchikan-based bank collected nearly $ 2.8 million in revenue in the last quarter, up from $ 2.1 million in the second quarter on $ 793 million in assets.

More broadly, bank executives across Alaska have also pointed out during much of the pandemic that loan default and foreclosure rates have declined and the numbers their institutions reported for the third quarter continue to confirm this. .

First Bank, for example, only had $ 753,000 in non-current loans in the third quarter and maintained a loan loss reserve of around $ 4.3 million for much of the year. , an indication that bank executives do not anticipate an increase in delinquent or unproductive assets. . This has been largely attributed to the effectiveness of state and federal pandemic assistance programs in preventing massive shutdowns, primarily in the Southeastern tourism industry, but other industries as well.

FNBA saw a slight increase in its non-current loans last quarter to $ 17.6 million, but that still only represents 0.32% of the bank’s total assets. FNBA also kept a stable loan loss allowance of $ 23.5 million over the past three quarters.

The trillions of government stimulus and aid packages scattered over the past 18 months are also driving inflation up after a decade of inflation rates of around 2% or even less per year.

Alaskan bank executives for the most part believe they are well positioned to weather a period of inflation, which Federal Reserve officials say is expected to last for some time.

Lundgren, of State Bank Denali, said almost some of the increases in the 3% and lower interest rates for fixed loans and mortgages that drove the nationwide real estate boom of the past two years will undoubtedly slow the market down. home buying and mortgage refinancing to some extent, but added that rising rates provide more income for variable rate loans that lenders are much more likely to keep internally.

Denali, like most small banks, generally sells its home loans.

The banking industry is really in a pretty good position when it comes to the rate environment, ”Lundgren said.

Northrim Chief Economist Mark Edwards pointed out that low mortgage rates have allowed many homebuyers or those refinancing to maintain similar monthly payments even as home prices have risen.

“If housing (costs) were rising as fast as house prices, inflation would be even higher,” Edwards said, noting that the situation gives people more flexibility to deal with rising costs elsewhere in the world. their personal budget.

He said the main challenge with inflation is how much subsequent Federal Reserve rate hikes will impact the overall economy.

“How fragile is the economy? The rebound in jobs is positive but it is clear that there is still a global pandemic and we don’t know how it will end, ”he said. “The faster the economy grows, it eats away at inflation.”

Ballard said the fertile banking environment underscores many of the complexities of the current economic situation, both in Alaska and nationally.

“You wouldn’t expect Northrim to have two straight record years during a pandemic,” Ballard said. “There are a lot of things in there. “

Elwood Brehmer can be contacted at [email protected].

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