Low interest rates keep banks busy
Region's banks look for wys to expand after year of growth

Bert Caldwell
Staff writer

Click image to enlarge, or view Kootenai County bank deposits At a glance Interview with Harold Gilkey

If any one industry in the Northwest was without cause to complain in 2002, it was financial institutions.

Declining interest rates attracted new loans, and mortgage refinancings generated millions in fees.

The shares of some publicly traded banks appreciated by as much as 30 percent during the year.

The big challenge for 2003 will be matching that performance.

"What do you do for an encore," asked Ragen MacKenzie analyst R. Jay Tejera, a longtime observer of the region's financial institutions.

While mega-banks like J.P. Morgan Chase and Co. and Citigroup contended with billions in bad loans, local and regional banks made more loans and gathered more deposits, he said, even as the economies of Oregon and Washington reeled.

Tejera said deposit growth could accelerate because money market rates are so low, customers figure they might as well bank their money where it will be more accessible.

Spokane area bankers said they are confident that banks and thrifts that did not make too many bad loans as the economy was slowing will be fine.

At AmericanWest Bank, President Wes Colley said the 2003 budget calls for loan growth of between 10 percent and 12 percent despite easing demand. That equates to about $90 million in new business for the $917 million bank, he said.

AmericanWest operates branches in Eastern and Central Washington and North Idaho. The region missed the highs experienced on the West Side, Colley said, but has not been as badly roughed up in the downswing.

"We're just kind of plugging along," he said.

Sterling Financial Corp. earnings increased 61 percent in 2002. Chairman Harold Gilkey said he expects no slowdown in 2003 despite what he predicts will be a flat economy.

How the region fares will depend on how state and local governments handle the financial strains created by widespread layoffs, he said.

"I would hope toward the end of the year we would get some job growth," Gilkey said.

New lending centers in Portland and Seattle are doing extremely well, he said, and completion of a pending merger with Empire Federal Bancorp will bring new deposits into the bank.

Empire also operates an insurance agency, Gilkey noted. Insurance products could be offered at Sterling branches in the future, he said, adding, "I expect that to be a major element going forward."

Gilkey said Sterling and other Northwest banks of similar size are fighting for the expanding niche between local banks with limited resources and money-center banks that are withdrawing from certain lines of business.

"There's a huge opportunity for a regional community bank," he said.

Wheatland Bank, with $138 million in assets, has found plenty of business in its niche, president Sue Horton said.

Wheatland, with nine branches from Quincy to Spokane, plans to add another in north Spokane this year, and may also look outside its current territory for other opportunities, she said.

Managers will focus on raising returns on equity and assets to those of peer institutions. Those numbers have suffered as Wheatland added branches, but should rebound as they become profitable, Horton said.

Wheatland net income, at $631,000 in 2002, exceeded budget by 50 percent, Horton noted.

Gary Garrett, president for Wells Fargo community banking operations in Eastern Washington, said Wells Fargo also aimed too low last year. Net was 45 percent above projections at the bank's 11 branches in the region, he said, and mortgage referrals to another Wells Fargo subsidiary tripled.

Garrett said he expects continued success in home equity lending and investment deposits.

Idaho Independent Bank Chairman Jack Gustavel said he expects growth in 2003, with activity shifting from residential loans to commercial borrowing and construction.

Margins should improve as the cost of funds continues to ease, he said.

The Coeur d'Alene-based bank reported a record 2002, with loans up almost 9 percent and assets almost 18 percent.

Gustavel said Idaho Independent won't open any new branches in 2003, although he will listen to any opportunities. The Coeur d'Alene office will be moving into new quarters at the Riverstone development on Northwest Boulevard, and the operations center in Hayden Lake will undergo a major overhaul.

"I think this is going to be a good place to be," Gustavel said.

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