Interest rates drive 2012 banking gains
Low interest rates were the driving factor — with positive and negative implications — in 2012 for Alaska’s financial institutions, industry officials said.
Fairbanks-based Mt. McKinley Bank rode the low rates to a record profit of $4.38 million on $328 million in total assets. The profit marks a year-over-year increase of 18.7 percent.
“We had a lot of refinance activity on home mortgage loans. Our net interest margin held up pretty well through 2012,” Mt. McKinley President and CEO Craig Ingham said.
First National Bank Alaska, the largest state-based bank, saw a 14.9 percent year-over-year increase in profit to $40 million on the back of slightly more than $3 billion in year-end assets. FNBA increased its total assets 5.1 percent in 2012, from $2.8 billion in December 2011.
FNBA Chief Financial Officer Michele Schuh said adding roughly $125 million in deposits helped push the bank’s deposit holdings to more than $2.5 billion and was the main factor behind the asset increase.
Schuh said FNBA benefited from the “refinance phenomenon” spurred by near record-low interest rates in 2012 — 30-year fixed rates less than 4 percent — but there’s another side to the low rates.
“We have the opportunity to secure financing at a very low interest rate, but it’s also challenging for your deposit customers because their not earning on their deposits what they’ve traditionally enjoyed,” she said.
After $11.4 million in net income in 2011, Northrim Bank grew its income by 22.4 percent to $13.9 million. Its total assets grew 9.5 percent over 2012 to $1.1 billion.
“Our improving asset quality, coupled with a stable local economy and loan growth are supporting our profitability,” Northrim President and CEO Marc Langland said in a company release.
Juneau-based Alaska Pacific Bank increased its income 8.1 percent year-over-year to $682,000 on $180 million in assets — a 4.9 percent increase in total holdings.
Alaska’s largest credit union, Alaska USA Federal Credit Union, increased its profit 17.3 percent to $48.9 million in 2012, which followed a 54.1 percent increase in 2011. Alaska USA also grew its assets by 10.2 percent year-over-year to more than $5.1 billion.
Denali Alaskan Federal Credit Union gathered $3.28 million in net income in 2012, however that marked a 32.9 percent decline over 2011 results. Its total assets grew 10.8 percent year-over-year to nearly $510 million.
Denali Alaskan Vice President and CFO Eric Bingham said despite the decline in year-over-year income, Denali Alaskan leadership was pleased with 2012’s results.
“Our bottom line was actually better than what we had budgeted,” Bingham said.
According to Bingham, Denali Alaskan put capital “back into the future of our organization” – such as opening its new Tikahtnu Commons branch.
While low interest rates spurred refinancing, low-interest loans also replaced high-earning assets going off the books and shrinking profit margins, Bingham said.
Credit Union 1 grew its total assets 7.9 percent in 2012 to $850 million and had a net income of $7.4 million, a 4.1 percent year-over-year decline.
All of the banks and credit unions surveyed increased their total loan amount in 2012. Alaska USA’s loans totaled $3.3 billion at year-end, a 7.8 percent year-over-year increase. Credit Union 1 expanded its loan base nearly 15 percent to $567 million in 2012.
FNBA grew its loan total 6.3 percent for the year to more than $1.2 billion. Northrim Bank increased its loans by 12.1 percent year-over-year to $723 million.
Schuh said the lending increase exceeded her expectations. Banks are ready to lend but businesses are holding capital, she said, uncertain of what the national economy is going to do.
“We came into the year with a lot of liquidity — a lot of cash. I don’t suspect there’s very many financial institutions that don’t have the liquidity to make the loans that are out there,” Schuh said.
Alaska Pacific led a trend among the banks to reduce holdings of foreclosed properties. At the end of 2012 Alaska Pacific held $344,000 in other real estate, a year-over-year decrease of nearly 61 percent.
FNBA cut its non-operating property holdings 19.5 percent, to $14.4 million over the period; and Northrim managed just more than a 12 percent drop to $4.54 million.
Mt. McKinley was unable to follow suit, although barely, Ingham said. His bank began 2012 without any extra real estate holdings and finished the year with one property valued at $85,000, he said.
Northrim saw its nonaccrual loan value drop to $4.51 million, a 61 percent year-over-year decline. FNBA cut its non-interest bearing loan total 21.4 percent to finish the year at $24.1 million. Mt. McKinley cut its total roughly in half — it began 2012 with $523,000 in nonperforming loans and ended with $266,000.
Total loans delinquent less than 60 days increased 19.3 percent year-over-year for Alaska USA to $56.2 million; Credit Union 1 saw a 19.4 percent increase to $6.21 million in short-term delinquencies; and for Denali Alaskan they rose 4.7 percent to $5.1 million at year’s end.
Charge-offs were down nearly 86 percent year-over-year at FNBA to $255,000. Northrim and Mt. McKinley both cut their charge-offs by more than 20 percent in 2012, and Alaska Pacific saw a more than 16 percent reduction.
Ingham said he doesn’t expect 2013 to be another record-breaking year for Mt. McKinley, but he’s optimistic about the future provided the federal government can continue to avoid the series of “national cliffs,” he said.
Schuh added that FNBA is ready to lend money and she would like to see some of the large infrastructure projects proposed for Alaska get under way.
“We believe that the state has all the tools to see the economy continue to grow if we can get those projects off the drawing board and actually occurring,” she said.
Elwood Brehmer can be reached at email@example.com.