Alaska past due loans buck national trends
Alaska’s economy is facing strong headwinds from the collapse in oil prices, but its banks are outperforming the nation’s in at least one measure.
U.S. banks have an overall higher percentage of delinquent loans than credit unions, but in Alaska the opposite is true. Alaska banks have a much lower delinquency rate than both the national average and credit union rates, while Alaska credit union delinquency rates are nearly twice the national average.
Nationally, banks have a delinquency rate twice that of credit unions, according to an analysis of more than 12,000 banks and credit unions from Washington, D.C.-based credit union consulting firm Callahan & Associates.
Delinquency rate measures the amount of past due loans in the total loan portfolio.
The analysis measures how credit unions and banks classify “delinquent” differently. For banks, anything overdue by 90 days is considered delinquent, while credit unions count delinquent loans as anything unpaid after 60 days.
According to the analysis, the credit union industry’s overall delinquency ratio for the first quarter of 2016 was 0.71 percent, a little less than half the 1.58 percent reported to the Federal Deposit Insurance Corp. by banks over the same period.
Callahan & Associates analysts say credit unions’ lending practices are more individually tailored to consumers, and so foster fewer delinquencies.
“The difference is in the way credit unions and banks operate,” said industry analyst Stephanie Clark. “When CUs are originating their loans they’re wanting to make sure it’s a good fit for the members. Banks don’t really have that. They’re more accustomed to their shareholders. The main difference is just in the overall lending philosophy.”
Alaska’s banks and credit unions, however, buck the national trend.
Callahan’s analysis looked at the five Alaska-based banks and 12 Alaska credit unions. This excludes Wells Fargo, which is not based in Alaska but has a 53 percent market share of all Alaska deposits as of June 30, 2015.
For the Alaska-based banks, delinquency rates are lower than their credit union counterparts.
Alaska banks have a 0.39 percent delinquency rate, about five times less than the national average specified by Callahan analysts. Alaska credit unions have a delinquency rate of 0.98 percent.
First National Bank Alaska Chief Financial Officer Michelle Schuh said she isn’t surprised that Alaska’s banks differ from the national trends, though the difference between credit unions’ largely consumer accounts and bank’s more business-focused portfolios makes a direct comparison difficult.
She said Alaska’s banks in large part set the tone for the kind of lending practices Clark attributes to credit unions.
Alaska’s banks, some established long before the credit unions, fostered the kind of consumer and business relationships typical of small towns, intimate business settings, and volatile economic swings of the state, she said.
First National Bank Alaska first opened its doors in 1922. National Bank of Alaska opened as the Bank of Alaska on March 20, 1916, in Skagway, and was purchased by Wells Fargo in 2000.
“We’re relationships based in Alaska,” Schuh said. “We have fewer banks. The banks tend to know their customers better. They have more established relationships, and therefore structure and design loans for their customers in Alaska that have a higher chance for repayment.”
Dan McCue, senior vice president of corporate administration for Alaska USA Federal Credit Union, said there are too many factors contributing to delinquency rates for him to comment.
Chrissy Bell, senior vice president of communications and culture at Credit Union 1, said the state’s economic situation contributes to the higher delinquency rate of Alaska credit unions.
Credit unions as a whole tend to lend to higher risk members, and during uncertain economic times (like the one Alaska is currently facing) “look for ways to keep assisting their members to help them through financial difficulties,” wrote Bell in an email. “In general, that can result in higher delinquency rates while the economy gets back on track.”
Bell said Credit Union 1’s delinquency increase of 41 percent versus last year’s first quarter is in part blowback from North Slope troubles.
“Credit Union 1 is seeing a slight increase in delinquency in a small part to the effect of low oil prices and the impact on service workers that support employees on the slope,” Bell wrote. “In addition, we make a greater effort to provide loans and services to low or moderate income families.”
Alaska’s banks did have an increase in loans 30-89 days past due in the first quarter of 2016, however.
First National Bank Alaska’s 30-89 day delinquent loans, which did not factor into the Callahan analysis, rose in the first quarter of 2016, which Schuh said is a bounce back to normal levels.
“We just happened to hit a really low spot in December 2015,” said Schuh. “If you look at the last five years, our 2015 percentage was the lowest of the prior five years.”
For nonaccrual loans past 90 days due, Schuh said First National Bank Alaska’s rate is “dead steady.”
Likewise, Northrim Bank’s 30-89 day past due loans almost doubled, rising by 94 percent.
Chief Financial Officer Latosha Frye said this rise came mostly from one large business loan.
In the first quarter of a 2016, the total amount of nonaccrual loans for Alaska’s banks rose 5.6 percent over the same quarter in 2015. Most of the rise, however, came from spikes in unpaid loans for Ketchikan-based First Bank and Fairbanks-based Denali State Bank.
Both First National Bank Alaska and Northrim Bank lowered their total loans in nonaccrual by 12.5 percent and 33.6 percent, respectively.
The delinquency rate could be low in Alaska not because the total unpaid loans are declining, but because loan portfolios are rising.
The total unpaid loan increase coincided with first quarter growth in assets, net income, and total loans.
In total in the first quarter, Alaska banks increased their assets by 6.3 percent, led by a 13.2 percent increase for Mt. McKinley Bank.
Net income grew a collective 18.5 percent in the first quarter. First National Bank Alaska had 28.7 percent year over year net income growth, along with a 36.5 percent growth for First Bank and a 26.1 percent bump for Denali State Bank.
Only Northrim didn’t post a first quarter net income increase, with 5 percent decline year-over-year.
Net loans and leases grew for each bank but Northrim, for a total 5.8 percent increase.
First National Bank Alaska increased its loan portfolio by 10.6 percent, and Denali State Bank increased its loan portfolio by 10.8 percent.
Credit unions also posted increases in unpaid loans, though record from the National Credit Union Administration show loans past due 30 days instead of the 60 days specified in Callahan’s study.
Delinquent loans grew a combined 5.7 percent for the six largest Alaska credit unions, mostly due to Credit Union 1 and Denali Alaska, who posted 41 percent and 99 percent increases to delinquent loans, respectively.
Credit unions boosted total loans by a total 9.8 percent in the first quarter of 2016. Alaska USA increased total loans by 10.4 percent over last year.
DJ Summers can be reached at [email protected].