Banks see positives in economy amid budget debate
Alaska banks are seeing positives in the state economy despite uncertainties caused by the state’s budget situation.
The largest in-state banks, First National Bank Alaska and Northrim Bank each had solid results in the second quarter, although Northrim couldn’t match a particularly strong 2018.
Northrim netted a $4.2 million profit during the quarter, a 26 percent year-over-year drop largely due to the fact that the second quarter 2018 was a very good period for the bank and higher interest rates helped generate a $5.8 million net income, Chief Financial Officer Jed Ballard said.
This year Northrim has felt the impact of an inverted yield curve — when interest rates on short-term debt are higher than long-term debt — according to Ballard, who noted that about two-thirds of the bank’s loan portfolio is in variable-rate loans.
“We had some pretty decent loan growth in Q2 that helped offset lower interest rates,” he said.
Northrim increased its total lending 5.5 percent year-over-year to a $1.05 billion portfolio, according to records filed with the Federal Deposit Insurance Corp.
First National Bank Alaska grew its second quarter net income 3.7 percent year-over-year to more than $13.1 million, according to results posted on the bank’s website.
FNBA also eclipsed the $2 billion threshold in total loans in the second quarter with 4.7 percent year-over-year portfolio growth.
Both banks increased their total assets as well; Northrim grew 5.6 percent year-over-year to more than $1.55 billion and FNBA ended the second quarter with more than $3.76 billion in holdings, a 3.1 percent increase from 2018.
Northrim Chief Credit Officer and Bank Economist Mark Edwards said the positives he is seeing in North Slope oil investments as well as the ever-growing tourism sector have largely been “drowned out” in the noise caused by the state budget debates.
Northrim had a 1.12 percent return on its assets in the quarter, while FNBA returned 1.43 percent.
Some economists in the state have estimated Gov. Michael J. Dunleavy’s one-time group of budget vetoes totaling more than $400 million would have cost Alaska more than 4,000 jobs across numerous sectors; however, much of that fear has been tamped down as Dunleavy has agreed in recent days to restore significant amounts of funding, most notably to the University of Alaska’s budget.
Edwards said he did not think the vetoes would be as damaging to the economy as some did, but added that the compromise the governor has agreed to is preferable to steep immediate cuts.
Wells Fargo Alaska Commercial Banking Market Executive Joe Everhart had similar sentiments about the Alaska economy, also noting that commercial fisherman across the state’s many fisheries have generally received good prices for their catch this year.
“The budget and legislative issues clearly dampened some of the economic optimism after 40-plus months of being in a recession, but there are a lot of positive steps that are happening on the Slope with Oil Search and (ConocoPhillips) as examples; the state budget conversations did throw a little bit of cold water on better economic indicators,” Everhart said.
Wells Fargo held just more than 50 percent of total bank deposits in the state last year, according to FDIC data. Updated figures have not yet been published.
Everhart said, “Generally things were positive” for Wells Fargo in Alaska as well, but he did not want to discuss specifics until the numbers were officially public.
Some sectors, such as health care and nonprofits, saw a particular lack of investment through the spring, as the state budget remained undecided into July.
Dunleavy vetoed $50 million from the state’s Medicaid budget; a cut that came on top of the Legislature’s $70 million reduction to Medicaid.
“People didn’t necessarily want to ramp up, buy additional inventory, hire staff if they didn’t have confidence in what was happening in the State of Alaska,” Everhart said Aug. 14.
“Fast-forward a couple of days, it does appear there’s been a meeting of the minds to put this conversation to rest so everybody can plan for the future.”
Edwards and Everhart also both pointed to low foreclosure and loan delinquency rates in the state as evidence that the underlying support of the Alaska economy is generally strong.
Northrim held its loan loss allowance in the second quarter nearly steady at $20.5 million, an increase of 2 percent year-over-year, while FNBA’s increased 8.8 percent to $19.5 million.
Northrim had $18 million of loans in nonaccrual in the second quarter and FNBA had $7.3 million of loans in similar status.
Elwood Brehmer can be reached at [email protected].