Spokane-based Inland Northwest Bank, though comparatively small in the commercial banking market here, is in the midst of a relatively aggressive expansion push.


The 19-year-old bank opened two new branches last year and plans this year to open two additional freestanding branches to replace two supermarket branches it operates. It also has expanded its commercial lending department greatly.


All that, says Randy Fewel, president and CEO of the bank and its parent, Northwest Bancorporation Inc., has created some growing pains that had a negative impact on its 2007 earnings. The bank-holding company reported 2007 net income of $2.6 million, or $1.10 a share, compared with $2.8 million, or $1.16 a share, in 2006.


It was an expected decline, says Fewel, and the bank expects improved earnings in 2008 and more gains in 2009.


We beat our budget on income, he says of the 2007 numbers. We planned to be down because of our investment in growth.


With the two new branches it opened late last year in Kootenai Countyone in Hayden and the other in Spirit LakeINB now has 12 branches. Seven of those branches are in the Spokane area, two others are in Kootenai County, and one is in Walla Walla, Wash.


We needed to increase our presence in North Idaho, says Fewel. We just had two facilities there.


The two new freestanding branches INB plans to open this year will be located on Spokanes North Side, at 518 W. Francis, and in Airway Heights, at the southeast corner of U.S. 2 and Garfield Road. The Francis branch is under construction, and work will begin soon on the Airway Heights branch, Fewel says. Both branches will replace in-store branches currently located in nearby Yokes Fresh Market supermarkets.


Meanwhile, INB expanded its commercial-lending staff by more than half last year, adding four loan officers to bring its total number of such staff members to 11.


The bank also has leased an additional 4,000 square feet of office space at its downtown headquarters here, on the second floor of the Paulsen Building, at 421 W. Riverside, bringing its total space there to 19,000 square feet, including the branch office it operates on the buildings first floor.


The banks loan portfolio is growing. Total loans jumped 28 percent last year to $274.7 million, and Fewel says he expects loan growth of about $40 million this year, as the new loan officers settle in, followed by larger growth in 2009 and beyond.


The banks deposits grew by 29 percent to $272.5 million, and its assets jumped 23 percent to $343.6 million.


Fewel says INBs assets have grown by $100 million in the past two years, and that INB could top $500 million in assets within the next four years.


Im not setting $500 million as a goal if I cant find the people to ensure were doing it right, he adds. You have to keep the human infrastructure up to speed.


Including the 15 to 20 new employees the bank hired for its new branches in Hayden and Spirit Lake, INB now employs about 120 people. Fewel says the bank isnt planning any additional branches soon beyond the planned new outlets on the North Side and Airway Heights.


Small-business focus


Not quite 20 years old, INB is still a relatively young bank. It opened with 3,000 square feet of space in the Paulsen Building in 1989, after three community banks hereOld National Bank, First National Bank in Spokane, and Bank of Spokanewere bought by bigger banks.


The banks founders included its original CEO, longtime Spokane banker Frederick Schunter, who retired in 2001 and is still a member of Northwest Bancorporations board of directors.


They saw a need for a community bank, Fewel says. A lot of customers like dealing with a locally owned bank.


INBs focus was and still is on small-business lending, he says, adding, I think about 70 percent of our loans are commercial.


The commercial loans INB makes typically are for about $250,000, but the bank can make loans of up to $6 million, Fewel says.


Our loan pipeline now is bigger than it ever has been, he says. Potential loans in various stages total $78 million. The biggest total before this year was around $62 million.


Fewel says that robust pipeline is a good indicator of optimism in the business community for 2008.


They wouldnt be borrowing money if they thought things are going to be terrible, he says. Interest rates also are helping.


While lower federal prime rates are intended to encourage borrowing to promote economic growth, they also can cut into a banks interest margin, which is the difference between what a bank charges in interest and what it pays out in interest, expressed as a percentage of average assets, Fewel says.


Were seeing loan rates go down faster than deposit rates. Interest expense increases more quickly than interest income. At some point, interest income will catch up, and the margin will stabilize, he says.


The net interest margin in 2007 was 4.42 percent, down from 4.67 percent in 2006.


That might not sound like very much, but on average assets of $340 million that equates to a decrease in net interest income of $850,000 over the course of a year, he says.


Meanwhile, the bank plans to offset the tighter interest margin by increasing its total loans.


Were trying to make it up in volume, he says. Were not going to do it on margin.


Although he believes none of the community banks that operate here were involved in subprime lending, the credit crunch that has resulted from the nationwide subprime mortgage crisis is affecting INBs mortgage lending, Fewel says.


We generate $30 million to $50 million a year in home mortgages and sell them on the secondary market, he says. We dont want to keep 30-year, fixed-rate loans, because interest rates change so much. If we dont have a source to sell to, it does affect our ability to approve some loans.


For instance, one of the top buyers of mortgages, Atlanta-based SunTrust Banks Inc., wont even look at you unless you have a credit score of 680, he says. Thats a pretty good credit score.


A year ago, SunTrust was buying up mortgages for which borrowers had credit scores as low as 620, which had been considered a fair credit score, he says.


Contact Mike McLean at (509) 344-1266 or via e-mail at [email protected].