Some Inland Northwest bank-holding companies reported higher loan charge-offs, nonperforming assets, or provisions for loan losses in their third-quarter earnings reports, reflecting a softening in the real estate markets they serve.


After having enjoyed an outstanding lending market in recent years, the three companies, Northwest Bancorporation Inc. and Sterling Financial Corp., both of Spokane, and Intermountain Community Bancorp, of Sandpoint, all reported they had made one or more such adjustments.


Yet, Randall L. Fewel, present and CEO of Northwest Bancorporation, says the higher numbers reflect only a modest drop-off in the Inland Northwest lending climate.


Ive heard bank CEOs in this area say the last couple of years that credit quality is as good as it gets, and it can only go down from here, Fewel says. Weve started to see very small deterioration, but not anything to worry about.


Northwest Bancorporation reported recently that through the first nine months of 2007 its net loan charge-offs rose to $73,000, up from $5,000 in the year-earlier period. Loan charge-offs are write-offs of bad loans, and banks typically cover the amounts theyre lost with funds from their reserve for loan losses.


To have loan charge-offs of $5,000 is unbelievable in a $214 million loan portfolio as of Sept. 30, 2006, Fewel says. $73,000 is also pretty fantastic in the $250.2 million loan portfolio the bank held on Sept. 30, 2007, he says.


Nevertheless, charge-offs are up a bit; nonperforming assets are up a bit, he says.


Through Sept. 30 this year, Northwest Bancorporations nonperforming assets had increased to $841,000, up from $349,000 a year earlier, although they still were at a smaller percentage of the banks total assets than they have been historically, Fewel says. Nonperforming assets include loans that a bank believes might not be repaid and real estate assets on which it has foreclosed.


Even though charge-offs and nonperforming assets have increased this year, Fewel says hes still optimistic about the Inland Northwest economy.


Overall, I just think theres still an awfully lot going on, he says. Our loan totals are up, and thats coming out of our economy. We think loan demand is very strong. Even our residential mortgage department is having a record year despite all of the things you read about problems in the national residential lending market.


Sterling Financial, which does business throughout much of the Inland Northwest and far beyond it, says the most pronounced erosion it has seen in mortgage lending has been in Boise and to some extent in Bend, Ore.


There has been some weakening in Boise, to a more limited degree in Bend, says Dan Byrne, Sterlings executive vice president for finance and chief financial officer.


In the Boise market, some buyers have been unable to fulfill their commitments to buy homes when they had been required to make only minimum down payments or only minimum documentation had been done on their ability to repay loans, Byrne says. He says Sterling inherited those loans through its acquisition of FirstBank NW Corp., of Clarkston, Wash.


As of Sept. 30, Sterlings nonperforming assets had risen to $57.7 million, or 0.49 percent of total assets, up from $19.2 million, or 0.21 percent of total assets, a year earlier.


The majority of this increase resulted from construction loans obtained in recent acquisitions and reflects the lower underwriting standards that were used by the institutions that we acquired, particularly in the Boise, Idaho, marketplace, Sterling said in its third-quarter earnings release.


Also as of Sept. 30, Sterlings classified assets, which Byrne defines as its broadest measure of loans with some kind of problem, had grown to $215.6 million, up from $46 million a year earlier.


Sterling says it had anticipated some increase in classified assets. However, the recent weakness in real estate prices in the Boise, Idaho, and Bend, Ore., markets has resulted in larger increases than projected.


Classified assets related to residential construction increased by $96.7 million in the third quarter, with 57 percent of that jump accounted for by properties in Boise and Bend, Sterling said.


Byrne says Sterling hasnt seen the same degree of softness elsewhere in its markets, and though problems in residential lending could affect other markets, such as consumer loans, were not seeing that right now. Sterling isnt seeing any effect on commercial lending from the residential lending problems either, Byrne says, adding, Theyre different markets.


As of Sept. 30, Sterlings credit loss allowance totaled $108.3 million, or 1.22 percent of total loans, compared with $71.5 million, or 1.13 percent of total loans, a year earlier.


Meanwhile, Intermountain Community Bancorp, which owns subsidiary banks that operate branches in southern Idaho, North Idaho, and Spokane, saw its net income fall in the third quarter, due in part to a higher provision for loan losses as well as other factors, Intermountain says. (See story, page B5.)In a provision for loan losses, a bank sets aside funds to cover potential loan losses, adding to its reserves for such losses.


In the third quarter, Intermountain made a $1.2 million provision for loan losses, up from $910,000 in the year-earlier period. Through the first nine months this year, its provision for loan losses jumped to $3.2 million, up from $1.6 million a year earlier.


Although the markets the companys banks serve are among the strongest in the country, our customers and communities are feeling the effects of a slowing national economy, particularly in terms of real estate, President and CEO Curt Hecker said in the banks earnings release.


He called the increase in the loan-loss provision substantial and said it was due to growth in the institutions loan portfolio as well as worsening credit conditions in the real estate market.


Still, the banks assets grew by 18.1 percent to $1.04 billion in the 12 months ended Sept. 30, while its net loans increased 17.5 percent to $760.2 million, and total deposits jumped by 13 percent to $778.3 million.


Northwest Bancorporation also enjoyed strong growth in the 12-month period, with assets up 16.4 percent to $319.7 million, deposits up 19 percent to $249.9 million, and net loans up 19.6 percent to $250.2 million. The Spokane company said those growth rates far outpaced industry norms for similarly sized banks.


Sterling reported 10 percent growth in assets, which totaled $11.75 billion as of Sept. 30. Its total loans grew 11 percent to $8.75 billion, and total deposits increased 8 percent to $7.77 billion.


Contact Richard Ripley at (509) 344-1261 or via e-mail at editor@spokanejournal.com.