Out of seven banks and one credit union that have branches in Baker
City, just two businesses - Community Bank and Old West Federal Credit
Union - haven't received federal bailout money.
Officials at Old West Federal Credit Union (which isn't eligible for
the federal aid) and Community Bank credited their financial stability
to their focus on using money deposited locally to make loans to local
individuals and businesses, rather than investing in national or
international sub-prime markets.
"We haven't participated in the federal bailout, nor would we be
eligible," Old West President Ken Olson said. "I'm confident Old West
can continue successfully without participating in the federal bailout."
While customers at some of the larger corporate banks have withdrawn their money due to concerns about the bailout, officials with US Bank, Wells Fargo and Banner Bank said their banks are sound and that widespread publicity about the bailout has created a false perception about the federal funds they received.
A corporate spokesman for Banner Bank said the business used its $124 million in federal money exactly as Congress intended.
"We want to make sure people understand we are using the capital in the direction Congress intended it to be used for," said Doug Bayne, vice president and director of marketing for Banner Bank, which is headquartered in Walla Walla and operates 80 branches in Washington, Oregon and Idaho, including a branch in Baker City.
Before Banner Bank received the $124 million in late November, Bayne said bank officials had planned to loan the money within a couple of months after receiving it, because they felt Congress intended for the funds to be disbursed as soon as possible to stimulate the economy.
"Since receiving the $124 million in late November, we have made a total of $207 million in loans," Bayne said.
Those loans were made in every category, from commercial lending and farm loans to real estate and consumer lending, Bayne said.
"We've been pretty active trying to place loans in our communities," he said.
Officials at Sterling Bank and Bank of America could not be reached for comment in time for this story.
Olson and Jeremy Gilpin, vice president and senior loan officer for Community Bank, said they are gaining customers, increasing deposits and adding to their loan portfolios.
They attribute those trends in part to the fact that they are locally owned and operated banks that didn't receive federal money.
"We had our strongest share (deposit) growth last year. We grew over 13 percent," Olson said. "That means folks trust us with their deposits."
Old West reported net earnings of $473,840, Olson said.
While that net profit is down slightly from 2007, Olson said it's right on target for what credit union officials projected for 2008 - and is substantially better than the trillions of dollars in losses racked up by corporate banks and financial institutions nationwide.
"The latest estimates for the bailout costs is $8.4 trillion," Olson said. "A trillion is a million-million, and I don't know where all that money has stopped one foreclosure."
"At a time when the corporate banks are curtailing lending, we are still making loans. We loan every penny out," Olson said, adding that the credit union loaned out 98 percent of share deposits made by its members.
Olson said Old West credits part of its growth in deposits to higher interest rates the credit union pays its depositors, which are the credit union's shareholders.
"Our share deposits earn double or triple the average interest rate paid by other local financial institutions," Olson said.
Because the bank's depositors own the credit union, it is operated for the benefit of those members. Olson said that philosophy is one reason Old West has relatively low fees.
As an example, he said Old West charges $15 for a non-sufficient funds check, compared to an average of around $30 to $35 charged by area banks.
Olson said the growth happening at Old West reflects a historical trend of people moving their deposits to credit unions during hard times.
Tom Moran, president and CEO of Community Bank, said his board of directors chose not to accept federal bailout money because the bank didn't need it, and because the board doesn't like the idea of taxpayers bailing out banks.
"At the end of the day, it comes out of the taxpayers' pockets. That isn't something we wanted to contribute to," Moran said.
Community Bank announced earnings last week of $1.19 million for the fourth quarter, and $4.1 million overall for 2008. Total loans grew by $29 million, or 14.3 percent, at 15 branches in rural communities across Northeastern Oregon, including the Baker City branch, which posted the largest increase in its loan portfolio of all the branches, Moran said.
"We did it all without a single taxpayer-funded, government bailout dollar, Moran said.
Gilpin said he believes one reason Community Bank is growing is because "people feel more comfortable depositing money in a bank that doesn't have to go to the government for bailout money."
Local ownership also benefits Community Bank and Old West, company officials said.
Gilpin said what sets locally owned financial institutions apart from the national chains is their focus on making loans in the counties where their branches are located.
When other banks tightened credit last year, "it was business as usual" for Community Bank, Gilpin said.
Gilpin and Julie Zaccone, manager of the Baker City branch of Old West, said another thing the businesses have in common is that checks, deposits, loan payments and other transactions are processed daily at local branches, where decisions are made about whether to assess fees.
"Our decisions are made here," Gilpin said. "We're getting a lot of clients moving to us because of fee issues with other banks."
As an example, some national bank chains have started charging teller fees of up to 10 percent for people who don't have an account with the bank but want to cash a check, including payroll checks drawn on the bank.
Zaccone and Gilpin said that's not happening at Old West or Community Bank.
"We don't require teller processing fees. We just require positive ID from the person who is bringing us the check," Zaccone said.
While Congress is trying to figure out what some financial institutions did with the first $350 billion in government bailout funds disbursed in the final months of the Bush Administration, spokespeople from corporate banks that have local branches contend they're getting a bum rap.
Amy McDevitt, a spokeswoman at the Wells Fargo regional headquarters in Boise, said the term "bailout" does not accurately describe the nature of the $25 billion in federal funds Wells Fargo received Oct. 29 under the Capital Purchase Program portion of the Targeted Asset Relief Program.
"We issued 25,000 shares of Wells Fargo preferred stock to the Treasury. That's why it is an investment in the bank," McDevitt said. Those shares serve as collateral for the loan, which Wells Fargo is paying back at interest rates ranging from 5 percent to 9 percent, depending on how long it takes to repay.
However, Wells Fargo is not allowed to redeem that stock for at least three years, she said.
The purpose of making government loans to financially sound banks is to jump-start lending activity and to invigorate the national economy, McDevitt said.
"The money is not a bailout," she said. "It's an investment. Wells Fargo is using the money to make many loans to credit-worthy borrowers."
In addition, she said Wells Fargo has used some of the federal money to help "customers who are behind in their mortgage payments stay in their homes.
"I know there have been a lot of questions about how that money was used. Our fourth-quarter earnings report did show we have increased our lending, year over year," McDevitt said.
"On average, our loans were up $9.7 billion or 10 percent from the previous quarter," she said.
Bayne, from Banner Bank, said, "We were selected through a process, based on the strength of the bank."
He said Banner Bank recently acquired the Island Bank chain of three branches in the Puget Sound area, and the corporation is looking at buying other banks.
Jennifer Wendt, a spokeswoman for US Bancorp, which has its headquarters in Minneapolis and has a branch in Baker City, said US Bank was also chosen to receive TARP funds because of the bank's financial strength.
"We actually didn't do any sub-prime lending through our mortgage department," Wendt said. "We actually emerged as one of the strongest banks among our peers."
However, she said she is not aware of any specific loan programs at US Bank for disbursing its $6.6 billion in TARP funds.
"We haven't changed anything as a result of what's going on with the economy right now," Wendt said.
"We haven't actually done anything specifically with the TARP funds. It was part of the purchase program where the Treasury buys preferred stock," Wendt said.
"We absolutely intend to use the capital to continue our growth in lending to credit-worthy borrowers," Wendt said. "We're looking at ways to use it to meet Treasury's goal of stabilizing the economy.
"We have actually been making loans all along," Wendt said. "We have a pretty prudent approach to credit quality, and how we are doing business," Wendt said. "It's business as usual."
She said US Bancorp recently acquired two small bank chains in Southern California - PFF Bank and Trust and Downey Savings and Loan. However, those acquisitions were completed in September and November, before US Bank received TARP funds.
As for fee increases and centralized processing of daily receipts from local bank branches, Bayne and Wendt said they were not aware of any recent fee increases, and that when a customer disputes a fee imposed at their processing centers, the staff at local branches has the authority to reverse those fees.