Originally published September 14, 2011 at 9:46 PM | Page modified September 17, 2011 at 10:13 PM

Business loans shrink at Washington banks

As a group, the state's banks have a smaller portfolio of business loans than a year ago. Some local bankers blame a shortage of good borrowers.

Seattle Times staff reporter

Interactive: Is your bank getting stronger or weaker?


Blazing Bagels needs more dough. The green kind.

Dennis Ballen, CEO of the Redmond bagel-maker, said revenue has grown more than 30 percent annually during the Great Recession. The company has tripled its workforce and is on track to sell about 20,000 bagels daily to the public and to grocery stores, hospitals and offices, he said.

But for months, the founder of the 12-year-old company said, he's had a hard time finding good terms on an $80,000 "commercial and industrial" (C&I) loan, the type businesses use to finance their inventory and buy equipment.

While banks say they are hungry for such loans, data from the Federal Deposit Insurance Corp. show Washington-based institutions have shrunk their business loan portfolios.

Instead of making more loans, Washington banks as a group over the past four quarters have plowed their excess cash into shoring up their capital and buying securities issued by federal agencies, FDIC data show.

Bankers say the main cause of shrinking loan portfolios is a shortage of creditworthy borrowers. And their current borrowers are downsizing their inventories and paying down their debt in a dismal economy.

In addition, regulators are pressuring banks to keep higher capital levels.

"We absolutely want to be lending money," said Matt Deines, chief financial officer of Sound Community Bank.

As of June 30, gross loans by Washington-based banks and thrifts were $41.4 billion, down from $47.5 billion a year ago, according to the FDIC.

Even after taking into account charge-offs — soured loans that banks wrote off — and the loss during the past year of two banks to out-of-state firms, loans declined at least 6.8 percent over that 12-month period, according to a Seattle Times analysis. Nationwide, however, gross loans by banks and thrifts grew 1 percent.

The contrast is most stark with C&I loans: Among Washington banks, these declined over the year at least 12.6 percent, while nationwide they grew 7.7 percent, the analysis shows.

The FDIC data "doesn't look good for Washington banks," Deines said. "It could mean that loan is going somewhere else."

Medium-size firms

Bank of America, for example, said its lending to medium-size businesses in Washington was slightly higher in the first six months of 2011 than in the same period last year.

It said loans to the state's small businesses grew in the second quarter — $148.5 million, up from $90.5 million in the first quarter. The bank defines small businesses as those with $1 million to $25 million in annual revenue.

Among regional banks, Oregon-based Umpqua Bank is one of the large players that's expanded its commercial lending the most over the past year — 16 percent, according to SNL Financial, a leading bank-research firm.

In the three months ended June 30, Umpqua reported $103 million in new loans, most of them C&I loans, in Washington and three other states.

One of its new clients is Buse Timber & Sales, a specialized lumber mill in Everett that saw its business slump during the Great Recession. Mark Hecker, the lumber mill's general manager, said the mill received a letter in March 2010 from its Washington bank, which he declined to identify.

"They told us to go find another bank," Hecker said. "They never said why."

After talking to several local and national banks, Buse Timber signed a deal in December with Umpqua giving it a lower interest rate and a higher line of credit, he said.

"They don't just look at the numbers," he said. "They look at the people behind the numbers. That was one of the things that impressed me."

Some Washington banks have ramped up commercial lending significantly over the year, although some growth also has come from buying the portfolios of failed banks.

Whidbey Island Bank in Coupeville grew its C&I loans by more than 8 percent as of June 30, according to SNL. And Columbia Bank in Tacoma grew its portfolio nearly 10 percent.

Landing a creditworthy borrower "would be like receiving gold right now," said Jack Wagner, CEO of Washington Banking Co., the holding company for Whidbey Island Bank. "It's an earning asset that you can't duplicate."

Until the first quarter of this year, Washington banks had lost money every quarter since late 2008. The losses, fueled by skyrocketing defaults, ate into banks' ability to make new loans.

"Once we see loan growth, that'll certainly indicate a turning point in the industry," said Tyler Hall, a senior analyst with SNL Financial, which tracks the banking industry.

Searching for a loan

Ballen, the Blazing Bagels' CEO, says he hasn't looked around for several months but is hoping to find a lender he can work with.

He built his company from a one-man cart 12 years ago into a regional bagel supplier, with about 60 employees and three locations, including Safeco Field. It runs its Redmond production line almost 24/7.

"We don't know what a recession is inside these walls," said Karen Priszner, the company's general manager.

But getting a good loan has been a challenge. This year Ballen sought financing to buy three new pieces of equipment and consolidate loans on five delivery vans.

In evaluating a potential loan, banks typically look at five "C's" of the borrower — cash flow, collateral to cover the loan, capital levels, conditions such as its key competitors, and the character of the management.

"I don't think they look at the five C's," Ballen said. "I think they look at one 'C': cash flow."

He said Blazing Bagels had cash-flow problems recently due to its rapid growth.

"A bank will look at that and say, 'Boy, the cash flow doesn't look good,' but we manage to pay our bills and our creditors like us pretty good," Ballen said.

Cash flow can be hard for many small businesses: Vendors often require payment within a week or two, while customers might take three weeks or more to pay. Businesses get lines of credit to cover their operations until they get paid.

Collateral? "We have plenty of equipment and we also have accounts receivable that could choke a horse," Ballen said.

He won't agree to certain loan terms, such as putting up his house as collateral or asking his business partner to co-sign for the loan.

And he needs a bank with a nearby branch where he can deposit cash receipts.

Business was brisk in August, Ballen said, with sales up 55 percent over a year earlier. A national bank recently approached him, he said, about handling his credit-card sales transactions.

He's hoping for something in return: "I don't want to bank with them unless they'll consider us for a loan," he said.

Sanjay Bhatt: 206-464-3103 or