Financial Institutions Expand to Pacific Northwest
The Pacific Northwest—which is generally thought to include Washington, Oregon, Idaho and sometimes Montana, Wyoming, and California—has strong historical ties with Alaska.
Mergers, partnerships, digital services grow banking presence
There are considerable similarities between Alaska and these other states, each boasting wide-open spaces, an abundance of natural resources, and a bold, independent spirit.
Over the years, Alaska’s financial institutions have taken different approaches to expanding into the Pacific Northwest and tapping into its economy, which is driven by diverse industries. For example, Northrim has made brick-and-mortar investments in the region. First National Bank of Alaska partners with other banks to fund loans. Denali State Bank is expanding its online presence to broaden customers’ access to banking services, particularly for those who have relocated to the Pacific Northwest and elsewhere in the Lower 48. And Denali Federal Credit Union is pursuing a merger partnership agreement to further enhance its involvement in the Pacific Northwest market.
Northrim Bank, which serves 90 percent of Alaska’s population, has about 400 employees and fourteen branches in Anchorage, the Matanuska Valley, Juneau, Fairbanks, Ketchikan, and Sitka. The full-service, community bank has a history of Pacific Northwest expansion. In 2002, Northrim was an original investor in Elliott Cove Capital Management, a Seattle-based capital management firm and insurance agency serving individual investors and financial institutions. Elliott Cove offers investment portfolios, annuities, and other insurance products for individual investors and retirement plans for community businesses, professional firms, and nonprofit organizations.
In 2004, the bank opened Northrim Funding Services as a result of an acquisition. The Bellevue, Washington-based firm provides asset-based lending and factoring (purchasing) of accounts receivable to businesses primarily in Alaska, the western United States, and Arizona.
Then in 2006, Northrim Bank made another major investment in the Pacific Northwest. The company assumed a minority ownership interest in Pacific Wealth Advisors, which operates offices in Seattle. Pacific Wealth Advisors has two subsidiaries: Pacific Portfolio Consultants and Pacific Portfolio Trust Company. Pacific Portfolio is an independent wealth management and investment advisor serving high-net-worth individuals and families as well as institutions. “It has over $3.6 billion under management; a third of that is in Alaska, and two thirds is in the Pacific Northwest,” says Mike Martin, executive vice president, COO, and general counsel at Northrim Bank. “And they continue to expand.”
Several years ago, Pacific Portfolio—of which Northrim owns 24 percent—opened an office in Alaska. The company maintains a team of experienced advisors to serve clients in Alaska as well as the greater Pacific Northwest.
Another example of Northrim’s service expansion is Residential Mortgage, one of the largest mortgage loan originators in Alaska. Recently, Residential Mortgage—which is wholly owned by Northrim—has had the opportunity to originate mortgage loans in Washington, and it plans to expand to other states.
Residential Mortgage has had some regulatory opportunities to originate loans in other states, Martin says, so it makes sense to originate mortgage loans in these additional areas. Plus, as Alaskans migrate to the Lower 48, there’s a direct nexus with originating loans in Washington and western states.
The bank’s rationale for expanding into the Pacific Northwest region was primarily customer-driven, according to Executive Vice President and Chief Lending Officer Mike Huston. “The number one reason is we’re following our customers,” he explains. “That is the most common place for our customers to expand and invest in additional projects. There’s significant trade between the Pacific Northwest and Alaska, so it’s natural to expand there.”
Northrim’s investments in the Pacific Northwest region allow the bank to diversify its portfolio, have more sources of revenue, and acquire more customers. It also brings additional expertise and value to customers in Alaska. “It’s being able to provide a full range of financial services to our customers,” Huston says.
Huston says Northrim Bank has no current plans to expand into other regions of the country but will continue to conduct business in the western United States. In addition, the bank will keep concentrating on opportunities in Alaska, where it is firmly rooted. “We are bullish and optimistic about the Alaska economy,” Huston says. “We do have some issues that need to be resolved, including the budget situation, but we feel there is a lot of opportunity in Alaska, and we remain focused in this area.”
From a banking perspective, Martin says, there is tremendous difference between operating in Alaska and in the Pacific Northwest. Two key areas of distinction are the geographic landscape and level of competition. For example, with Alaska’s extreme size, there is a huge distance between Northrim’s northernmost branch in Fairbanks and its most southernmost branch in Ketchikan. The lack of a road system and other infrastructure makes banking more challenging in many Alaska communities.
The competition level is starkly different in both markets. There are seven banks operating in Alaska. In Washington and Oregon there are more than eighty and forty financial institutions, respectively.
Northrim Bank remains focused on providing “customer first service” in Alaska. And if these customers have operations they are trying to advance in the Pacific Northwest, Northrim will find a way to help them pursue their goals, Martin says.
Last May, as part of its customer first service philosophy, Northrim converted to a new core banking system. The conversion, which costs $943,000, is making it easier for customers to interact with the bank digitally—regardless of their physical location, Huston says. However, Northrim still strongly believes in fostering a relationship model through traditional interactions. “It’s difficult to establish a good relationship with someone strictly through electronic means,” Huston says. “I see this as enhancing our offerings, as opposed to being an entirely new alternative.”
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Alaskan-owned and-operated since 1922, First National Bank Alaska meets the financial needs of Alaskans through a network of ATMs and branches in eighteen communities statewide.
First National has not expanded its physical presence into the Pacific Northwest. However, it does conduct business in the region by partnering with national and regional banks that have the same lending criteria that First National employs in Alaska, according to Stacy Tomuro, senior vice president, specialty lending director of the Corporate Lending Division. “Our ability to be responsive to a customer’s financing needs, combined with timely decision making, is something Alaskans have come to expect of us, and—by applying these same capabilities outside of Alaska—we have been able to build very good relationships with these banks,” he explains.
The Pacific Northwest economy is strong and has seen tremendous growth since the Great Recession, as compared to the Alaska economy, Tomuro says. The economies of the region are more diversified than Alaska’s and present opportunities to finance businesses in many different industries. First National intends to continue leveraging the strength of the economy in the Pacific Northwest. “Based on the strong reception we have had and growth in our loan portfolio during these recessionary times in Alaska, we will continue to expand on these relationships as long as there are high-quality loans to be made to well-established customers of those banks outside of Alaska.”
First National opted to expand relationships in the Pacific Northwest several years ago because of the weaknesses that it anticipated and is seeing play out today in the Alaska economy. “But Alaska is and will always be our main focus for the bank,” Tomuro says. “First National will continue to provide Alaskans with the banking services needed in our communities throughout the state.”
At this juncture, the bank has no plans to physically expand into the Pacific Northwest—although it does work with banks in several states in the Lower 48.
Denali State Bank
Established in 1986, Denali State Bank operates five branches in the Interior—four in Fairbanks and one in Tok. With five of Alaska’s seven banks represented in the Fairbanks market, the full-service community bank is operating in a very competitive environment.
However, Denali is not looking to open branches in the Pacific Northwest—or anywhere else in Alaska, according to President and CEO Steve Lundgren. Instead of expanding physically, the bank is focused on capitalizing on technology to obtain more loans. “We would be [considering expansion] if it were not for the digital environment that we are in that will allow us to acquire loans,” Lundgren says. “We’re not originating those loans; they are originated by banks in those areas.”
With Alaska’s current economy, lending volume has been flat. Most banks in Alaska have plenty of deposits, but not enough loan activity to support their deposit base. Consequently, Denali is increasingly facilitating loans to individuals and businesses in other parts of the country. “In order to better put our capital to use, we began to participate in loans outside of Alaska,” Lundgren says. “We’ve grown our loan portfolio where about 25 percent of our loans are outside Alaska.”
Lundgren says many banks are looking for ways to improve efficiency and cost structure. Traditionally, financial institutions have expanded by building additional branches, a costly endeavor. The development of digital capabilities allow banks to grow their customer base without having to increase costs as they would with brick-and-mortar expansions.
Denali, like many institutions, is leveraging online technology to better serve customers. “Our first step was to figure out a way to not only keep the customers we have that move or travel outside Alaska, but also to be able to capture other potential customers outside Alaska,” Lundgren says.
So Denali updated its website, and now its customers can do everything online, from opening an account to applying for a mortgage or installment loan. To continue with its digital expansion, the bank developed a mobile banking app that lets customers engage in online banking from their iPad or smartphone. Like many institutions, Denali also offers remote deposit capture that lets customers deposit checks electronically. However, Lundgren says, expanding Denali’s online presence has less to do with Alaska’s economy and more to do with providing services to its customers. “Fairbanks residents and all Alaskans are very mobile and travel outside Alaska, and they still need financial products available to them,” he says.
Denali FCU, which has about 70,000 members and $650 million in assets, recently signed an agreement to pursue a strategic merger partnership with Nuvision Credit Union, a $1.6 billion credit union based in California. The proposed partnership will merge two independently-successful, strong, and well-capitalized credit unions to create a significantly larger organization with increased operating efficiencies and an expanded market scope, according to a Denali news release from mid-March.
“We take great pride in our legacy of serving Alaskans for more than sixty-five years. Our proposed merger partnership with Nuvision is an important strategic step to continue this legacy and support our service goals. This partnership offers an exciting opportunity to collaborate and leverage our service, support, and technology infrastructures to improve our members’ experience and strengthen our credit union.”
“We take great pride in our legacy of serving Alaskans for more than sixty-five years,” Denali President and CEO Bob Teachworth stated in the release. “Our proposed merger partnership with Nuvision is an important strategic step to continue this legacy and support our service goals. This partnership offers an exciting opportunity to collaborate and leverage our service, support, and technology infrastructures to improve our members’ experience and strengthen our credit union.”
Under the merger agreement, Nuvision CEO Roger Ballard will become CEO of the combined $2.2 billion organization, and Teachworth will head up all Denali branch operations in the Pacific Northwest. The federally-insured credit union will operate under the Nuvision charter and name; however, current Denali branch locations will retain the Denali name, operating as a division of Nuvision. Combined, the credit unions will serve 160,000 members with approximately thirty branches in Alaska, Arizona, California, Washington, and Wyoming.
According to the release, the merger process is expected to take approximately one year, as it will require review and approval of the merger by the National Credit Union Administration as well as a vote of Denali’s membership in support of the merger. Denali members will not be impacted in any way as the credit unions conduct the merger approval process.
Denali FCU, the third-largest credit union in Alaska, had been entertaining the idea of doing a merger or building into new markets since 2011, according to Denali FCU spokesperson Keith Fernandez. In 2015, Denali opened its first branch outside Alaska in Kent, Washington, and then continued looking for other possible expansion sites. “There wasn’t much more room for expansion for us in the Alaska market,” Fernandez says. “We were looking for other ways to have a strategic growth plan.”
Denali knew it needed to expand beyond Alaska’s borders to grow and remain competitive. It also needed a way to combat economic cycles. “We think that this kind of geographic expansion will help counter cyclical economic times,” Fernandez says.
Last year, Denali worked with a consultant who compiled a list of about thirty credit unions that would be suitable merger partners. Nuvision—which shares Denali’s focus on building member relationships—emerged as the ideal choice. Fernandez says, “We both feel really strongly that this is a positive move for both institutions.”
Tracy Barbour has been an Alaska Business contributor since 1999. As a former Alaskan, she is uniquely positioned to offer in-depth insight and enjoys writing about a variety of topics.
In This Issue
Distinguishing Differences in Financial Institutions
There are thousands of financial institutions in Alaska, providing everything from checking and savings accounts to loans and investment solutions. Banks and credit unions are among the most prominent financial services companies serving Alaskans.