Parent company of Bay Bank becomes eighth Washington state bank to fail this year
After years of losses stemming from its troubled commercial real estate portfolio, financial regulators shut down Cowlitz Bank on July 30, facilitating a sale of the 32-year-old financial institution to Olympia-based Heritage Bank.
Cowlitz Bancorp, the parent company of Bay Bank, with nine branch locations from Bellevue to Portland, was the eighth Washington state bank to fail this year.
Heritage Bank, with 14 branches concentrated in Thurston and Pierce counties, acquired approximately $280 million in Cowlitz Bank's assets and $350 million in deposits, according to a company release. The deal did not include non-performing loans or brokered deposits.
Branches of Cowlitz Bank opened Saturday, July 31 at 9 a.m. as Heritage Bank branches, with the Bay Bank division following suit on Monday.
In an interview with the VBJ this week, Heritage Financial Corp. president and CEO Brian Vance sought to turn the page on Cowlitz Bank's troubled past, marked in recent months by a $12.2 million first quarter 2010 net loss, increased scrutiny by financial regulators and steep reductions in new loans to local businesses.
"It was no secret that Cowlitz Bank had been under regulatory sanctions for some time because of a very limited capital position at the bank," Vance said. "And because they were so constrained, they did not have the ability to grow the company … whereas we do."
However, Vance seemed to nix a return to the commercial real estate lending practices prevalent during the region's building boom – one financed in large part by two now-failed local financial institutions, Cowlitz Bank and Bank of Clark County.
"Our primary preference with commercial real estate lending is owner-occupied commercial," he said. "We will look at some investor-owned properties, but it's a kind of ‘depends' answer, because it depends on the borrower, the property type, etc."
Heritage Bank's acquisition gives the financial institution a presence along the I-5 corridor from Seattle to Portland, with a total of 29 branches, including those belonging to their Yakima-based Central Valley Bank division.
"It creates a nice regional franchise for us," Vance said.
Vance said that customers should expect to see the same bank tellers and branch managers, adding that his company had no plans to reduce staff or close locations.
"We certainly want to continue in the markets we are now in," he said.
The seizure of Cowlitz Bank by regulators last week drew parallels to Bank of Clark County's failure and sale to Umpqua Bank more than a year-and-a-half earlier.
"Our hope is that under new ownership, the transition will be smoother," said Tami Nesburg, senior vice president of Regents Bank in Vancouver. "It's our hope that the change won't hurt former clients like the Bank of Clark County failure did."
With the Bank of Clark County seizure, some loan holders found their lines of credit frozen or sold to far-flung investors. "When something like that happens, it's always bad for the community as a whole," Nesburg said.
In the recent deal between the Federal Deposit Insurance Corp. and Heritage Bank, the Olympia-based lender entered into a "loss-share" agreement on $160.9 million in an arrangement expected to minimize disruption for loan customers.
The FDIC estimated the cost to its Deposit Insurance Fund would be $68.9 million as a result of the transaction.
According to the FDIC, Cowlitz Bank is the 107th U.S. bank to fail in 2010, with this year's figure well on pace to exceed the 140 FDIC-insured financial institutions seized by regulators in 2009.
