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|Wednesday, October 21, 2009|
Ask ShoreBank Pacific CEO David Williams how it feels to be running Portland’s greenest bank these days and he compares it to walking along the edge of a razor blade.
ShoreBank Pacific has been pummeled by bankruptcies in the ethanol industry and troubles at its Chicago-based holding company, which received a chilling “cease and desist” letter from the FDIC in July. A subsequent Portland visit from FDIC agents forced the bank to write off new losses and develop a plan to clean up its loan portfolio.
“They were singing our praises in all sorts of ways,” Williams says of the FDIC agents, “and then they beat the hell out of us when we did the exam.”
Compared to the many regional banks in far worse shape, ShoreBank Pacific remains “enormously liquid,” Williams says. But the bank’s predicament is complex. Because it is wholly owned by Chicago-based ShoreBank Corp., it cannot raise money independently. This leaves Williams trying to convince would-be investors to sign on in theory but to remain patient while things beyond local control get sorted out. Balancing the needs of the bank’s current owners, new potential investors and the FDIC is a whole new endeavor for a banker whose true passion is green revolution.
ShoreBank Pacific billed itself as the nation’s first bank with a pure sustainability mission when it was formed in 1997 by the socially progressive ShoreBank Corp. and the Portland nonprofit Ecotrust. After a sluggish start in Ilwaco, Wash., the bank prospered in Portland under Williams, achieving 11 consecutive quarters of record growth. It moved from the Pearl District into a much larger space at the historic Telegraph Building in the summer of 2008, and also built a branch office in Seattle. Strong relationships with solid local companies and steadily increasing deposits seemed to shelter the institution from the downturn.
“We do it the old-fashioned way,” Williams wrote in his Sept. 30, 2008, letter to stakeholders. “We earn it based on customer success.”
Little did the straight-talking physicist Williams know then that two of the bank’s key customers would soon fail. When the economy collapsed the ethanol industry disintegrated. ShoreBank Pacific, the local lender for two major Oregon ethanol plants that went bankrupt, was left holding the bag.
At first Williams maintained that the ethanol plants would recover eventually. But larger banks in more powerful positions in bankruptcy court did not share his patience. The ethanol picture deteriorated from bad to worse.
Then in July, the FDIC and Illinois regulators warned ShoreBank Corp. to cease and desist from all unsafe and unsound banking practices, and to improve its capital ratios with all due speed. That order was followed by the Portland visit from FDIC agents Williams describes as “loaded for bear.” The FDIC praised the bank’s diversification and its lack of subprime lending, but emphasized the need to clean up its books and improve its capital position. Regulators also forced ShoreBankPacific to write off the ethanol loans. That swung the bank to a loss for the year.
In response, Williams and his bank have foreclosed on the Columbia Gorge Hotel and stepped up the pressure on borrowers backing eco-friendly mixed-use developments in Portland and Astoria. They’ve also been forced to cut back on lending, although they did manage to get behind a new plant in Washington State’s Skagit Valley that converts cow manure into electricity.
On the bright side, deposits continue to flow in from customers who believe in ShoreBank Pacific’s long commitment to sustainability. Williams takes that as a sign that support remains strong for the bank’s core strategy.
“We will get past this,” he says.
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