909 SE Bay Boulevard
PO BOX 2280
Newport, OR 97365
Some Things Never Completely Go Out of Style
For Immediate Release
Wednesday, December 30, 2010
Contact: Fred Postlewait
Oregon Coast Bank
Newport, OR – In banking, as it is with most industries, business practices go in and out of style. Perhaps the clearest example is how bankers’ perceptions have changed regarding loan-to-deposits ratios.
A bank’s loan-to-deposits ratio shows what percentage of the bank’s deposits have been committed to loans. For decades, well-managed banks had tried to loan about 70% of their communities’ deposits, keeping the rest in cash and negotiable securities for emergencies.
However, in the early part of this decade that once “universally accepted” 70% ratio started to change, as banks began to have access to “internet deposits” and “wholesale funding” from places like the Federal Home Loan Bank. Old fashioned “customer deposits” started to take on a secondary role and many banks allowed their loan-to-deposits ratio to balloon to between 90% and 125%.
Doubting the consistency of the new funding sources and not wanting to ever place the bank in financial jeopardy, Oregon Coast Bank management went to their board of directors and recommended that the bank ignore the trend and continue their traditional 70% loan-to-deposit ratio. The board agreed.
“By that point, most of the other Oregon-based banks had allowed their loan-to-deposit ratios to increase to 90% or more,” remembers Fred Postlewait, Oregon Coast Bank’s President and Chief Executive Officer. “We never stopped making loans, we just refused to allow our loan-to-deposit ratio to exceed the traditional standard.”
In actuality, Oregon Coast Bank has consistently remained a solid source of funding for the communities it serves, loaning more than $275 million to local families and businesses since 2002. How was that possible without adversely raising the bank’s loan-to-deposit ratio? Postlewait explains: “Having a large percentage of retirees in the local area is certainly a factor. Older folks tend to be savers, which means we have a very large deposit base. We’ve also been careful to make solid loans, even during times when other banks were lowering their standards. As a result, Oregon Coast Bank has been able to fulfill our responsibility within our communities to provide capital to those who need and deserve it without having to depend on alternate funding sources.”
Of course, after several years of a slow economy and instability in the financial industry, the pendulum has swung all the way back in favor of local deposits. These days industry regulators are actually penalizing banks who are overly dependent on alternate funding sources. As a result, banks are attempting to return to the traditional loan-to-deposit ratio standard, which just goes to prove the old adage: some things never completely go out of style.