Crystal Palmerton works the counter at the Umpqua Bank branch on East McAndrews Road on Wednesday. - Jim Craven

Heading off panic

As news spread about IndyMac Bank's failure on July 11, a group of Umpqua Bank marketing strategists gathered over the weekend to discuss how its own customers might react.

By the following Monday morning, a plan was in place for the weekly senior managers' conference call headed up by Umpqua Bank President Dave Edson, retail bank Vice President Ric Carey and Chief Financial Officer Ron Farnsworth.

"We wanted to be proactive in all this," said Steve Braden, a senior vice president for Umpqua Bank in Medford. "All of a sudden customers would be coming in and asking questions that normally aren't asked. We wanted our associates to feel confident in answering questions. We wanted to make sure nothing was left out."

IndyMac Bank, with $32 billion in assets, became the fifth bank to fail this year, creating the largest such failure since Superior Bank in Hinsdale, Ill., went down in 2001.

When the door swung open for business at Umpqua and virtually every financial institution on July 14, clients with televised images from the lines outside IndyMac branches dancing in their heads performed as expected.

"There has been a flurry of questions," Braden said. "Depositors and customers are asking the difference between our bank and IndyMac, about thrifts versus commercial banks, are we insured and how strong? They are asking the perfect questions."

By far, the "how strong and sound" questions are the most repeated, he said.

Strong or weak, all Oregon bank accounts are insured for $100,000 by the Federal Deposit Insurance Corp., and there are a variety of ways to structure accounts to protect far more than that amount.

Less than 2 percent of the nation's bank accounts contain more than $100,000 (excluding retirement accounts). The latest American Bankers Association data from the FDIC shows 9,082,996 deposit accounts in the United States with more than $100,000. In contrast, there are 504,905,849 accounts with less than $100,000.

"The reality is that the great majority of banks are safe and not at a risk of any kind for failure," said Oregon Wells Fargo President Alan Johnson.

At the same time, the very nature of being dependent on the broader economy makes bankers take notice when bad things happen.

"The common issue for banks is that any time their customers are going through stressful situations, then their bank is going to feel an impact from that," Johnson said. "The different thing from bank to bank is how many of a bank's customers are going through distressful circumstances and the concentration of how many loans and how large the dollars amounts are for those loans."

With residential development contracting right now, banks heavily into development loans are going to face greater challenges, he said.

"The Oregon economy is still generally good with net in-migration and relatively low unemployment," Johnson said. "The commercial marketplace is such that business banking at most banks is doing quite well. It's a little more challenging than it was two or three years ago, because there are sectors of our state that are directly involved in residential real estate and that sector is experiencing significant challenges."

Washington Mutual has topped Jackson County's bank deposit market-share list for the past decade. But the national savings bank has been shedding staff, while closing mortgage locations and trimming other operations.

On Tuesday, Washington Mutual Inc. reported a $3.33 billion second-quarter loss and Wachovia Corp. reported an $8.66 billion deficit in the second quarter.

Such mind-boggling numbers give even customers with a couple thousand dollars in the bank pause. Community banks that didn't overextend in the overheated real estate craze are all of a sudden looking better.

"The Oregon banks — PremierWest, South Valley Bank & Trust, Umpqua and Bank of the Cascades — are all generally well capitalized," said Mike Sickels, People's Bank of Commerce chairman and chief executive officer. "None of us are totally immune to real estate problems, but we haven't experienced the problems like the big and regional and national banks. Most of us have invested our money locally so we're not investing blindly into areas of high risk."

Wells Fargo's Johnson sees banks as a reflection of their economy in which they exist.

"If you're a consumer, the worse thing that can happen is that you lose your job," he said. "If you're a business, it can go downhill or, worse yet, fail. Banks, ultimately, are only as healthy as the environment in which they do business.

"If we get into a steep decline economically, then businesses are closing. Frankly, I don't believe that's what we see ahead."

Reach reporter Greg Stiles at 776-4463 or e-mail

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