Viking Financial Illustrates Plight of 'Too Small to Survive'

Viking Financial Services Corp. is a woeful case study of the hardships facing small banks under mounting pressure to fold or sell.

The Seattle company suffered a three-year run of bad luck — marked by deep construction losses, a regulatory order and the death of Patrick Redmond, its president and chief executive — that culminated this month in an agreement to sell itself for $7.2 million to AmericanWest Bank, a takeover vehicle backed by private equity.

"It was a very tough time," said Landon Brazier, Viking's chairman. "It's kind of like having a double-barrel shotgun [pointed at you]. You have the CEO gone [and] you're under an order. Either one would be difficult."

Most of the 7,500 banks in the U.S. are small operations like Viking that are the most vulnerable to regulatory and economic burdens. The result: small-bank mergers have been steady for the past two years even as mergers among big institutions remain relatively rare.

Viking's story is common: It is a well-to-do startup that strayed from its niche. Founded as an alternative to out-of-town banks, the $400 million-asset company is selling to a conglomerate.

"We took a lot of real estate assets that had gone south in the last three years. It really, really hurt us," said Thorpe Kelly, a retired obstetrician and former Viking chairman. "The tragedy is that we lost Pat. It was bad days for Viking Bank at that time."

Kelly was Viking's key founder in 1992, raising the initial $3.5 million in capital because, he said, of disgust with the out-of-touch service he got applying for credit with a big bank. Kelly felt he had the resources and connections to start a locally owned alternative.

"I knew the fishing industry very well, mainly because I did the delivery of most of their children," Kelly said.

Viking was initially two trailers in a parking lot: one for deposits and another for mortgages. Customers joked about whether it would still be there the next day.

Viking makes a big deal about being local. Its name — which AmericanWest will change — pays homage to the Scandinavian fishermen who first settled North Seattle and still live there.

Redmond was hired in 1996 after the founding CEO retired. Redmond, a 20-year veteran of First Interstate Bank of Washington in Seattle, bested 120 candidates. He then orchestrated an expansion from a single branch to a seven-branch bank that once had more than $600 million of assets.

Redmond was a good leader, Brazier said. "When he would walk into a branch, he'd always talk to the employees," he said. "One of his mantras was: 'Are you making money for me today?' The other thing he said was: 'Let's have some fun today.' "

Redmond's blunder was getting involved in home building during a real estate bubble. In late 2009, regulators ordered Viking to raise capital and reduce risky loans as construction losses soared.

Adding to bleak capital-raising efforts, Redmond was diagnosed with cancer. He died in January.

"Just before Pat died he said, 'Go ahead, you've got to sell the bank,' " Kelly said. "He said that it's either that or we're going to end up with major problems with the" Federal Deposit Insurance Corp. A month later, Viking began soliciting formal bids. The $2 billion-asset AmericanWest, of Spokane, Wash., beat other bidders because of a high bid. Another plus: the buyer's commitment to community banking.