Where Credit Is Due

Walla Walla’s Baker Boyer Bank President Megan Clubb predicts there will be winners in the shakeup of the banking industry. “You’re going to see the market share of healthy community banks increase. I think you’re going to see the market share of banks that didn’t take TARP increase.”

And she mentions one other financial-services player: “I think you’re going to see the market share of credit unions increase.”

Credit unions weren’t immune to the effects of the recession. Linda Jekel, director of the credit unions division at the state Department of Financial Institutions, says 31 credit unions failed nationally in 2009; none was in Washington.

The industry will continue to be under stress in 2010; since credit unions are primarily consumer lenders, Jekel notes, “their assets are affected by consumer financial stresses from unemployment, falling home values and maxed-out credit cards. Traditionally, consumer loan delinquencies do not peak until several months after unemployment begins to go down.” That situation could mean higher loan delinquencies for credit union customers in 2010, she adds.

Those trends showed up in the results of BECU, the state’s largest credit union and one of the biggest nationally. Between higher provisions of loan losses, lower income on loans and payments to bolster the national credit union insurance fund, BECU reported a loss for 2009. BECU President Gary Oakland says the credit union has seen the recession’s impact on its members as it worked on loan-restructuring programs. “It’s not just the unemployed; it’s the underemployed,” he says.

Oakland expects BECU to rebound to profitability in 2010. While loan write-offs will be about the same as last year, the hit to the bottom line won’t be as severe as in 2009 because of the loan-loss reserves the credit union has built up.

While the credit union sector took its lumps, it wasn’t a player in the worst financial debacles like subprime mortgages or investment banking. Jekel says most of the state’s credit unions entered the recession with strong capital, and as of early February, only four of the 70 state-chartered credit unions were below the regulatory definition of “well capitalized.”

That credit unions don’t get blamed for what happened could contribute to credit unions grabbing market share on both the consumer and small-business side once the economy recovers and members are back to work.

BECU, for one, intends to make a push for small-business lending. “We have consistently said we’re going to stay with small business, and not get into strip malls, apartments or condos,” Oakland explains. BECU’s lending will be focused on “small mom-and-pop” businesses or former Boeing employees looking to go into business for themselves.

The credit union also hopes for a bigger share of the consumer market. It has been steadily adding new or expanded branches, including a new location earlier this year in Seattle’s Lower Queen Anne, bringing its total to 41. One area of emphasis is acquiring locations at or near university and community college campuses; it currently has ATMs at the University of Washington, Seattle University, and Everett Community College and is adding one at Seattle Pacific University.

“There’s a lot of awareness of what co-ops are,” Oakland says. The idea of a member-owned cooperative “resonates with folks of that [college] age.”

If credit unions do succeed at snaring more market share, that growth could reignite the long rivalry with commercial banks, which complain about the tax-exempt status of credit unions as an unfair competitive advantage. Says Clubb, “As the market share of credit unions expands, what’s that going to do to a state and a federal system that’s already lacking in enough taxes to cover the bills?”

Related: A Prime Growth Area: Banks turn to international markets for profits.

Back to Main Story: Under Siege.

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