Where Credit Is Due

Walla Wallas Baker Boyer Bank President Megan Clubb
predicts there will be winners in the shakeup of the banking industry. Youre
going to see the market share of healthy community banks increase. I think
youre going to see the market share of banks that didnt take TARP increase.

And she mentions one other financial-services player: I think youre going
to see the market share of credit unions increase.

Credit unions werent
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 states 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 recessions impact on its members as it worked on loan-restructuring
programs. Its not just the unemployed; its 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 wont 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 wasnt a
player in the worst financial debacles like subprime mortgages or investment
banking. Jekel says most of the states 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 dont 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 were going to stay with small business,
and not get into strip malls, apartments or condos, Oakland explains. BECUs
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 Seattles 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.

Theres 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, whats that going to do to a state and a federal system thats already
lacking in enough taxes to cover the bills?

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

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