Clark County credit unions a picture of financial strength?

Financial institutions hang tough as economy batters their membership, driving up unemployment and hurting their bottom line

By Libby Clark, Columbian Web Editor

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Clark County’s credit unions are strong and growing with many getting an influx of deposits after Bank of Clark County closed more than a year ago and bank customers sought out alternatives as the national financial crisis unfolded. Only one, Cascade Forest Products Credit Union in Vancouver, falls below the federal standard for “well-capitalized” institutions, according to state and federal regulators.

The rest, including the county’s largest by total assets, Columbia Community Credit Union, commonly known as Columbian Credit Union, are considered “very healthy,” Linda Jekel, director of credit unions for the Washington state Department of Financial Institutions, said in an e-mail.

Despite their overall health, credit unions have suffered their share of losses through the recession. And they’re still vulnerable to further declines because their financial health is closely tied to county unemployment, which remains high. Data released last week by the Washington state Employment Security Department showed a jobless rate nearing 15 percent in February, suggesting that more losses are in store for credit unions here.

That’s because unlike banks, which also lend to businesses, nonprofit credit unions focus largely on consumer loans, including car and home loans and personal lines of credit.

“Credit unions will continue to experience higher delinquencies and loan losses until the overall employment improves and their members are fully employed,” Jekel said. “When their members are unemployed and can’t make their loan payments, credit unions suffer loan losses that, in turn, reduces their net worth.”

In trouble

Under federal law, credit unions must maintain at least a 7 percent net-worth ratio to be considered well-capitalized. The ratio — earnings plus reserves and other equity, divided by total assets — gauges a credit union’s ability to take on risk and handle uncertainty.

Cascade Forest Products Credit Union has a net-worth ratio of 5.66 as of December, according to filings with the National Credit Union Administration, which releases the data quarterly.

The credit union, whose members are mostly employed in the paper and office-supply industries, lost much of its net worth when many of its members were laid off.

“We did have a peak in this last year of delinquent loans,” said Lori Olsen, chief executive officer of Cascade Forest Products Credit Union. “So now we’re working diligently with the membership, and as much as we can trying to do work-out loans and help them.”

Cascade Forest Products is also working on a net worth restoration plan for state and federal regulators, which have also asked the institution to consider merging into a larger, healthier credit union.

“We have no intention of going down the merger road at this point,” Olsen said. “There’s definitely a place for small credit unions. We have niches out there of customers that want the extra attention.”

Olsen declined to share the plan, which hasn’t yet been submitted to regulators for approval.

Doing well

On the other end of the spectrum, Longshoreman’s Local 4 Credit Union and People’s Community Federal Credit Union maintained the county’s highest net-worth ratios, above 10 percent.

Those high ratios — 18.92 for Local 4 and 12.88 for People’s — could indicate the credit unions’ members weren’t hit as hard by the recession, that they’re using conservative lending practices, or that their membership isn’t growing as fast.

Some credit unions, for example, inflate their net-worth ratios by turning away new members and keeping their total assets low, said John Annaloro, president and chief executive officer of the Washington Credit Union League. Larger total assets drives the net-worth ratio down.

Ed Seidenberg, president and chief executive officer of People’s Community Federal, concurs.

“There are some credit unions trying not to grow right now in order to keep that (ratio) stronger,” he said. “But our dollar amount of net worth is high enough we haven’t had to use that strategy.”

Instead, the credit union practices a conservative lending strategy, relying on its own assessment of a member’s financial situation rather than using credit reports, Seidenberg said. And People’s is still growing, increasing its total assets from $136 million in December to $145 million at the end of February, he said.

Still growing

On the whole, most of Clark County’s credit unions are growing, some in fast spurts, which pushes their net-worth ratios lower but keeps them in a healthy range.

IQ Credit Union, for example, has a net-worth ratio of 7.52 and total assets of $430 million as of December, a 4 percent gain in assets over the year. Similarly, Columbia Credit Union saw its assets fall 4 percent over the same period to reach $750 million. It reported a net-worth ratio of 9.1 percent in December. Both institutions gained about 1,000 members each in 2009.

“Many more consumers are reconsidering their financial institutions and there’s a flight to safety and an influx of new members and deposits,” the league’s Annaloro said. As a result, he said, those credit unions show a lower net ratio than their health would suggest because “the net-worth ratio lags a little bit behind the new member inflow.”

Editor's note: An earlier version of this story had a misspelling and the first letter of the first word was cut off.