Credit unions in Oregon make new gains as Wall Street falters.
At a time when Wall Street has become a dirty phrase and "conservative" may be the highest praise bestowed upon a financial institution, community-based, member-owned credit unions are gaining new favor among skittish consumers.
"We are Main Street," said Bob Newcomb, CEO of Eugene-based SELCO Community Credit Union.
Oregon has long been a hotbed for credit unions, and the state's credit unions report rising deposits and new accounts as consumers, spooked by growing economic turmoil, tightening credit and bank failures, look for a safe haven for their money. Credit unions are seizing on the uncertain times as a marketing opportunity, publishing a barrage of ads to pry customers away from banks.
Credit union claims of safety notwithstanding, depositors' cash is equally secure in commercial banks and credit unions. Commercial bank deposits are insured by the Federal Deposit Insurance Corp.; the National Credit Union Administration insures credit union deposits.
But that hasn't stopped people from taking their money out of troubled banks such as Seattle-based Washington Mutual, which was acquired last month by JP Morgan Chase in a takeover engineered by federal regulators.
In Washington Mutual's last 11 days in business, depositors yanked $16.7 billion out of the bank, or about 9 percent of its total deposits, according to the federal Office of Thrift Supervision.
"Anecdotally, what we're hearing from our branches is that a lot of the Washington Mutual fallout has come our way," said Russell Dennick, chief financial officer of Eugene-based Oregon Community Credit Union. "People are bringing their full-service accounts over to us."
In September, OCCU saw a net increase in new checking accounts of 411, compared with 165 in August, he said. Its net gain in membership was 447, the highest since August 2007. The credit union has about 90,000 members.
At SELCO, deposits have increased about 10 percent year-to-date over 2007, and new accounts have increased about 5 percent - not bad in a region with already-high credit union membership, Newcomb said.
Nationally, savings growth at the country's 8,300 credit unions has increased 6.3 percent, year to date through August, while loans have increased 7.5 percent, said Steven Ricks, senior economist for the Credit Union National Association, a trade group.
"The old traditional banking model - take deposits and make loans - that model is back in vogue," he said. "Credit unions were considered old-fashioned. Now they're back to being the cool kid on the block."
Industry officials say credit unions stayed away from subprime loans - those made to consumers who could not qualify for conventional loans - and were barred by law from trading in the exotic financial instruments blamed for meltdown on Wall Street. Credit unions also tend to hold on to more of their loans, rather than to sell them to other lenders, which increases accountability.
"Our philosophy really is, in good times we do pretty well, and in bad times we still do pretty well," Dennick said. "We're not going to make tons and tons of money when times are good. And we're not going to lose tons and tons of money when times are bad."
That's not to say credit unions are fool-proof, or fail-proof. Thirteen credit unions have failed this year in the United States, according to the NCUA. That compares with 15 commercial banks that have failed this year, including two last week, according to the FDIC.
Banks and credit unions are attempting to capture, or reassure, nervous consumers with ads that share a common theme of safety and stability.
Linda Navarro, CEO of the Oregon Bankers Association and the Independent Community Banks of Oregon, said she understands, given the ongoing economic crisis, that Oregonians are asking questions about their money. But there's no reason for people to pull their money out of commercial banks and put it into credit unions, she said.
"There's no logic to that decision," she said. "Credit unions are not healthier than banks. ... There's no difference between credit unions and banks when it comes to safety and soundness."
Regarding the credit union ads, she said, "I'm not surprised they're taking this tactic, but they've always been aggressive in their marketing."
Banks also are seeing increases in deposits as spooked investors pull money out of the stock market, Navarro said. Third-quarter market share reports are not out yet, so Navarro couldn't point to specific numbers, but she's hearing anecdotally from Oregon banks officials that deposits are on the rise.
"I think there's a lot of movement, period," she said.
Eugene-based Pacific Continental Bank, for example, reported Tuesday that its average core deposits - which includes savings and checking accounts and local time deposits - were up by about 5 percent for the quarter ended Sept. 30 from the same period a year earlier. However, the bank also said its positive numbers were bucking the general trend at banks.
It's important for people to understand the difference between federally insured commercial banks and Wall Street investment banks, Navarro said.
Wall Street investment banks facilitate the sale of stocks and bonds and help corporations raise capital. They are not federally insured. By contrast, commercial banks take in deposits, backed by the FDIC, and make loans.
"One of our biggest concerns is the idea that somehow banks here in Oregon would be guilty by association," she said.
Oregon has more than its share of credit unions. With 3.7 million residents, Oregon has just over 1 percent of the U.S. population, but its 83 credit unions account for about 10 percent of the nation's credit unions. About 1.4 million Oregonians belong to credit unions, according to the Credit Union Association of Oregon.
Credit unions tend to stick within rather narrow lending confines.
Oregon Community Credit Union, for example, does consumer lending, such as home mortgages, home equity lines of credit and auto loans. Its delinquency rate on first mortgages is 0.02 percent, compared with the national rate for credit unions of 0.78 percent, Dennick said. But that doesn't mean OCCU is insulated from the downturn in the economy. OCCU makes a lot of car loans, "and we've seen an increase in people waking up and handing us the keys" because they could no longer afford to make payments, he said.
SELCO, meanwhile, does consumer lending as well as lending money to small- and medium-size businesses. Federal regulations permit credit unions to lend up to 12.25 percent of their assets to commercial businesses.
Credit unions are hoping Congress will up that limit to 20 percent, Newcomb said. Doing so would help ease the credit crunch that has hurt businesses, he said.
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|Publication:||The Register-Guard (Eugene, OR)|
|Date:||Oct 15, 2008|
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