You Can Bank on It:

2001 Was a Good Year Banks, Credit Unions Thrive with Lower Interest Rates

 

by Dave Brumbaugh

 

Although 2001 couldn’t end quickly enough for many businesses, banks and credit unions fared quite well.

Action by the Federal Reserve Bank, in an effort to limit the effects of a recession that started even before the terrorist attacks of Sept. 11, sent interest rates plunging. Financial institutions received steady demand for new loans and refinanced loans. Locally, a strong real-estate market also boosted loan demand.

Also, deposits held firm as investors were spooked by a downturn in the stock market.

“Given the state of the stock market, people were willing to accept lower rates,” says Gary Pickering, Bellingham market manager and vice president at U.S. Bank.

Banks were one of the few business sectors that excelled in 2001. Some in-state examples include:

As of the end of trading Jan. 25, one-year percentage returns for stockholders in the holding companies of the following Washington-based banks were: Banner Bank, 18.5 percent; Frontier Bank, 14.4 percent; Horizon Bank, 13.2 percent; Pacific Northwest Bank, 59.1 percent; and Whidbey Island Bank, 38.6 percent.

Pacific Northwest Bank, which operated many of its branches as InterWest Bank until last April, reported 2001 earnings of $22.1 million, a 251-percent increase over 2000 earnings of $6.3 million.

Whidbey Island Bank’s holding company, Oak Harbor-based Washington Banking Co., reported 2001 net income soared 54 percent to $4.3 million, up from $2.8 million in 2000. Its loan portfolio grew by 25 percent.

Bellingham-based Horizon Financial Corp., holding company for Horizon Bank, reports that net income for its nine-month period ending Dec. 31 improved 20 percent to $7.4 million after a record third quarter of $2.7 million in earnings, up 36 percent from the comparable quarter a year ago.

A common factor in the success of Pacific Northwest Bank, Whidbey Island Bank and Horizon Bank has been increased emphasis on commercial accounts.

“In the current low interest rate environment, we have continued to sell long-term, fixed-rate mortgages while focusing on growing our commercial and consumer lending activity,” says V. Lawrence Evans, chairman and chief executive officer of Horizon Financial.

At the end of December, the commercial and consumer portion of Horizon’s loan portfolio was 47 percent of net loans receivable, compared to 35 percent one year earlier.

Although the Sept. 11 attacks were economically devastating for the fourth quarter of some companies, banks bucked the trend. Horizon Bank’s loan originations in the quarter ending Dec. 31 nearly tripled to $108.8 million compared to the same quarter in 2000.

 

Credit unions growing

Whatcom County’s two largest credit unions also fared well in 2001.

Whatcom Educational Credit Union’s assets grew by 17 percent to $243 million at the end of 2001. Membership increased by 1,200 to 30,407. WECU’s loan portfolio rose by 7.5 percent, primarily because of more new and refinanced residential mortgages, according to Joan Martin, vice president of marketing.

Industrial Credit Union’s assets increased by 16 percent to $80 million and its membership grew by 1,000 to more than 15,700.

“For ICU, it was a very exciting but challenging year,” says CEO Terri McKee.

One of the challenges for credit unions – not-for-profit cooperatives owned and controlled by its members – was the balancing act required to offer its low lending rates as well as the best possible savings rates.

“We held out for nine months before we lowered any share rates,” McKee says.

Credit unions, as well as banks, noticed the declining stock market had made investors more conservative.

“People are looking for safe places to park their money,” Martin remarks. “Places where their money will be insured.”

 

Branching out

Although banks and credit unions thrived in 2001, only one financial institution opened new branches in Whatcom County. Of course, that may be because there’s no shortage of them. The county has 61 branches operated by 15 banks, led by Peoples Bank with nine branches and Horizon Bank with eight. Another 14 offices are run by six credit unions, headed by Whatcom Educational Credit Union with five and Industrial Credit Union with four.

Bank NorthWest had operated at only a single location in downtown Bellingham since being founded five years ago. But the locally owned institution, under the leadership of president and CEO Don Zimmerman since March 1999, opened three branches in 2001: Birch Bay (June 14), Everson (June 18) and the Barkley District of Bellingham (Oct. 15).

Lynden-based Peoples Bank stood pat in Whatcom County, but not elsewhere. It opened a full-service branch in Seattle’s Magnolia neighborhood in June, its first venture south of Skagit County. Peoples Bank also announced in November plans to establish in a real-estate loan center in King County’s Eastside. It started 2002 by opening a Burlington branch in the new Haggen Food & Pharmacy supermarket there.

 

Challenges remain

Despite their successes in 2001, banks and credit unions are optimistic but not too giddy about 2002.

One of McKee’s concerns is the ease with which people can discharge debts such as loans by filing for bankruptcy. She says studies show that consumers pay $400 for each person filing for bankruptcy.

“It used to be bankruptcy was for a life-changing event,” McKee states. “Now, it’s being used as a financial planning tool.”

Banks in Whatcom County’s northern-most communities have felt the pinch with neighboring businesses of fewer Canadians crossing the border after Sept. 11 as tighter security led to longer lines. Larry Sutton, manager of the Sterling Savings Bank branch in Blaine, says 65 percent of its business comes from Canadian customers who need a financial presence in the United States.

“(Sept. 11) had an effect on us but it wasn’t devastating,” Sutton says. “We grew in every department.”

One of the ways the branch managed to compensate for the drop in Canadian business was by leading the bank’s Western Washington region in mortgage referrals to a company subsidiary. Now, Sutton adds, both Canadians and bank officials are more comfortable in crossing the border to conduct business.

 

What’s next?

This highly competitive economic sector continually introduces new products and services. In recent years, banks have expanded into supermarkets, offered investment services and enabled clients to conduct transactions and check balances online.

While nearly every bank and credit union now provides online services, plenty of growth potential remains in that area. Pickering says U.S. Bank is experiencing double-digit gains monthly in the number of customers who use online services. Sutton states that Sterling Savings Bank has customized its online services for the unique needs of Canadian businesses and individuals.

One of the more visible changes may be in cash machines. KeyBank already offers stamps, special offers and coupons at about one-fourth of its 2,400 ATM locations nationwide. Pickering says U.S. Bank will be upgrading the technology in its ATMs, enabling customers to buy stamps and obtain other services from them, within several months.

WECU soon will introduce a Balanced Financial Fitness program, an offshoot of Consumer Credit Counseling. Martin says the program will give its members free access to a financial consultant, who can help them establish a household budget and obtain credit reports, among other things.

ICU, which originally was formed to serve Georgia-Pacific’s pulp division workers in Bellingham, will continue to offer financial counseling and resume-writing classes to members who were laid off when G-P’s pulp operations here were permanently shut down last year.

But no new product nor additional service will help banks and credit unions as much as a strong economy. Nobody offered to look into a crystal ball, but Pickering likes what he hears.

“Most of my clients have a positive outlook for 2002,” he says.