In 1934, five Great Northern Railway workers, fed up with not having anywhere to borrow money, did what good self-sufficient Westerners of the day did: They took matters into their own hands and started a credit union.
The five men pooled together $5 apiece for a grand total of $25 and thus the Whitefish Credit Union was born on Aug. 29, 1934. Exactly 74 years later, on Aug. 29 of 2008, the credit union surpassed the $1 billion mark in asset value.
President Charlie Abell said despite the many economic rumblings of the past year, his credit union has steadily increased its asset value and membership. He points out that a credit union is a nonprofit financial cooperative owned by its members, differing from banks in its organizational and operational structure.
But his cooperative’s success sheds light on a common thread among Montana banks and credit unions alike: Smaller financial institutions, while surely feeling trickle-down reverberations, have largely avoided the most dire consequences brought on by the national banking crisis.
As economist Larry Swanson, director of Missoula’s O’Connor Center for the Rocky Mountain West, says: “Our banks are healthy, they’re still in good shape and they have money to lend.”
Bank presidents say local financial institutions have never gotten too far into the high-risk, high-reward practices of larger lenders. None were brought to their knees by the subprime mortgage disaster and credit crisis. In small communities, where customers often know the bank executives personally, lending is a more intimate process with far less likelihood of producing a dramatic collapse.
“A lot of banks in Montana are smaller banks that have stuck to their knitting and not done much different and weathered the storm,” said Mick Blodnick, chief executive officer and president of Glacier Bancorp.
In the Flathead, conservative lending approaches and an on-the-ground understanding of the local economy have helped banks stay the course. Most presidents say they haven’t had to tighten loan requirements, which Swanson sums up as: “We weren’t doing crazy loaning before, so we didn’t really have to change our lending criteria.”
But economist Patrick Barkey, director of the University of Montana’s Bureau of Business and Economic Research, says tinkering with loan requirements is a reality everywhere, even here. Small banks, he said, have unavoidable ties to the national crisis.
“It has (happened) and it will and it will continue to do so,” Barkey said. “It’s kind of a big deal and I wish it wasn’t, but it is. We’re very much connected to what’s going on.”
To highlight Barkey’s point, local contractors say it’s more difficult to get a construction loan from banks now. Terry Kramer, president of Kalispell’s Kramer Enterprises, said he hasn’t seen increased restrictions for residential construction, but banks have been tightening requirements for commercial real estate and land acquisition.
Kramer said the tightening started in places like Florida and Michigan and eventually made its way to Montana. Banks now want higher lease commitments, proof of greater assets and more money down. Again, however, Kramer brings up the unique relationship consumers have with community banks – there are obvious elements of trust.
“We’re a pretty open book with them and we’re still able to do some things,” Kramer said. “But they still want to know that we can pay for our project. There’s not a lot of spec anymore.”
He added: “I believe it’s slowed down economic development. Do I blame them? No.”
The real estate market ranks as local banks’ chief concern, followed by unemployment, Blodnick said. Higher unemployment – along with overall poor economic conditions – brings about more frequent loan delinquencies and other repercussions. Local banks’ lending habits revolve around real estate. For example, 90 percent of Whitefish Credit Union’s lending portfolio is tied up in real estate.
Even for people who can afford to pay off their loans, another major concern right now are “underwater” loans, UM’s Barkey said. In an underwater situation, a homeowner is making payments on a loan that has a higher value than the home itself.
The number of people looking to refinance their home loans has spiked recently, both locally and nationally. In January, fixed interest rates dropped to 4.5 percent or, in some cases, lower. They still hover around 5 percent with the expectation that they will drop again.
According to statistics from Jim Kelley of Kelley Appraisal, there were 76 foreclosures in Flathead County in January, compared to five during the same month last year. For Montana, there were 329, up from 87 last year. That means nearly 25 percent of the state’s January foreclosures occurred in Flathead County.
“Banks are very concerned,” Barkey said, “as they should be right now, about bad debt and increasing loans that have some sort of delinquency, though maybe not necessarily foreclosure.”
No Montana bank has taken money from the Troubled Asset Relief Program, Glacier’s Blodnick said. Or if any have, it hasn’t been made public yet. Bank presidents point to this as another example of how Montana banks operate differently from larger regional or national institutions.
One consequence of the national banking crisis for small banks is the increased presence of regulatory agencies. This trend frustrates John King, president of Three Rivers Bank in Kalispell. He said the agencies have clamped down on local banks as part of a general effort to increase oversight. But these banks aren’t to blame for the subprime and credit disasters, King said, and are being unfairly targeted.
“They shouldn’t be after the smaller banks to correct the situation,” King said. “They should actually be at the big banks’ front doors and holding their owners’ and management’s feet to the fire.”