Potlatch No. 1 Federal Credit Union faces competition for local lending market

A dominant player on the Lewiston-Clarkston Valley consumer banking scene is facing new competition as it expands in the commercial side of the business.

Potlatch No. 1 Federal Credit Union recently completed a 36,000-square-foot, $4.8 million expansion of its Lewiston Orchards location that houses the commercial staff and a mortgage center.

The credit union ended last year with the seventh-highest growth rate of any credit union in the nation, completing more than one-third of the mortgages in the Lewiston-Clarkston Valley.

The financial institution will soon be up against three mid-sized banks entering the market in one of the biggest upheavals in the region's banking industry since the recession ended.

In diversifying, Potlatch CEO Chris Loseth almost painted a target on his employer's back, boasting the credit union would aim for that kind of success in the business sector.

Meeting that goal could be more complicated than it was less than a year ago when the credit union unveiled its plans.

Umpqua Bank, which specializes in top-shelf customer service, is merging with Sterling Bank in Spokane. The Portland, Ore.-based bank will hang its sign on branches in Lewiston, Clarkston, Moscow, Pullman, Grangeville and Colfax.

Instead of facing Bank of America in Clarkston, Pullman and Colfax, Potlatch will be contending with Seattle-based Washington Federal.

Plus the field just got more crowded on the commercial side. Washington Trust Bank in Spokane is adding branches in Lewiston and Moscow that will initially focus on commercial accounts.

Each of the new banks is positioning itself in the community-oriented niche Potlatch has commanded, but Loseth shrugs off the possibility the new arrivals pose a potential threat. "There's not a big fight between us and anybody else. We're a small fish in a big pond and that's it."

Still, some of what Potlatch does best is also a key part of the strategy of the new players. Real people answer the telephone when customers call. Washington Federal offers a no-minimum-balance, no-fee checking account. At Washington Trust, the majority of lending decisions will be made at its local offices and not dictated by corporate policy seven states away.

Umpqua takes that philosophy a step further, an approach that dates back to its days as a community bank with less than 10 locations based in Roseburg, Ore.

A new CEO was appointed who decided Umpqua would innovate the industry by turning banks into places where people went to hang out and shop, not just complete chores, said Eve Callahan, a spokeswoman for Umpqua in Portland.

Each location has community space that can be reserved for free on a first-come, first-served basis to anyone, for events like business meetings, yoga classes and weddings, Callahan said. "There's no velvet rope. They're designed very much to look like a beautiful hotel lobby or a coffee shop. We have our own blend of coffee."

Every bank also has a telephone where customers can dial 8 and talk to Umpqua's CEO, who really answers the calls, Callahan said. "It keeps us customer-focused and at the end of the day that is what we're trying to do."

As Potlatch faces new challenges on the consumer side, it won't have a level playing field with banks making commercial deals.

At any given time, federal rules only allow Potlatch to have 12.25 percent of its $570 million in assets committed to member business loans, Loseth said.

Potlatch also has a different level of experience on the business side compared with many banks, said Jay Lewis, Inland Northwest Commercial Group manager for Washington Trust in Spokane.

His employer, Lewis said, has done commercial transactions since its founding more than 100 years ago.

The credit union has plenty of talent on a five-member team it assembled, who together have more than 75 years of experience, Loseth said.

Plus Potlatch has plenty of practice making mortgage loans for amounts in the neighborhood of $219,000, which was the average size of a credit union business loan in 2012, Loseth said.

Exactly why Loseth finds himself in an area where a number of financial institutions seem to be scrambling for a piece of the region's market can be explained by the differing approaches of banks.

Washington Trust, a predominantly commercial bank with $4.25 billion in assets, looks for strong markets where it can hire employees who already have followings, Lewis said.

Bank of Whitman employees joined Washington Trust when the bank came to Pullman about two years ago, Lewis said. The closure of Bank of Whitman by state regulators and its subsequent acquisition by Columbia State Bank in Tacoma created the opportunity, Lewis said.

Washington Trust likes Moscow and Lewiston for the region's strong base of agriculture, retail and manufacturing and recruited its team mostly from Zions Bank, Lewis said. "It's a conscious strategy on our part."

Getting bigger benefits Washington Federal and Umpqua since they have assets in excess of $10 billion and have fixed costs associated with their size, said Cathy Cooper, the Seattle spokeswoman for Washington Federal.

Since the recession, for example, the government imposed additional regulations on banks in that category and they keep experts on their staff to be sure they're in compliance, Cooper said.

Credit unions have thrived in recent years as they successfully distanced themselves from the bad investments of banks that helped cause the recession, Cooper said.

That stoked pressure from banks for credit unions to have their not-for-profit status and exemption from federal income taxes revoked since they're acting more and more like banks all the time, Cooper said.

Potlatch could be among a number of credit unions starting commercial divisions so they'll be more diversified if, in fact, they lose their not-for-profit status, Cooper said. "It would be smart of them to be doing that."

The possibility of such a change wasn't the motivation for the move into commercial banking, Loseth said. "We are making loans available to our members that have business lending needs because of their requests over the years to be more prevalent in that market."

Loseth doubts the rules surrounding credit unions will change and notes the threat has been around for the more than 20 years he's been at the head of the credit union.

Credit unions nationwide, with $1.03 trillion in assets, occupy a much smaller part of the market than banks, which have more than $14.4 trillion in assets, Loseth said.

"There's a lot of business in the marketplace for everyone and that's why each individual institution builds a business model they can sustain."

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Williams may be contacted at ewilliam@lmtribune.com or (208) 848-2261.