Montana's economy is booming thanks to oil, but the Big SkyCountry's credit unions are still struggling to catch up.

Drilling equipment and crews are moving back to Montana and thestate's rig count has grown to 22 from just eight at this time lastyear. Montana's Department of Natural Resources and Conservationissued a record 356 oil drilling permits in the first 10 months ofthe year, easily beating the previous record of 313 set in2005.

Where there is oil, there are jobs.

The state's unemployment rate has been on a downward trend sincemid-2011. The national unemployment rate held steady at 7.8% inDecember 2012, but at year-end Montana celebrated a 5.7% seasonallyadjusted unemployment rate.

Real estate prices in the eight Eastern Montana counties withthe Bakken Wells behind the oil boom have increased 30% in twoyears. In November, the state's Revenue Department said home pricesacross Montana, except in Bozeman and Kalispell, have rebounded totheir 2008 pre-crash level.

With all these positive signs, Montana credit unions should beflourishing. But the state's ROAA averaged 68 basis points asof Sept. 30, 2012, compared to the national average of 86 basispoints. That's not exactly a boom, but no bust, either.

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“The eastern part of our state is in the middle of an oil boomwhich means, that many (credit unions') longtime members are cashrich and not borrowing much,” said Tracie Kenyon, president/CEO ofthe Montana Credit Union Network.

Kenyon said some other factors contributing tolower-than-average profitability include the fact that in general,Montana lags behind the rest of the country, so the recession hashit later there than in other areas. In some areas, that meant highdelinquencies, and members are still cautious about borrowing.

“Many of our individual credit unions are experiencing somemoderate loan growth and some are simply holding steady,” shesaid.

The $103 million Billings FCU pumped out a booming 1.39% ROAA asof Dec. 31, 2012, and President/CEO Tom Boos says he knows exactlywhy his credit union is performing so well.

“We keep a laser-like focus on loan growth,” he said. “We'regood at approving loans for credit impaired members that most otherfinancial institutions turn down; hence, we generate a higher loanyields than most of our peers. We also generate more non-interestincome than our peers.”

Delinquencies are low at 0.61% as of year-end, and Boos said hisloan quality success is the result of aggressive underwriting andcounseling for high-risk borrowers.

“We make sure our members understand we are putting our faith inthem,” Boos said. “We explain that we expect their payments to bemade on time, and if they're unable to make their scheduledpayment, we expect them to contact us to share theircircumstances. Lastly, we promise these members we willcollect on the loans aggressively if they fail to live up to theircommitments, and we execute on that promise.”

This Montana credit union ended 2012 with an annualizedloan growth of 10.7%, mostly because Billings FCU developed a nicheseven-year mortgage product called a Mortgage AcceleratorLoan. This is an in-house product targeted at members withrelatively low mortgage balances, good credit and low loan tovalues who haven't refinanced because of high closing costs. The credit unions charges a $600 origination fee and is currentlyoffering a 2.49% APR on the product.

“We've found a good niche, and members are excited about takingadvantage of the offer, “ Boos said.

About 350 miles away, things are looking a little different.

Missoula FCU has assets of $379 million and a three-countycommunity field of membership in Western Montana. It is also acollege town, the home of the University of Montana, but no oilfields.

Missoula FCU's ROAA is improving, climbing from -0.08% ayear ago to 0.54% as of Dec. 31, and Senior Vice President ofMarketing Joni S. Walker remains hopeful despite a shrinking loanportfolio.

“We are seeing ever-increasing deposits despite lowering ourrates, and our loans continue to decline,” she said. “Ourinvestment portfolio is now larger than our loan balances. Wesubscribe to the 'total return' philosophy on our investments,whereby we balance our portfolio and measure the actual cashreturned rather than chasing yield.

“This has contributed to our interest income and offset a littleof the loss in loan interest income. Plus, a lower corporatestabilization assessment expense helped move our ROAA higher.”

The Missoula credit union is generating more fee income andworking to reduce its non-interest expenses where feasible, shesaid. Attrition has reduced full-time staffing and management hasfound ways to re-deploy staff internally to better match theirskill sets and the needs of the organization.

“We have had to add staff in the collections, audit, compliance,risk management and finance areas to keep up with ever-changingregulation and examiner requirements — all but one of these moveshave been internal staff moved to different areas,” Walker said.“We are growing members and assets. Our challenge is to growloans.”

It's quite a challenge. As of Dec. 31, the credit union's12-month loan growth had shrunk by 21.69%.

“We have a significant MBL portfolio and we ride the ups anddowns of commercial lending to some degree,” Walker said. “We havelost at least one large commercial loan because of regulatoryrestrictions on MBL loan to value. Our member wanted to expand hisbusiness but we weren't able to take on the additional loan and wehad to watch that $7 million walk across the street to a bank thatcould do the whole deal for the member.”

Walker said that despite high delinquency numbers, the creditunion charged off the known major losses in their commercial loanportfolio and has seen consumer delinquencies stabilize.

“We are nowhere near the record low delinquencies of the goodol' days,” she said. “Our September delinquent loans to assets wasactually 10.18% and our net charge-offs to average loans was .59%,both higher than we would prefer, but the trend is slightlypositive.”

The credit union improved on its delinquency numbers, reducingthe number to 5.46% as of year-end, according to its financialperformance report posted on the NCUA's website.

In recent years, Missoula has seen several larger businessesleave the area, taking jobs with them, which has resulted in somelean times — particularly as the logging industry has also slowed.However, this college town is starting to see some jobs come backin the manufacturing sector. Construction is slowly comingback, but not nearly as quickly as it dried up.

“We are optimistic about the coming year, having forecast somegrowth in auto lending,” Walker said. “We believe there is somepent-up demand in our market and we intend to realize that growth.Few people in our FOM rely on public transportation as their mainmode of transport. Because of this, most people must have areliable vehicle and many have waited to purchase new vehicleslonger than usual.”

Missoula FCU has also jumped back on the mortgage bandwagon.Mortgages (both refis and purchases) are a big target area for thecredit union in the coming year.

“We just introduced a new 10-year, no-fee mortgage that webelieve will fill a need in our market for those who have avoidedrefinancing to lower rates because of fees,” Walker said. “Homesales are starting to move again, as more first-time homebuyerstake advantage of low rates.”