“We’re Doing Just Fine”

Georgia’s credit unions are weathering the economic storm

With several notable bank collapses in Georgia over the past 12 months and a rising number on the sick list, the state’s 165 credit unions have been quiet, a condition their executives seem to enjoy. In fact, credit unions across the state seem to be welcoming member growth and jumps in deposits, loans and assets, even those that have faced compounded difficulties. The bottom line seems to be, “We’re doing just fine.” With a reputation for cautious lending in a family atmosphere, these once clubby member-only financial institutions are finding ways to enroll new members, often from demographics far afield of their original charters.

Edgar Titus keeps a close eye on his money, and his money’s money, the interest he earns on savings and the interest he pays.

“I’ve never paid one cent of interest on my credit cards,” says Titus, a 91-year-old Fulton County resident and member of the Atlanta Postal Credit Union (APCU). Chartered in 1925 when Titus was 6, APCU is Georgia’s oldest credit union.

“I was brought up during the Great Depression,” Titus says, which may explain, in part, why he joined the credit union in 1967 after retiring from the U.S. Army and going to work for the Atlanta Postal Data Center. “I heard they paid a good interest on savings,” he recalls. “It was the interest rate and the fact they were on site, instead of having to walk two or three blocks to make a deposit [at a bank]. I bought a car through the credit union, paying 2 percent [loan interest] when the banks were asking 6 percent. And from there on I made a lot of money with the credit union.”

Titus is one of the 1.8 million Georgians who save, borrow and use other banking services at a credit union, and their number continues to grow in an economic climate that has seen many financial institutions struggling; credit unions actually may have benefited from the bad press accompanying bank closings and Wall Street missteps.

“We made it through the Great Depression, the wars, recessions and this depression, or whatever you want to call it, we’ve been through it all,” says Don DeCinque (pronounced duh-SINK-you), president and CEO of the APCU. “We hope to pass 100,000 in members this year, and we ended 2009 with $2 billion in assets. However, we are struggling more in this economic period than we have, probably, at any time. A lot of people have lost their jobs and [that] makes it hard for them to make their payments. Fortunately for us, the postal service has not had those kinds of problems, but we have so many people who live on two incomes.”

With some spouses losing jobs, DeCinque says, that makes it tough for postal worker families to meet their loan payments. But the credit unions have a bit of a hedge in their culture, he says. “Postal workers see us as an extension of their workplace, and where they may not be paying someone else down the road, they will pay us first.”

Credit union members are also owners of their institutions. “Credit unions are cooperative,” DeCinque says. “They are owned by the members and the profits go back to the members, and that is the big difference between us and a bank. We paid 2 percent on our savings on December 31 in annual percentage yield.”

Without the profit motive, credit unions are able to offer lower loan rates and service charges, benefits that translate into huge savings, says Mike Mercer, CEO of Georgia Credit Union Affiliates (GCUA), whose organization tracks credit union members’ financial habits, as well as those of other consumers.

“We are getting the numbers back from the last couple of surveys we’ve done, and they show that Georgia credit union members, 1.8 million of them, get anywhere from $130 million to $150 million of better pricing,” Mercer says. “And it happens that about one-third of that comes from better loan rates, about one-third comes from better savings rates and another third comes from lower fees.” Still, the dramatic consequences of the current economic downturn have had an effect on Georgia credit unions, he says.

“I have to say that unemployment numbers in Georgia are higher than we’ve experienced in recent history,” Mercer says. “That’s had an impact on delinquency rates for auto loans and some of the second mortgage products, and credit unions are seeing some higher delinquency rates than they’ve seen in the past; but it’s not a systemic problem, though, because credit unions in the state are very well capitalized.” And, Mercer says, “They are fortunate they didn’t get involved in the riskier types of residential and commercial lending that is causing trouble for so many financial institutions, including Fannie Mae and Freddie Mac. In addition, the crazy mortgage markets of California and Florida didn’t much affect Georgia.”

It was a market in which credit unions benefited from their standard lending practices, Mercer says. “Credit unions typically made loans that required down payments,” he says. “They made loans to people who actually could afford to pay them back. When real estate values dropped 20 percent around the Georgia market, it really didn’t cut into the collateral protection that stood behind the mortgage loan, so people weren’t throwing their keys at credit unions.”

Growing Constituency

Lenders at The Infantry Center Federal Credit Union (TIC) in Columbus were delighted to be handing out keys to homes for some of their 40,000-plus members in a rapidly growing Ft. Benning constituency. The post’s expanded military mission and the influx of dependents and vendors now arriving have led to a heightened demand in housing. That led TIC, with assets of $219 million and growing, to record a 57 percent increase in first mortgages in 2009.

“Right now, with all the contractors here and all the building going on, it’s energizing,” says Janet Davis, TIC’s CEO. “We can hardly keep up with the mortgages. We are in a building boom here. Last year we grew 12 percent [in members]; our loans have grown about the same. In a typical year, we would grow about 5 or 6 percent. We think a lot of that was a flight of safety. With all the banks going under, a lot of people wanted a local institution they knew, a hometown financial institution.”

TIC is benefiting from a 2005 move common among credit unions that allows them to expand their membership base from Select Employee Groups (SEG) – businesses, industries and government entities – to a community credit union, where membership is based on geography. “We are a federal credit union and got approval for multi-state operations from the National Credit Union Administration [in 2005],” Davis says. “We now serve seven counties, three in Alabama and four in Georgia. We serve anybody that lives, works or worships in those seven counties.”

That change, she says, opens up opportunities for even more growth. The post is expected to be at full force in 2011, with the addition of more than 35,000 military and civilian personnel and their dependents.

Community Based

The credit union movement took hold in America in 1909, when groups of individuals, linked usually by a common workplace, combined their capital for common purposes, such as housing loans or business loans. But a credit union of blacksmiths might have found its growth stymied by the changing times, and laws were altered to allow for membership requirements to be based on other factors. Few credit unions have benefited more from the SEG and community-based memberships than the Delta Community Credit Union (DCCU), begun in 1940 and today the largest credit union in Georgia, one that has had to weather a severe economic downturn and the bankruptcy – and subsequent rebound – of the airline whose employees formed its original membership. It has done so, says Rick Foley, DCCU’s CEO and president.

“When Delta filed for bankruptcy [in 2005], people were taking money out of their savings accounts and checking accounts basically to live off of, and we actually had a reduction in deposits of about $410 million over that 17-month span [until Delta came out of bankruptcy],” Foley says. “But we have recovered all of that over the last 18 months. When they went into bankruptcy we were at $2.678 billion [in assets] and we went down to $2.2 billion while they were in bankruptcy, and now we’re back up to $3.5 billion.”

Part of that recovery was due to the stability the Delta credit union enjoyed thanks to the well-timed 2005 move to open membership to more than 150 area companies, including Chick-fil-A and Yamaha, whose employees then qualified for membership, as well as the residents of 11 Metro Atlanta counties.

“To make sure we were a stable and sound organization, we knew it was a smart move to expand our field of membership [to] include other people and not have all our eggs in one nest,” Foley says. And there was the well-publicized national banking crisis that Foley says helped drive customers to the credit union door. “In 2009, we had a large inflow of deposits because people were leaving other institutions and bringing their deposits to us because they felt like what we had to offer was more safe and sound and more secure.”

Foley says 2009 deposits grew by 25 percent. “Assets were up last year [and] loans were up substantially,” he says. “People came to us as a refuge, I guess you could say, so our growth was great.”

Credit unions, says Foley, are more cautious in their lending practices and are shy about taking risks, due, in part, to the regulations under which they operate. “There is a regulation for state-chartered credit unions that prohibits [them] from owning stock,” he says.

New members of the Delta credit union must put up $5 to join, but that’s not a fee, according to Foley. “The $5 they pay is really a share of ownership in the credit union,” he says. So, what are shareholder meetings like for Delta’s 198,000 members? The question draws a chuckle from Foley. “We have an annual shareholder meeting, usually in March, and we advertise that meeting throughout the system,” Foley says. “And people are so happy with what we do that we’re lucky if 50 people show up.”