Playing it safe is paying off for credit unions.
The small, risk-averse, not-for-profit depository institutions, have slowly added workers throughout the financial crisis. And if consumer deposits are any indication, these organizations will be some of the most bullish recruiters in the hoped-for recovery.
As head of the Pipefitters Steamfitters Credit Union in St. Paul, Minn., James Kavaloski deals with 3,000 members and $30 million in assets. He also has a couple of shaky mortgages on the books -- literally, two of them.
"We're really kind of a dinosaur," Kavaloski said. "But the basic business principles aren't that different: you take core deposits in and you try to loan them out. Whatever you can't loan out, you try to invest wisely."
Banking for the people and by the people is making a comeback on Main Street.
Credit unions, self-sufficient organizations often managed by their own members, have relatively tight restrictions on what products that they can invest in and what percentage of assets that they can loan out. Such regulations and charters helped many credit unions avoid the brunt of the recent financial maelstrom.
Consider this, only 12 of the almost 8,000 U.S. credit unions have failed this year, according to the National Credit Union Administration, a federal regulator. At the same time, 120 of the 8,100 or so of the traditional banks in the U.S. have been shuttered this year by the Federal Deposit Insurance Corp. While the number of credit unions in the U.S. has decreased overall in the past ten years, consolidation and not failure is the reason -- and membership has steadily increased (see chart).
Kavaloski, who started his career at AIG, said that many of his members have stopped shopping for lower rates at traditional banks. "There's more apprehension about bigger being better," he explained. "And we assure them that they don't have to worry about examiners walking into our office on a Friday and shutting us down."
In the 12 months ended in June, 1.6 million Americans joined a credit union, boosting the industry's assets by 8.2%, according to the Credit Union National Association.
"There's been kind of a flight to safety with consumers," said John Peden, chief operating officer of the Navy Federal Credit Union, the world's largest such organization. "The crisis was an opportunity for us to say: 'We're strong, we're reserved and we're looking out for your best interests.' With the troubles going on out there right now, that message resonates."
Navy Federal, which is open to active and retired military personnel and their families, added almost 142,000 new members in the first nine months of this year, a 4.4% increase. At the same time, its assets swelled by $3.7 billion, a 10% increase.
To handle the boost in business, Navy Federal hired almost 1,000 workers this year, nearly half of which were for new positions. Peden expects the organization to add another 300 jobs next year in a wide spectrum of roles, from loan processing to investment analysis.
Family First Credit Union, a 25,000-member organization, has also been hiring selectively. The firm, which serves a county near Salt Lake City, recently signed on two new executives, including a chief operating officer charged with increasing market share and reviewing growth strategies.
"We're always looking for new opportunities," said Family First CEO Kent Moore. "And the whole economic crisis has made people educate themselves a little bit better about all of the options out there."
Financial fallout aside, credit union growth is also being driven by a rash of new products and services. For example, many credit unions recently started offering business loans for the first time, assets that now comprise almost 40% of all lending in the sector.
"Members go to the credit union and say 'I've got a great car loan from you, I've got a great mortgage loan with you. Why can't I get a loan from you for my business?'" said Pat Keefe, a spokesman for the credit union association.
Still, credit unions struggle to gain market share from for-profit lenders. Although many are able to offer the best interest rates around because they do not have a profit motive and do not pay federal taxes, credit unions are much harder to find and join than a traditional bank or brokerage.
"Every street corner you go to there's a bank branch where all you have to do is walk in and meet their credit standards," Keefe said. "It's not quite so easy for credit unions. I can't walk down the street and go in the credit union for Health and Human Services, for example."
Navy Federal, the biggest credit union by deposits, has only 168 branches worldwide. Synovus Financial Corp., a Georgia-based bank with slightly less in assets, boasts 328 branches. By comparison, Bank of America, the largest U.S. bank by assets, has some 6,000 branches.
Credit unions are also hamstrung by limited offerings. Despite recent forays into business lending, only about half of all credit unions offer credit cards and many of the smaller organizations don't have online banking.
Small credit unions like the Pipefitters Steamfitters in Minnesota are quickly signing on vendors to provide services that they are not big enough to produce on their own.
"I think the full reward for credit unions is going to come once all of this turmoil is over," Kavaloski said. "I don't think people are going to be as enticed by a better offer from a big-block bank. They're going to remember that their credit union got through this and is still around."
Navy Federal is already seeing a more qualified pool of job applicants from all corners of the finance world. Interest has been piqued by both the crisis and the organization's ranking on Fortune magazine's 2008 list of best places to work.
"Never in our history have we laid off a worker," Peden said. "It didn't happen throughout the crisis and we don't plan on it in the future."
By the NumbersCredit unions have grown significantly over the past decade -- and more growth is projected.
Check out the numbers here.
Write to Kyle Stock here.
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