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Credit Unions Ride Hard on Banks

Credit Unions are aggressive in scoring on consumer dissatisfaction with big bank mergers and financial crisis.

Bill Connor, president and CEO of America’s First Federal Credit Union, fired up an ad campaign touting local ownership, following a tide of bank mergers and acquisitions.

Bill Connor, president and CEO of America’s First Federal Credit Union, fired up an ad campaign touting local ownership, following a tide of bank mergers and acquisitions.

Photos by Lisa Townes

Alabama credit unions came off one of their best years ever in 2011, with sales and profitability up across the board. After three years of rough weather that affected all sectors of the financial industry, Alabama credit unions found much smoother sailing last year, with the first sustained period of economic growth and increases in consumer confidence since late 2008.

The competition with banks for depositors and customers always has been intense, but last year the banking industry gave credit unions an unexpected advantage. At the League of Southeastern Credit Unions, which represents more than 290 member credit unions in Alabama and Florida, CEO Patrick La Pine says the banks themselves drove thousands of their own customers to the arms of the credit unions as the result of bank mergers and new fees.

“There was a lot of bad consumer sentiment regarding banks. There was the merger activity, and then the bad public reaction to all the new fees, which created a lot of opportunity for credit unions. All told, our credit unions picked up about 35,000 new members.”

La Pine says that what began as an early-year trickle of new customers turned into a torrent by late 2011, when banks announced new fees on consumer checking and other accounts.

“Our credit unions added $2.7 billion in assets in 2011, with $1.3 billion coming in the fourth quarter, and this reflects the fact that consumers were unhappy with the new fee structures announced by some of the banks. We saw people close their bank accounts and move their money to credit unions. There was a trend towards people making credit unions their primary financial institution,” he says.

Birmingham-based America’s First Federal Credit Union, one of the state’s largest, also rode that rising tide in 2011. From his office window, President and CEO Bill Connor can point to what used to be the AmSouth-Harbert and SouthTrust towers and explains how that merger activity has taken the luster from what used to be one of the South’s top financial centers.

“A few years ago, we had several major banks headquartered here: SouthTrust, AmSouth, Regions and Compass—the Big Four,” he says. “All of these were locally owned, and Birmingham was considered a regional banking center.” Today only Regions is left, he notes.

Quick to seize the opportunity, Connor says America’s First ramped up an advertising campaign touting the credit union’s local ownership and how the credit union “can’t be bought,” unlike the banks.

“We stressed our local ownership and stability. We saw a good increase in membership from people who said, ‘We’re fed up with this.’  The local ownership, hometown thing resonates with people.”

Credit unions across Alabama said those new customers translated into lots of new loan activity, with residential mortgages an especially strong area last year. At TVA Federal Credit Union, Marketing Director Alyssa Bole credited historically low interest rates and lower overall mortgage closing costs for helping make a late 2011 mortgage promotion “very successful,” pulling in some $16 million in new mortgage activity.

La Pine stresses the fact that credit unions, which are owned by their members, do not have stockholders to satisfy. “We are in business to return value to our member-owners, in contrast to the banks who have to look after profit for their shareholders,” he says.

Alabama credit unions have benefitted for decades from a change in Alabama law regarding who can belong to a credit union. America’s First started out as the Iron and Steel Credit Union, with membership restricted to persons in that industry. That was fine, says Connor, when the Birmingham area boasted 25,000 or more iron and steel jobs in the heyday of the 1960s and 70s. But the near collapse of the steel industry in the early 1980s almost put the credit union out of business.

Salvation came soon, when Alabama passed a new state charter allowing credit unions to recruit across industry lines. Connor, whose tenure at America’s First goes back to the old Iron and Steel days, says the credit union wasted no time in reaching out to a new customer base.

“We went to nearly 1,000 companies. We approached construction companies, TV stations, doctors’ offices. We went to the Bruno’s organization, who was interested in merging their credit union into ours.”

In northwest Alabama, the TVA Federal Credit Union faced a similar situation, but on a smaller scale. Bole says the Muscle Shoals-based credit union, formed in 1936 to serve the new Tennessee Valley Authority, saw its membership drop in the 1980s when TVA reorganized. But under the new state charter, the credit union expanded membership to virtually anyone in its seven-county region.

Along with its growth, the industry has matured technologically. Updated, interactive websites, mobile and online banking, all are designed to make credit unions competitive with anything the banking industry can offer. Bole says the changes have a special appeal to younger members, a key target group. “We’re trying to change the image that credit unions are only for older people,” she says.

“Everyone targets Generation Y,” says Connor. “We may not have the budgets that many of the banks have, but we know we can provide the bells and whistles.” 

Mike Kelley is a freelance writer for Business Alabama. He lives in Huntsville.

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