State's credit unions make gains as banks suffer

Georgia credit unions are taking advantage of the fear and uncertainty unleashed by the recession and banking crisis to try to reel in new customers.

The state's credit union trade group recently published a report that claims credit unions on average offer better rates on loans and higher returns on savings than banks. That follows a marketing campaign last fall with radio spots and billboards promoting credit unions as strong and safe, with money to lend.

"People don't know much about credit unions," said Michael Mercer, president and CEO of Georgia Credit Union Affiliates, which represents the state's 172 credit unions. "We have a great reputation, but poor awareness. We have to start telling our story more."

But credit unions don't have the branch network and institutional heft to be a true threat to the big banks that dominate the financial industry, said Jeff Davis, a banking analyst at Howe Barnes.

"That's not what SunTrust sits up at night sweating about," he said, adding that the odds of making inroads vary by institution.

"Some credit unions are in are great shape and have the capital and asset quality to make a push," Davis said. "And some are struggling like banks, because they were too loose with their lending."

Credit union executives say the financial crisis provides a chance to grab new business.

The recession "has caused consumers to re-evaluate where they feel comfortable, and the big impersonal bank is less comfortable than it used to be," said Marshall Boutwell, president and CEO of Gwinnett Federal Credit Union.

Credit union loan volume rose 14 percent last year, according to Credit Union Affiliates, while lending by Georgia banks was flat. Deposits at credit unions climbed nearly 10 percent, vs. 3 percent at banks.

To combat their reputation as too inconvenient to be a good alternative to traditional banks, credit unions have opened branches in grocery stores and launched online services. Some have created networks that allow customers — or "members" in industry argot — to use each others' branches.

Many credit unions are now open to the public, no longer limiting service to employees at a particular company or industry. One example: Delta Community, the state's biggest credit union, has 18 branches across metro Atlanta. With $2.9 billion in assets, Delta is larger than all but three of the state's banks.

Like banks, credit unions offer checking and savings accounts, car loans and home mortgages. Deposits are guaranteed up to $250,000, just as at banks.

But while banks are owned by shareholders, credit unions are nonprofit cooperatives owned by members. Without having to send profits to shareholders, credit unions say they're often able to offer better loan rates and share profits with customers.

Banking leaders bristle at credit unions' tax exempt status, granted by Congress because of the industry's founding mission to serve people of "modest means." Many credit unions have become large, complex institutions serving entire metro areas, said Joe Brannen, president of the Georgia Bankers Association.

"If they're going to operate like a bank and pretend to be a bank, then they ought to operate under the same rules, including taxation, as banks," he said.

While 11 small Georgia banks have failed in the past year, no credit unions have been taken over by regulators.

One explanation: Federal law sharply restricts how much credit unions can lend to commercial borrowers such as real estate developers — the kind of loans at the root of many banks' troubles. Credit unions have been lobbying Congress to remove the lending cap, however.