Neighbors Federal Credit Union is among the credit unions that have seen significant growth in recent years. In September, it acquired a 10,500-square-foot building adjacent to its Perkins Road headquarters for $1.6 million to continue its expansion in the Capital Region. Staff photo
Neighbors Federal Credit Union has more than doubled its assets since 2004 and recently acquired a building adjacent to its Perkins Road headquarters for $1.6 million to continue its expansion in the Capital Region.
As the second-largest credit union in the state, Neighbors now has $760 million in assets and 75,000 members. And it isn’t alone in its growth. Last year alone, Essential Federal Credit Union saw an 8% membership increase when it rebranded itself from Dow Federal Credit Union. It now has some 27,000 members with $310 million in assets.
Today, more than 1.2 million Louisiana residents are members of credit unions, according to the Louisiana Credit Union League. Credit unions across the state have seen a 56% increase in membership since 1991, and last year—for the first time ever—they surpassed $10 billion in total assets. That’s triple the amount of assets credit unions held 25 years ago.
“If you look at trends over the last 24 years, credit unions are growing,” says Lacey Hyer Weaver, LCUL vice president of communications. “They’re getting bigger.”
Of the state’s 199 credit unions, Baton Rouge is home to 22, making it the largest market in Louisiana. The expansion of credit unions locally mirrors a national trend. Credit union savings balances across the U.S. rose about $1 trillion for the first time last March, according to industry organization CUNA Mutual Group.
For many consumers, credit unions are attractive because they offer an alternative to traditional banks and tout several benefits, such as fewer fees, better rates, quality services and no minimum deposit accounts. Because they are not-for-profit, credit unions are able to return their earnings to members in the form of lower loan rates, higher interest rates on deposits and other benefits. And unlike banks, credit unions do not pay corporate income taxes because their earnings are returned to members, not shareholders.
Still, credit unions have remained well-kept secrets over the years, Weaver says. That’s because some are exclusive to employees or members of certain industries or professions. But if credit unions have a community charter, anyone who lives, works, worships or attends school in their community can be a member.
“Awareness is the biggest thing,” Weaver says. “I think the gap is slowly closing.”
Dow Chemical employees chartered a credit union in 1972. Membership was exclusive to employees until 2008 when it received a community charter, but apparently not everyone got the memo.
“People were still attaching that restriction to us, so in 2015 we rebranded ourselves to Essential to help overcome that stigma,” says Allison Brown, vice president of marketing. Since rebranding, membership has grown by 8%, she says, while the average annual growth rate for credit unions is 2% to 3%.
Every member is considered an owner, Brown says, and the board of directors consists of elected volunteer members. It’s part of the “people helping people” philosophy behind credit unions, Brown says. And it’s why she believes they will continue to grow, because people want to help each other rather than fill a stockholder’s pockets.
Dan Robichaux, chief administrative officer at Neighbors Federal Credit Union, says indirect lending has been a driving force of credit union growth. Neighbors sees an annual 9% increase in loans, and new members often join, for instance, when buying a car because credit unions often offer better rates. According to the Credit Union National Association, financing a $25,000 new vehicle over 60 months with a Louisiana credit union will save members about $195 a year in interest rates as compared to what they would pay on a bank loan.
In Louisiana, member loans contribute to $6.3 billion of total credit unions assets, with $10,500 being the average loan amount.
“What happens over time is people look for alternatives to the big-bank option,” Robichaux says. “Nothing wrong with them, but when people do come to credit unions they get more of a family feel, more concern for their well being, less fees. We’re there more for the average consumer.”
Plus, credit unions have more of a presence now than ever. With multiple locations, more ATMs and online banking, they’re becoming more accessible and convenient.
Despite their growth, credit unions haven’t necessarily taken business away from traditional banks, says Robert Taylor, CEO of the Louisiana Bankers Association, adding that banks across the state are also growing in deposits and assets. But at the same time, they’re grappling with challenges that do not affect credit unions.
Banks face tough regulatory oversight and must pay federal and state taxes, he notes, while credit unions do not. Taylor says this results in a heavily subsidized business competing with a heavily taxed business.
“To compete, banks must overcome a 40% or so tax disadvantage,” he says. “Banks must be more efficient and operate at a higher level than credit unions.”
And banks still offer competitive rates—especially on mortgages—and typically offer similar or better mortgage rates than credit unions, Taylor says.
Nationwide, banks are experiencing changes related to extreme regulatory conditions, while non-bank financial technology companies offering bank-like services are not subject to these regulations, Taylor says. Now, when mergers or acquisitions occur, no new banks are being chartered to replace them, an issue Taylor attributes to the regulatory environment.
Still, banks are advantageous to both the economy and local communities because the U.S. is unique in that it has a community-bank oriented system, Taylor says. More than 6,000 community banks nationwide represent a 96% share of all banks.
“Nationwide, that represents $3.1 trillion in deposits, $3.9 trillion in assets and $2.6 trillion in loans to consumers and businesses,” he says. “This represents a tremendous vote of confidence by the public. Louisiana has 131 community banks domiciled in the state with over $70 billion in assets. Bankers here must earn customers’ confidence every day, and I’m certain they will continue to do that with integrity and high ethical standards.”