Iowa’s credit unions growing in wake of financial crisis

Iowa's credit unions are enjoying asset and deposit growth in the wake of a crisis that has shaken trust in the safety of financial institutions.

Moreover, they are building branch offices to further increase their market share.

Assets at Iowa's 134 credit unions grew 10.7 percent, to $8.4 billion, from June 30, 2009, to June 30 this year, Iowa Division of Credit Unions data show. Deposits grew 12.36 percent to $4.4 billion during the same period and loans increased 8.49 percent to $5.6 billion.

On the banking side, deposits at Iowa's 364 banks grew 0.5 percent to $61.5 billion on June 30, from $58.5 billion on June 30, 2009, Federal Deposit Insurance Corp. data show.

Several factors are driving credit union deposit growth, said Robert Hoefer, president and chief executive officer of Dupaco Community Credit Union in Dubuque. Customers have favored credit unions and small commercial banks in the last 12 to 18 months during the bad economy, while large banks have dealt with bad public relations, he said.

“There was a flight to safety and security,” he said. “We've also had a strong capital position for a number of years and that has drawn additional deposits.”

John Sorensen, president and CEO of the Iowa Bankers Association, disputes the contention that Iowa's credit unions gained members because of bank safety and security concerns.

“I think most people recognize that Iowa banks have been responsible lenders and huge partners in our communities,” Sorensen said. “I'm not seeing the trend lines that credit unions are trying to point out.

“As much as we would like them to, I don't think most consumers distinguish between financial service providers. If they're happy with their experience, the service they are getting and the price, they're likely to stick with that institution.”

Expansion under way

Dupaco, which has 11 offices, is to open a 12th location on Dec. 1 at First Avenue and 35th Street SE in Cedar Rapids. Five years after opening its first Cedar Rapids office at 3131 Williams Blvd. SW, Dupaco has become the third-largest Iowa credit union, with assets of $901 million. It has moved past Collins Community Credit Union in Cedar Rapids, which has assets of $592 million.

Second-largest is Iowa City-based University of Iowa Community Credit Union, whose asset growth has soared over the last decade. Assets topped $1 billion in July, a substantial jump from $185 million in October 1999, when Jeff Disterhoft took the reins as president and CEO.

UI Community Credit Union's assets grew 19.99 percent in the period from June 30, 2009, to June 30 this year. Loans grew 19.26 percent and deposits grew 19.16 percent.

The credit union, with about 10,000 members in Linn County to go with 42,537 in Johnson County, merged with Best of Iowa Community Credit Union in Hiawatha in August, adding about $50 million in assets, 4,300 members and offices in Hiawatha and Vinton.

Customers who switch

A spate of bank merger activity in recent years prompted Eric Upchurch, 39, of North Liberty to try the UI Community Credit Union. “We started off with a single loan at the credit union and they made it easy. They seemed like they had some flexibility, especially on the stuff they were holding in-house,” Upchurch said.

“Over a period of about six months, we moved almost the entirety of our accounts to the credit union.”

Disterhoft expects UI Community Credit Union's Westdale branch to open in the first quarter of 2011. Meanwhile, Linn Area Credit Union is building a 4,500-square-foot office down the road at 3700 Edgewood Rd. SW. Linn Area, with 6,200 members and assets of $31.2 million, also has offices in southwest and northeast Cedar Rapids and in Marion,

Chris Farrell, a Linn Area Credit Union customer who operates a day care in her southeast Cedar Rapids home, said, “I had always been at a bank, but I just felt like a number. I felt nobody cared.”

Farrell, 45, said she gets a personal feeling at her credit union. “The staff really took the time to explain everything to my 18-year-old daughter when she opened her checking account.”

Veridian, Iowa's largest credit union with 24 offices and assets of $1.7 billion, has added a southwest Cedar Rapids branch and has focused in recent years on opportunities to expand services to existing members.

Different rules

Credit unions can offer lower interest rates on loans and pay slightly higher rates on certificates of deposit than banks because they do not pay federal or state income tax on profits. Congress enacted the exemption in 1937 to enable credit unions to serve low income people who did not have access to banks.

Banks have tried unsuccessfully in recent years to have the exemption repealed, arguing for a level playing field with credit unions and pointing to the estimated $19 billion it would funnel into the U.S. Treasury over the next 10 years.

Christine Barry, research director with Aite Group, a Boston-based research and advisory firm, said lower loan rates and higher savings rates will not be enough to sustain deposit growth.

“While credit unions fared extremely well through the financial downturn, which saw consumers grow wary of traditional banks, they must remember that growing deposits is traditionally a great challenge for them,” Barry said.