In fiscal year 2000, Brockton Credit Union experienced 20 percent asset growth, 11 percent membership growth, 20 percent loan growth and 11 percent deposit growth.

Massachusetts credit unions have grown 25 percent in the past five years. Deposits increased by 40 percent and loans increased by 70 percent.

The growth is the result of changes in legislation, bank mergers and the marketing efforts of many to entice the public into community-based credit unions, according to industry watchers.

State and federal laws restricting the business of credit unions were eased in recent years after a highly publicized court battle. On the federal level, in 1996, an injunction was filed to stop credit unions from signing on new member groups. The Supreme Court upheld it. Two years later, the Credit Union Parity Act was passed, easing the membership restrictions. Additionally, Massachusetts passed laws increasing the upper limits allowable for mortgage loans at credit unions.

“If the [Credit Union Parity Act] law hadn’t passed, certainly the growth would have been restricted and some of the growth that occurred between 1998 and 2001 was the result of some pent-up demand during the 1996-98 period between the court decision and the change occurring in the law,” said Robert B. Kimmett, senior vice president of public relations and marketing for the Massachusetts Credit Union League.

From 1999 to 2000, loans were up 11.72 percent (to $9.7 billion) in the state’s credit unions while assets rose 9.51 percent (to $14.6 billion) and deposits 8.94 percent (to $12.5 billion).

But while the easing of legal restrictions have contributed to the growth of the industry, Kimmett doesn’t think that’s the biggest reason why credit unions have grown. “Credit unions have remained constant in their focus on the consumer, and the competition has shifted their focus more towards short-term profits and away from establishing long-term relationships in the name of profit,” he said.

Often banks base their level of service and pricing on what the market will bear instead of on the consumer, he said, while credit unions focus on service.

“We work very, very hard at that,” said Leo A. MacNeil, senior vice president of marketing at the $800 million-asset Brockton Credit Union. “I can put slick ads out all the time but if you’re not treated very professionally, it’s not going to work. So our employees are an integral part of our efforts.”

Brockton Credit Union has been experiencing “phenomenal” growth itself, said MacNeil. In fiscal year 2000 it experienced 20 percent asset growth, 11 percent membership growth, 20 percent loan growth and 11 percent deposit growth. “We expect to see additional impressive growth [this year],” he said.

“My percentages are not quite as good as last year’s but they still are excellent growth figures,” he said. Figures from the close of the second quarter in June put the assets of the credit union at $803.62 million, a 10 percent gain over last year. Loans grew nearly 11 percent from last year to $639.29 million and deposits grew to $584.33 million, a 6.5 percent increase from last year. If these trends continue for the remainder of the year, the increase percentages may double.

MacNeil offered one theory as to why credit unions have been doing so well recently. “The credit unions have stepped in to fill a vacuum left by the departure of an awful lot of the community banks that have been acquired or absorbed over time. We’ve done that by continuing to offer competitively priced products and excellent service,” he said.

The lifting of legal barriers has also contributed to its success. In particular, credit unions are now allowed to participate in indirect lending such as auto loans.

“Instead of doing a lot of retail marketing – advertising of auto loans – we do it primarily through a network of dealerships and that has increased our consumer loan portfolio significantly,” said MacNeil. Additionally, maximum mortgage loan amounts have been lifted from the limit two years ago of $200,000 to over half a million.

For Brockton, the combination of mergers, changes in laws and expansion of its branch network has proved successful, and been bolstered by a more aggressive advertising campaign.

Lending Lapse
Central Massachusetts credit unions are also experiencing a great year, according to David A. L’Ecuyer, president and chief executive officer of Central One Federal Credit Union in Shrewsbury. “We’ve had really significant asset growth. We started the year at about $138 million [in assets]. Right now we’re at about $152 million. So that’s 10 percent from the start of the year.”

Additionally, Central One has picked up 1,200 new members and 800 checking accounts since the start of the year, said L’Ecuyer. But while deposit growth remains high for the credit union through the first two quarters of the year, loan growth is relatively flat. The lower interest rates have generated some business on the real estate side but the consumer side hasn’t had significant growth.

“We are typically very well lent-out. Last year we saw about 16 to 17 percent loan growth in our loan portfolio. But with the economy slowing down, we’re seeing a lot less consumer lending out there,” said L’Ecuyer.

Central One recently completed its conversion to a community-based charter. Some of its growth can be attributed to that. Overall, L’Ecuyer said, much of the growth can be attributed to bank mergers; “Quite frankly, a lot of what we hear is that they [consumers] are sick of the mergers. They get impacted by that because their accounts, in some cases, get mixed up or there are lines in the lobby when they [newly merged banks] are going through the data processing conversion of that merger … Credit unions aren’t doing mergers anywhere near the level of these banks.”

Often when they do, the merger is much less complicated because of the relative size of the credit unions involved, he said.

“Another windfall for us last year, especially in the deposit area, was the Citizens/USTrust and Fleet/BankBoston mergers,” said MacNeil. “It’s the hardest thing in the world to attract new checking account business simply because of all the ways a person’s checking account is tied down.”

When the mergers occurred, many financial institutions sought to capitalize on the ensuing chaos with targeted marketing strategies.

“We obviously jumped on the bandwagon and started advertising right away about our checking accounts and that brought even more business,” said MacNeil.

But while financial institutions had enjoyed the benefits of a decade of sustained economic growth, that boom period has ended.

“We are sensitive to what’s going on in the economy both nationally and locally. We’re anxious to see whether this thing’s made a turn or if it’s going to get worse,” said MacNeil. If unemployment figures continue to rise, it will have an effect on loans and delinquencies. So far, however, Brockton Credit Union hasn’t felt the slowdown. People are still buying homes and cars and the credit union has had little delinquency.

But while the number of loans may drop, L’Ecuyer said credit unions should continue to do well because “in a slower economy, people become a little bit more aware of fees that they pay for services.”

“When the economy is booming, people have a tendency maybe to not look at the dollars and cents as closely as when the economy slows down,” said L’Ecuyer.

New Laws, Bank Mergers Fuel Credit Union Growth

by Banker & Tradesman time to read: 5 min