Like many other industries, credit unions in Arizona are bouncing back from the economic downturn.
Credit unions, which are similar to banks in the products and services that they offer except at a slightly lower cost, are taking advantage of consumer disenchantment with big banks to attract new members. According to a recent National Credit Union Administration report, through the first quarter of 2012, credit unions around the country combined for a record 92.5 million members.
“As local, member-owned financial institutions, credit unions are simply doing what they have always been good at,” said Scott Earl, CEO of Mountain West Credit Union Association, a trade organization of credit unions across Arizona, Colorado and Wyoming. “They have a long history and reputation for providing excellent member service, financial education and a wide variety of financial services to fit their members needs. The recent increased recognition of these qualities and the progress credit unions have made is establishing their success as an industry.”
Nationally, credit unions generated $2.1 billion in profits and added 667,000 new members in the first quarter of 2012, a 25 percent spike in profits compared with a year earlier. Most large Arizona credit unions — including Desert Schools, TruWest, Arizona State, Credit Union West and Arizona Federal — saw profits roughly double in the first quarter of 2012, compared with earnings from a year earlier.
“The word ‘profit’ is a bit of a misnomer,” said Paul Stull, senior vice president of strategy and brand for Arizona State Credit Union. “Credit unions do have net income. However, all credit unions are not-for-profit cooperatives. The net income or funds available after expenses are paid become part of a credit union’s capital or are used to build new branches, purchase new technology or offer additional services.”
Something that Arizona State Credit Union added recently were construction loans to its home loan portfolio in anticipation of an improving economy, as evidenced by the 27 percent growth of new home sales in the first quarter, compared to the prior year.
The construction loan program allows members the opportunity to lock in their mortgage rate early and avoid the possibility of fluctuating rates during the construction phase. Additional perks to this all-in-one loan include needing to only qualify once, signing one set of loan documents and paying one set of loan fees for both the construction-phase financing and permanent mortgage.
“As a local financial cooperative, the Credit Union is proud to offer low rates and flexible terms on a product that few financial institutions are offering,” said David E. Doss, president and CEO of Arizona State Credit Union. “We are excited to add construction loans to our home loan options as it is one more way we can assist members residing in the Arizona communities we serve.”
A J.D. Power and Associates study this year showed that consumer backlash against fees and the perception of poor customer service from some of the bigger banks have caused some consumers to switch to credit unions, whichunlike banks, which are run as private businesses seeking profits, operate as nonprofit entities and are technically owned by their members.
“Generally credit unions offer lower fees and better interest rates than banks,” Stull said. “This is one reason consumers may come to a credit union. We also see many people that switch because they want to do business with a local financial institution that is based in Arizona. Our deposits are returned to the community in the form of loans than in turn grow jobs and economic development in the communities we serve. Many consumers have made a choice to support local businesses, and credit unions are a great example of that.”
While credit unions never issue subprime mortgages, which many experts blame for helping lead the nation into the recession, credit unions did get hit with the impact of the failing economy. One lesson Earl said they learned: Innovation.
“Learning to manage resources while providing increased quality of services through the recession has challenged the way credit unions approach problems,” he said. “Increased creativity and credit union technology are some of more positive lessons for the long term.”
In addition to lower fees and increasing efficiency that is resulting from lessons learned in the wake of the recession, Stull said credit unions offer free financial counseling, will help members create a budget to manage their funds, and Arizona State Credit Union’s Home Affordable Refinance Program has allowed homeowners who owe more than the house is worth to refinance and reduce their payments.
“Choosing a credit union is a win-win situation for consumers,” Stull said. “They can get a better rate or lower fees to help them stretch their budgets, and they can benefit their community by doing business with a local financial cooperative that helps create jobs and grow the local economy. You get a good deal and you can feel good about helping your community, too.”