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Credit Unions: Lending a Hand

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From the August 2013 issue of Columbus CEO

While it’s true that money can’t buy happiness, it can buy a healthy dose of security and peace of mind. Proper money management requires expertise, and since it can be difficult to navigate the complex labyrinth of modern finance, wise advice is a valuable commodity. Many Ohioans seek that advice at credit unions, member-owned financial cooperatives run by members, for members.

Katie Walton, director of marketing and communications for the Ohio Credit Union League, says credit unions offer a number of advantages over banks.“Simply put, credit unions are groups of people who pool their money to provide lower-cost loans and fees and better savings rates to one another,” Walton says. “Every depositor and borrower is an equal member/owner with a voice in the credit union’s future.”

Members vote on the board of directors, whichis charged with serving members in the best way possible, Walton says. Traditional banks also work in the best interest of shareholders, but credit unions are nonprofit cooperatives, so the power is more evenly distributed among depositors.

“With a philosophy of helping people versus making a profit, every penny of earnings is returned to the member/owners as higher savings rates, lower loan rates, lower fees, more convenient locations, new services, dividends and more,” Walton says. “Whether a loan is granted is decided based upon whether it is beneficial for the good of the credit union. As a not-for-profit, credit unions use money to empower people.”

As of December 2012, there were 357 credit unions in Ohio. Each varies in size, scope and the products offer to members.“At most credit unions, you can find the financial mainstays: savings and checking accounts, auto loans and mortgages,” Walton says.

Others offer more specialized products including certificates of deposit, credit cards, debit cards, home equity loans, individual retirement accounts, international remittances and student loans. Some offer business services, some deal only with individuals.

The charter for Columbus Metro Federal Credit Union allows it to serve individuals who live, work, worship or attend school in Franklin County. Founded in 1951 by the employees of Defense Supply Center Columbus, the credit union has 23,364 members and $232 million in deposits. President Tim Richey says Columbus Metro is a full-service financial institution offering checking and savings accounts, auto and home equity loans, first mortgages, online banking and bill payment services.

“As a nonprofit cooperative, Columbus Metro Federal Credit union focuses its strategies on providing products and services that improve the banking experience as opposed to for-profit competitors that focus their strategies on products and services that increase income,” Richey says.

Although customer service is a major focus, credit unions engage in trend monitoring and forecasting, just like any other financial institution. Richey says Columbus Metro’s customers remain cautious but optimistic.

“I have noticed a significant uptick in automobile lending, suggesting consumers are feeling more confident in their ability to handle more debt,” Richey says. “We have also witnessed our government employee members reducing their debt levels in response to sequester cuts and mandatory furloughs.”

Helping Members

The State Highway Patrol Federal Credit Union serves individuals affiliated with one organization: the Ohio State Highway Patrol. The institution serves troopers as well as support personnel, members of the Ohio Investigative Unit, immediate family of employees and retirees. Although smaller than some other credit unions, with around 6,000 members, the organization has more than $61 million in assets

The credit union began in 1960 in a closet in the old highway patrol headquarters, with 44 members and $1,300 in accounts. Officials say they are aggressive not only when it comes to protecting the trust they have built among members, but also in the area of education.

The organization opened a second office in June at the highway patrol academy. CEO Becky Landis says each new trooper learns money management and financial literacy skills as part of basic training. A savings account is opened in each trooper’s name, and in general, the lessons stick.

“They are savvy with their money and financially responsible,” Landissays. The credit union has low delinquency rates on loans, she says, and members are often dedicated savers. Before joining the credit union, Landis spent 28 years in banking, which she says allows her to appreciate the way credit unions operate.“It’s cliché to say you enjoy going to work because there are people helping people, but there’s so much validity in that” she says.

The State Highway Patrol credit union seeks grants to provide educational and other types of assistance members.Last year, disaster recovery grants became available after major storms ripped through Ohio. Forty-nine members applied for assistance and all received some sort of help to repair homes, cars or other property.

Landis says even though the credit union doesn’t directly stimulat the economy through business lending, its “people helping people” philosophy builds prosperity indirectly.

Corporate Customers

A number of credit unions do offer direct business service and are helping Ohio’s economy grow. Walton says that as of December 2012, 122 of Ohio’s 357 credit unions d outstanding business loans, whichamounted to 4 percent of the institutions’ total assets.

Credit unions that provide services to commercial clients may offer micro- and midsize loans, deposit accounts, transaction accounts, lines of credit and credit card processing services for merchants. They can offer services as simple as a checking account or help business clients expand in major ways. “The average size of a member business loan in Ohio is roughly $115,000,” Walton says.

KEMBA Financial Credit Union is Ohio’s largest credit union in terms of both membership and assets, and it has numerous business-specific products. Originally founded in 1933 to serve employees of the Kroger Co, KEMBA now serves more than 200 employee groups, as well as residents of Franklin, Delaware, Madison and Logan counties. KEMBA’s 67,000 member have more than $785 million deposit.

President and CEO Jerry Guy says KEMBA’s commercial services cater to small business, but are available to any company within its field of membership. The credit union offers business deposit accounts, money market and term certificates of deposit and a variety of checking accountsIt also offers commercial lines of credit and term, real estate-secured and U.S. Small Business Administration loans.

“While our average loan is close to $450,000, our smallest loan is $50,000, and we could make loans up to $10 million through a partnership with other credit unions,” Guy says. About 5 percent of KEMBA accounts are tied to a business relationship, Guy says, and about outstanding loan funds are in the hands of business customers.

Just like individuals, corporate customers may find a surprising level of service at credit unions.“I feel that businesses, especially small businesses, will enjoy working with a cooperative,” says Mark Seymour, lending and risk vice president at KEMBA.“The spirit is to assist with and improve our members’ financial situation.”

Wayne Garland, president of Buckeye Real Estate, often works with regional banks, but has also had a relationship with KEMBA for about two years. His firm s a number of rental properties around the Ohio State University campus and in other areas of Columbus. Garland has used KEMBA’s lending and refinancing tools to add units and renovate some existing holdings.“The good terms and low interest rates have helped us create better cash flow,” says.

“Their terms seem to be ahead of the curve,” Garland says. In some of Garland’s refinancing plans, KEMBA was able to offer 10-year fixed rate loans at favorable rates, which sped up the amortization schedule. Garland says he appreciates the tailored approach.

“I know they have regulators, but they don’t seem to be as restrictive as the banking regulators,” he says. “They have a good business model, and as long as you succeed and take care of them, they will find a package that will work for you, too.”

Service and Solutions

Credit union officials say they strive to provide personalized service and to look at the customer’s overall financial health, rather than just the transaction at hand.“Many times, the banks need the request to fit in a box,” Seymour says. “We can customize solutions.”

Credit union membership offers further benefits since employees of a business customer can also become members, strengthening the institution and its members’ financial position. dn’t have to pay dividends to investors who may move that money to outside investments.“As a not-for-profit cooperative, all of the income generated from operations is redistributed within the membership,” Seymour says. “This is done through more attractive rates on deposits and loans as well as typically lower fees.”

Business borrowers use credit union loans in many ways to help their companies grow. “We have seen a little bit of everything,” Seymour says. “No one area has really been more pronounced than another.”

While credit unions put customer happiness high on the list of priorities, friendliness and service must be carefully balanced with wise lending in order to protect members’ investments. As a result of due diligence, officials say, delinquency rates tend to be lower at credit unions.

“I think really knowing the client and taking a holistic view of the relationship and loan request really drive lower delinquency,” Seymour says. “We don’t try to be fancy with sophisticated solutions. We just identify risk, talk through it with the member business and craft a solution that meets the business need and protects the membership.”

Rather than a simple approval or denial, he says, credit unions employ a lot of discussion.“We have the conversations up front and it avoids a lot of issues that cause defaults and delinquency, simply by either changing the terms of the loan or the member business rethinking how they are approaching the project they are requesting the loan to fund,” Seymour says.

The result is a loyal business relationship that many for-profit corporations covet. “I would say [the lending process] is friendlier, but we certainly have to look at the risk a loan presents,” Seymour says. “We must, and do, make sure we have taken a good look at the entire deal to ensure we understand what the member business is going to do and how the credit union will be repaid. I would say that since we typically spend the time to get to know the business member we probably feel much more friendly.”

Many credit union customers do seem to have a soft spot for their financial institutions. As a former Ohio State Highway Patrol employee and wife of a patrol captain, Renee Fambro is a member of the State Highway Patrol Federal Credit Union.

“We get personalized service at the Highway Patrol FCU,” she says. “The employees know us by name and are always willing to do whatever it takes to give extraordinary customer service.”

Earlier this year, Fambro was on the phone with credit union employees almost daily as they worked to get documentation the family needed to resolve an outside issue. “There wasn’t one phone call or one request that wasnt handled the same day,” she says. “We would be in a very different place today without that prompt and responsive customer service.”

Credit union officials say they aim to offer the same responsive service o business clients, in the form of quick repliemoney-saving measures and customized financial solutions.

“Since we tend to know our clients a little better we can, given the proper situation, afford to allow for more flexible terms,” Seymour says. “We always talk through it with the member business to make sure the extended terms wouldn’t potentially cause them harm. Something like offering a term longer than what could be the useful life of the collateral wouldn’t be something we would want to do. But if it makes sense we will try to find a way to make it work.”

Kristin Campbell is a freelance writer.