Credit unions growing far faster than banks in region

Customers go for what they see as friendlier service, lower costs.

Posted: September 12, 2010

Walt Ross was thrilled when Citadel Federal Credit Union opened a branch in July near his house in western Chester County, near Parkesburg.

"They don't have the fees, the hassles," said Ross, who knew Citadel from its roots as a credit union for employees at the former Lukens Steel Co. in Coatesville, where he worked for 20 years, until 1996.

Ross said he switched back to Citadel from Susquehanna Bank a couple of years ago. The new office means he won't have to travel 11 miles to Citadel's Thorndale branch anymore.

Fueled by customers like Ross, credit unions have surged during the last three years in the Philadelphia region, grabbing market share from local banks as consumers opt for what they say is friendlier service at a lower cost.

Since June 2007, assets at local credit unions have jumped 35 percent to $13.4 billion, nearly triple the 12 percent growth at banks based in the Philadelphia region, which reported total assets of $39.9 billion on June 30, an Inquirer analysis of federal banking data shows.

At the five biggest credit unions based in Philadelphia and the seven surrounding counties in Pennsylvania and New Jersey, the trend is even more pronounced.

Led by Police and Fire Federal Credit Union with $3.7 billion in assets, those institutions logged a 45 percent jump in total assets, to $8.2 billion.

Assets - mostly loans and investment securities - at the five biggest banks with headquarters in the same area climbed 18 percent, to $12.6 billion, during the three years ended June 30.

A similar, though less dramatic, disparity shows up nationally over the same period, with credit union assets up 22 percent, to $904 billion, compared with an 8 percent increase for banks, to $13.2 trillion.

Credit union executives attribute the strong performance of their industry to the absence of shareholder demands for results that fuel higher stock prices and richer dividends.

"We're a very consumer-oriented, cooperative type of company. We're not for profit, but we're for service," said Vince Market, chief financial officer of TruMark Financial credit union, of Trevose, the region's third-largest credit union, with $1.3 billion in assets.

Bankers - laboring under the conflicting pressures of politicians and the public to lend more while regulators urge extreme caution - have one main gripe about credit unions:

They do not pay federal income taxes, allowing them to offer higher rates on deposits and lower rates on loans.

For example, data from the National Association of Federal Credit Unions show that, as of Thursday, the national average interest rate on a home-equity line of credit was 4.38 percent, compared with 4.83 percent at banks.

Credit unions paid an average interest rate of 1 percent for a one-year, $10,000 certificate of deposit, while banks paid an average of 0.81 percent, the credit union group said, based on information from Datatrac Corp. Deposits at credit unions are insured by the National Credit Union Administration.

"We don't object to the growth of credit unions," said Richard A. Kunsch, chief executive officer of Phoenixville Federal Bank & Trust. "They are competition. If they are going to be competition, there should be an even playing field."

Citadel poses across-the-street competition for Kunsch's bank on Kimberton Road in Phoenixville.

Bankers also have long looked with dismay at the expansion of credit unions from their original mission, laid out in the Federal Credit Union Act of 1934, of serving people of "modest means" and people with a "common bond," often a workplace.

TruMark, for example, was founded in 1939 by Bell Telephone Co. of Pennsylvania employees, but six years ago it won a charter that allows it to draw customers from all five counties in Southeastern Pennsylvania.

Expansion of credit unions' scope has "been allowed to happen for the last 70 years, and I think for the last 10 it's accelerated significantly," said Curt Myers, president and chief operating officer of Fulton Bank.

Police and Fire Credit Union, for example, is open not just to the city's police officers and firefighters, but also to people at 390 businesses, government entities, unions, and neighborhood groups in the region.

Citadel received a charter change last year that allows it to expand throughout Southeastern Pennsylvania, giving it 3.85 million potential members. With $1.5 billion in assets, 15 branches, and nearly 120,000 members, Citadel also serves customers in Lancaster.

Jeff March, Citadel's chief executive, provided an example of how it offers tough competition to banks.

"A goal we had a few years ago," March said, "was to reduce our net interest margin," the difference between what it charges for loans and pays for deposits - the essence of how banks make money.

"We were above 4 percent. We targeted it down to the 3.75 percent range," he said.

But it is not just numbers that prompted Diane Ray to open a Citadel account on the first day of business at the Parkesburg branch.

She had banked at Fulton, but instead of using the Fulton branch in Parkesburg, where she lives, she would drive to a branch in Gap because the workers there were friendlier.

Ray complained of fees at Fulton Bank, but also said the service at Citadel is better.

"I don't seem to have near the problems," she said.


Contact staff writer Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.

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