Chris Mason and his partners wanted to use a local lender when they sought a loan to start their business in Stevensville, just north of the Indiana border in Berrien County.
When the founders of Watermark Brewing Co. met with three local financial institutions, they ultimately opted to work with St. Joseph-based Honor Credit Union.
Although each of the lenders offered similar terms, the partners chose Honor Credit Union because of a feeling that the lender could help the microbrewery grow well into the future.
“Essentially, commercial lenders sell all the same products. At the end of the day, it’s who do you want to do business with for the next 20 to 30 years,” said Mason, a partner at Watermark Brewing that opened this summer. “It’s the same product every place. It’s just who do you want to have a beer with at the end of the day.”
Mason’s sentiment has been a common refrain for business customers at credit unions across Michigan, which are enjoying a period of sustained strong growth in the post-Great Recession economy and pitch themselves based on their customer service.
Assets, deposits, loans, and member business loans are all up solidly in the last year for Michigan credit unions, which at the start of the third quarter were nearing a collective 5 million members, or more than half of Michigan’s population.
A mid-year summary for Michigan credit unions from the trade association Michigan Credit Union League shows that:
• Total loans grew 11.1 percent to $33.60 billion in a 12-month period from mid-2015 to mid-2016. New car loans grew 14 percent and first mortgages increased 7.7 percent.
• Member business loans increased about 17 percent during the same period to $1.89 billion.
• Assets grew 7.4 percent to $54.56 billion.
• Credit union membership statewide as of June 30, 2016, was 4.96 million, an increase of 3.1 percent from a year earlier.
“Historically, every metric that’s out there is trending well,” said Kenley Penner, a partner at Plante Moran PLLC who leads the firm’s credit union practice. “Credit unions are in a great, unique position and they’re just taking advantage of it.
“There are four or five key things all coming together and putting them in that great spot.”
Penner and others attribute the solid growth rates that credit unions have recorded in recent years to a healthy broader economy that creates higher demand for consumer lending and to increased marketing that generates a greater consumer awareness of what they offer.
Some executives, including Omni Credit Union CEO Ted Parsons in Battle Creek, also cite banking mergers for at least giving credit unions an opportunity to pick up business.
“We see (consolidation among credit unions) as well, but any time there’s that merger happening, it creates a real distraction for the customers or the members (and) it causes them to evaluate ‘do I want to stay or do I want to go,’” Parsons said. “It creates opportunity for small, local community financial institutions.”
If the state’s economy stays in good shape, and with it the auto industry that’s driven Michigan’s economic rebound, Parsons expects credit unions to maintain their solid growth in market share.
“It’s hard not to be successful in this economy,” Parsons said. “As long as the economy continues to move along at the pace that it’s at, credit unions will continue to perform well.”
Credit unions also have adapted quickly to the digital age and deployed technologies that allow institutions of virtually any size to offer mobile banking for consumers and small businesses, Penner said.
That’s important as demographics shift, he said.
Penner cites an August report by TransUnion that shows credit unions nationally grew at a faster rate among millennials than other financial institutions.
Across the U.S., millennials accounted for 25 percent of credit union membership in the first quarter of 2016. That’s up from 20 percent three years earlier, according to TransUnion. At the same time, credit activity by millennials at non-credit union institutions — community banks, regional banks and finance companies — grew from 23 percent to 25 percent.
The change in the membership base for credit unions — which remain primarily consumer lenders, although many now do business lending to members — can drive industry growth into the future, Penner said.
“While the economy is obviously making people want to buy more stuff and finance more stuff, the fact is that credit unions have really grown their market share of the millennials. They’re the key people out there. They’re the people buying new homes and buying new cars,” Penner said. “I think credit unions have been uniquely positioned to take advantage of that economic growth by the fact that they’re targeting the right membership base.”
TAKING ON BANKS
Greater capabilities and product lines today enable credit unions to better compete with banks, according to executives at a few credit unions in the region who emphasized their local focus and service-oriented model.
“We’re in a commodity business to some extent until you break it down to the relationship,” said Scott McFarland, CEO of Honor Credit Union which has 14 offices in Southwest Michigan, plus three in the Upper Peninsula.
Additionally, McFarland credits the industry’s growth trajectory to the expansion in recent years of many credit unions into financial services traditionally offered by banks. A number of credit unions, for instance, moved into commercial lending for small businesses in the years during and after the recession.
“It’s always nice when you can look a consumer in the eye and say, ‘You don’t need have to do that through a regional bank,” McFarland said.
Terry O’Rourke, CEO of United Federal Credit Union in St. Joseph, noted that the nature of the commercial loans he sees today is changing. Where real estate primarily accounted for most of United Federal’s member business loans, credit requests for working capital and equipment purchases are on the rise, O’Rourke said.
The shift in the lending mix reflects a maturation of United Federal’s commercial lending capability, he said. The credit union as of midyear had member business loans of $261.5 million.
“Credit unions are becoming much more sophisticated in their business lending,” O’Rourke said. “We’re able to go out and compete very effectively with community banks and regional banks for these types of loans.”
That comes from the ability of credit unions to attract more experienced commercial lending officers than in the past.
The 149,000-member United Federal, which moved into commercial lending in 2009, now generates a steady enough volume of member business loans to lure a commercial lender to work there, O’Rourke said.
“It’s less of a risk for a commercial lender to join a credit union than five years ago,” he said. “Now we have a track record of success. We’re not selling them on a vision for the future.”