How a local credit union grew deposits nearly 20%, blew past regional average - St. Louis Business Journal (2024)
From 2022 to 2023, West Community Credit Union, which ranked No. 8 on the list of St. Louis’ Largest Credit Unions, grew its deposits 19%, the largest growth in deposits for any credit union in the St. Louis region.
Most of this, according to the firm’s CEO Jason Peach, was due to an acquisition of a smaller St. Peters-based credit union, Missouri Valley Federal Credit Union, but the firm still organically grew its deposits faster than the average. In St. Louis, the largest credit unions grew deposits 1.3%, on average. Peach said West Community's organic growth was three times this rate.
Peach noted that one of the challenges for his firm will be continuing to adapt to technological advancements, especially with artificial intelligence accelerating change.
What led to West Community Credit Union’s growth from 2022 to 2023? There were two components. We were excited to expand our presence in St. Charles County through a merger with a small credit union in St. Peters called Missouri Valley Federal Credit Union. So that accounted for roughly 14% of that (19%) growth. It was exciting for us to gain an additional presence and base of members in that market. So that certainly was significant.
What was the other component? On average, last year, credit unions nationally only grew deposits about 1.7%. Many credit unions actually saw a decrease in deposits last year. The competition for deposits really heated up in response to the tightening of the Fed with interest rates. Organically, we (grew our deposits at a rate) about three times the industry growth rate, if you don't include the merger.
West Community Credit Union
How did you do that? One thing we did was we increased the level of our private deposit insurance that supplements our federal deposit insurance through the NCUA (National Credit Union Administration). NCUA offers the $250,000, and then we increased the level of coverage of the private deposit insurance to $750,000 for every $250,000 in coverage. So all members receive a minimum of $1 million in deposit insurance coverage. As you know, there was a little bit of disruption early in 2023 related to the Silicon Valley Bank collapse. So we actually found that we became a great source for small businesses and others with higher balances at other institutions who now really desired insurance coverage. With our larger levels of insurance coverage, we actually captured some deposit growth there.
What trends are impacting the credit union industry right now? In the near term, the rising cost of deposits is obviously a trend that we're attempting to manage. There's a lot of focus on operational efficiency and managing the overall cost base for the organization. So that's certainly a current challenge and something that's based on where we are in the interest rate cycle. We’re also watching some deterioration in credit quality for consumers, which is not surprising. Consumers are more strained by higher prices and interest rates, while we don't tend to aggressively pursue the subprime markets, we do see some deterioration in credit quality, and, really, this is our time to shine — credit unions are community-based, not-for-profit cooperatives. So when challenges arise for our members, it's our time to work through that with them and bridge that gap, get through this cycle where things are a little more challenging.
What are some challenges for your industry? The significant change happening in financial services is the advancement in technology and how consumers now want to do business with financial institutions at a more digital level. That's not new, but it's really accelerated since the pandemic. AI and generative AI are even more going to impact the speed at which change occurs. You know, we're community-based, and I think there's always going to be a need for physical access, the human touch. We want to make sure that we meet members where they are. We're not going to automate everything away and lose that service level that our members desire. So we have to figure out how to operate more efficiently in our physical footprint. How do we expand that in a cost-effective way or a thoughtful way? I think the adaptation of our business model and how we actually deliver our services and how we manage that cost as smaller financial institutions for the benefit of our members is really the big challenge that we face now and going forward. So it's exciting, but it certainly is something that is top of mind and strategic for us.
There Might Be Fewer Services. Credit unions don't work with the same budgets as big banks. As a result, they might not have as many products for businesses and consumers.
US credit unions have had a strong run in recent years. Since 2018, loans at credit unions have grown 8.8 percent a year, on average, 1. compared with 8.0 percent a year for bank loans, 2. while deposits at credit unions have risen 9.0 percent, compared with 8.9 percent for bank deposits.
Credit unions and banks are both insured, with most banks being insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per customer. Most credit unions are similarly insured by the National Credit Union Administration (NCUA) for up to $250,000.
National Credit Union Administration (NCUA) credit unions had five conservatorships/liquidations in 2023, and one so far in 2024. Similarly, there were five Federal Deposit Insurance Corp. (FDIC) bank failures in 2023 and one bank failure so far this year.
First, bankers believe it is unfair that credit unions are exempt from federal taxation while the taxes that banks pay represent a significant fraction of their earnings—33 percent last year. Second, bankers believe that credit unions have been allowed to expand far beyond their original purpose.
The NCUA insures credit union accounts, while the FDIC provides insurance for bank accounts. They both come with the same limits on insurance coverage. A decision about whether to store money in a credit union or bank shouldn't be affected by which federal agency insures the institution.
Money deposited into bank accounts will be safe as long as your financial institution is federally insured. The FDIC and National Credit Union Administration (NCUA) oversee banks and credit unions, respectively. These federal agencies also provide deposit insurance.
Through right of offset, the government allows banks and credit unions to access the savings of their account holders under certain circ*mstances. This is allowed when the consumer misses a debt payment owed to that same financial institution.
The National Credit Union Administration (NCUA) charters and supervises federal credit unions and insures savings in federal and most state-chartered credit unions.
Credit unions are backed by the National Credit Union Share Insurance Fund (NCUSIF), which is equivalent to the Federal Deposit Insurance Corporation (FDIC) for banks. This safety net guarantees your funds, typically up to $250,000 per depositor, should any unexpected turbulence occur.
A major existential threat faces credit unions today due to their inability to scale; losing their member base to virtual, internet-based, financial-technology platform companies (FinTechs) offering quick, easy and consumer friendly services via mobile third-party payment applications, albeit at onerous rates.
If a credit union is placed into liquidation, the NCUA's Asset Management and Assistance Center (AMAC) will oversee the liquidation and set up an asset management estate (AME) to manage assets, settle members' insurance claims, and attempt to recover value from the closed credit union's assets.
Generally, credit unions are viewed as safer than banks, although deposits at both types of financial institutions are usually insured at the same dollar amounts. The FDIC insures deposits at most banks, and the NCUA insures deposits at most credit unions.
Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which could be a problem unless your credit union is part of a shared branch network and/or a large ATM network such as Allpoint or MoneyPass.
Benefits of Credit Unions vs. Banks. Credit unions go beyond standard banking, offering lower fees on loans, higher dividend rates on accounts, and more personalized member benefits. Unlike for-profit banks focused on maximizing shareholder profits, credit unions are member-owned, non-profit financial institutions.
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