Credit unions help Mississippians of all ages and income levels accomplish their financial goals.
Still, these unique financial institutions, which are not-for-profit in nature and owned by their members, are often misunderstood and even stigmatized, according to the board chair of the Mississippi Credit Union Association.
W. Christopher Hammond is also CEO of Sunbelt Federal Credit Union, which is headquartered in Hattiesburg and has 11 locations across its service area of the Pine Belt and the Gulf Coast. It is the sixth-largest credit union in the state with assets of about $271 million.
Where are the members?
Hammond said declining membership is one challenge facing credit unions across the state. Credit unions are required by federal law to establish qualifications for membership, which vary by institution. At Sunbelt, individuals can join through their employer, if they live in certain census tracts, if they volunteer with specific organizations and even if they worship at particular churches.
“I think people are more willing to use a bank because they think they’ll have more access to their money,” Hammond said. “You have a Regions Bank or a Wells Fargo location on just about every corner. They have a lot of ATMs. People think they’ll get better convenience from a bank and maybe even better service.”
There are between 65 to 75 credit unions throughout the state, Hammond said. Many of them are small in size and scope, with some just having one or two employees. Those smaller credit unions struggle to keep up with the services and technologies offered by larger institutions. They also lack the resources to properly advertise their services, he added.
As a result, individuals looking to open accounts or take out loans may not realize the value of credit unions, Hammond said. Some credit unions may not have a mobile app or the high-tech features deployed by competitors. Because of this, individuals may not give credit unions a chance, he said.
Membership has its perks
According to personal finance company Credit Karma, credit unions offer numerous benefits to the consumer, including lower fees and loan rates, personalized customer service and higher interest rates on savings accounts. Also, because credit union members own shares of the institution, they get decision-making authority through voting rights as well as dividend payments.
Hammond said credit union staff members excel at building relationships with their members and the community at large. Service is more than a buzzword at institutions like Sunbelt, he said.
“We know our members well, so we can make more informed decisions when it comes to issuing them mortgage or vehicle loans or providing them with financial advice,” Hammond said.
Red tape an issue
Another reason for declining credit union membership has to do with federal regulations, he said. Credit unions across the U.S. are governed by the National Credit Union Administration, which was created by Congress and is tasked with chartering, insuring and supervising these financial institutions.
To fight counterfeiting and related financial crimes, the federal agency requires potential credit union members to show a driver’s license or other form of valid, government-issued picture ID. The credit union must then verify the person’s address and also the method by which the potential member is joining the institution.
Hammond said smaller credit unions are manually verifying this information, which requires manpower they may not have. These credit unions typically do not offer online account opening options, either. Potential members must usually visit a branch to open their account, he said.
“For some people, that isn’t an attractive option,” Hammond said. “They want to open an account online, get their debit card in the mail and conduct their financial business through an institution’s website or mobile app.”
Mergers abound
Declining membership numbers and increasing governmental red tape often leads to smaller credit unions seeking a merger with a larger institution. During Hammond’s 12 years with Sunbelt, the Hattiesburg-based credit union has merged with two smaller credit unions, including one in Pike County and one on the Gulf Coast.
“The two mergers that we’ve done — they came to us,” Hammond said. “It’s hard for smaller credit unions to keep up with larger institutions. They don’t have the resources or the staff members necessary to handle regulations while also servicing the member.”
In a report issued earlier this year, NCUA Inspector General James W. Hagen highlighted several challenges facing the agency and credit unions as a whole. One of those issues is industry consolidation and the long-term viability of small credit unions.
“If current consolidation trends persist, there will be fewer credit unions in operation, and those that remain will be considerably larger and more complex,” Hagen wrote.
In the third quarter of 2022, there were slightly over 700 federally insured credit unions with assets of at least $500 million, 34% more than five years earlier. These credit unions represented only 15% of all federally insured credit unions but accounted for 81% of credit union members and 85% of system-wide assets, according to the report.
Hagen added that large institutions offer more complex products, services and investments, and these increasingly complex credit unions “pose management challenges for the institutions themselves, as well as the NCUA.”
His report further noted that industry consolidation means the risks posed by individual institutions will become more significant to the National Credit Union Share Insurance Fund, or NCUSIF, which insures credit union deposits up to $250,000 and is the industry’s equivalent of the Federal Deposit Insurance Corp., or FDIC.
The Mississippi ‘bubble’
The inspector general’s report also states that credit unions are increasingly facing a lower return on assets, or ROA. ROA is used, along with an institution’s capital ratio and numerous other formulas, to capture a picture of its financial status.
ROA reveals how much income is generated for each dollar of assets deployed. The capital ratio measures what percentage of a credit union’s assets are backed by capital.
NCUA guidelines specify that credit unions are well capitalized, or financially healthy, at 8%.
“Credit unions in Mississippi are actually in a bubble compared to the rest of the U.S.,” Hammond said. “Pretty much every credit union, maybe with the exception of five or 10, have over 10% capital ratio. Sunbelt has 18%. It really depends on which credit union you’re looking at, but most every credit union in Mississippi is well capitalized, and I think that’s important.”
What’s next
Hammond said that, despite the challenges facing them, the state’s credit unions have growth opportunities that can be unlocked by adapting to technology and continuing to provide exceptional service.
“Credit unions must be interested in their communities and invested in serving them,” he said. “As long as we offer products that meet members’ needs, we’ll be around. We believe in helping people, and we do a good job of it.”
Interesting facts
Credit unions descend from Europe’s first financial cooperative, which was founded in Slovakia in 1845. Its members invested their savings in the cooperative, which in turn offered them affordable loans. Members had to commit to a “moral life” and had to plant two trees in a public place each year. The institution had a short life, closing in 1851, but it made a meaningful impact and formed the basis of the cooperative movement.
The first North American credit union opened in Quebec in 1901. The first credit union in the U.S. opened eight years later in Manchester, New Hampshire.
In 1934, President Franklin D. Roosevelt signed the Federal Credit Union Act into law. It established the federal credit union system and created the Bureau of Federal Credit Unions, the predecessor to the NCUA.
Many credit unions were originally developed by companies to offer their employees savings accounts and loans. Sunbelt, for example, was chartered by Masonite International Corporation in Laurel. Upon opening in 1953, its name was Masonite Employees Federal Credit Union.
Hope Federal Credit Union was organized as the state’s only church-sponsored credit union in 1995. It was founded by members of Anderson United Methodist Church in Jackson. Now, the credit union — which strives to serve economically distressed areas in the Magnolia State as well as Alabama, Arkansas, Louisiana and Tennessee — has assets of more than $525 million, according to Investopedia.
Keesler Federal Credit Union, headquartered in Biloxi, is the largest credit union in Mississippi. Founded in 1947 to serve military personnel at the Keesler Air Force Base, the institution also operates in Alabama and Louisiana. According to its most recent financial report, the credit union has nearly $4.2 billion in total assets.
The Mississippi Credit Union Association, located in Jackson, is the trade association for credit unions in Mississippi. The group was founded in 1937 and is governed by a 12-member board of directors.