Credit unions taking up community role.

MICHAEL Gomez is talking about his plans for expansion--small business loans, retirement planning, an array of financial services typically found in banks.

Only Gomez doesn't run a bank. He runs a credit union, one of those places carved into the American tapestry where working folk for years saved for junior's college education and financed a new car, truck or a family vacation.

About a year ago, Fiscal Credit Union in Glendale catering to employees of Los Angeles County, 21st Century Insurance Group and the like, to a community-based credit union open to anyone who lives, works or worships in Fiscal's proscribed area. With that change, Gomez, who is Fiscal's CEO, hopes to add enough members to finance the addition of a variety of products and services credit unions never offered before.

And Fiscal isn't alone. Thanks to changes in regulations that govern credit unions, many are now encroaching on territory once held exclusively by banks. In addition to checking and savings accounts, they may offer home equity lines of credit, mortgage loans, commercial real estate loans, retirement products, credit cards, even online banking--and often at more attractive rates than banks can at that. Those credit unions that set up for-profit arms, can also offer financial planning and insurance services.

"Credit unions make their money through loans. The more members, the more loans you're making, the more loans, the more money, the more money, the more products and services," said Mark Lowe, spokesman for the California Credit Union League, a Rancho Cucamonga-based trade group for the industry."

Credit unions still hold only a 3 percent share of the banking market. But as mergers and acquisitions continue to dilute the local identities of banks, credit unions are increasingly stepping up to fill the community bank role.

"We're observing all the consolidation going on in the banking side," said Gomez. "We see that as an opportunity. I think people want to deal with a local institution, and as we start to differentiate ourselves as a locally owned, locally-based institution, I think people will respond to that."

Credit unions, not-for-profit institutions whose members pay a one-time fee of about $10 or $25 to join, were created early in the last century by labor unions and very large employer groups. Because they are not-for-profit, their income is funneled back to members in the form of higher interest rates on savings accounts and other financial instruments and lower rates for borrowers.

Competitive rates

The rate on average for a credit union savings account is currently about 1.07 percent, versus an average of .66 percent for banks, according to data from the Credit Union National Association. The trade group also reported that credit unions were charging an average of 12.37 percent interest on credit cards, versus 12.52 percent for banks.

But such advantageous rates previously came with a number of disadvantages in the form of limited services, until recently, that is.

"Credit unions have kind of moved into where banks have moved away from," said Richard Cooper, vice president of government and community relations at Chats worth based Telesis Community Credit Union. "From our standpoint, we've recognized a market niche that has come from smaller community banks being merged into the larger mega-nationals."

In 1999, the Credit Union Membership Access Act enabled credit unions to expand their charters to larger communities, including small businesses. And in recent months, the Small Business Administration extended its loan-guarantee programs to credit unions as well.

In the greater San Fernando Valley, Telesis, Matadors Community Credit Union, Premier America Credit Union and Fiscal were among those that took advantage of the opportunity to expand their charters as a result. And as membership increased, they were able to add on products and services ranging from online investing to commercial real estate lending.

Not all credit unions took the community route. Antelope Valley Federal Credit Union, for instance, has remained true to its original charter serving school districts and, later, postal unions, believing that its core market prefers it that way.

"We feel that if we just throw open our doors to everybody, we're really no different than the banks," said Linda Walmsley, president and CEO of the Lancaster-based credit union.

But many others counter that the opportunities posed by regulatory changes are, in the long run, better for all the members.

In the past year alone, assets at Telesis, which began as a credit union for employees of Teledyne, have grown more than 25 percent to $338 million, and this year Telesis plans to open two new offices in Woodland Hills and Camarillo in addition to its six existing locations. A third new office in the Northeast Valley is planned for late 2003 or early 2004. In addition to some 500 employee groups, including Medtronic MiniMed, Telesis now services anyone in the San Fernando and Santa Clarita valleys as well as parts of Ventura County.

Adding services

Much of its growth has come from adding business services. The credit union last year added an SBA department and now holds community seminars to provide information on the SBA process.

"I think where credit unions come in, there's a real market for that local community service, and that's always been our forte," said Cooper.

Matadors Credit Union expanded its reach from its charter serving Cal State University Northridge students, faculty and alumni as well as some other employee groups to the San Fernando, Santa Clarita and Simi valleys about a year-and-a-half ago.

Matadors does not offer small business services, but its products include its own branded Mastercard, home equity lines of credit and online investing through a separate company, Sharebuilder.

The additions helped to boost assets by almost 13 percent to more than $102 million and income more than 31 percent as of the end of the first quarter of 2003.

"With the Cal State University Northridge and other select employee groups, we were limited to that group," said Dale Verderano, president and CEO of Matadors. "But the banks were not. They could come in and market to our potential members, but we couldn't market to their group, so the opportunity to develop our members was going down.

"So when we were allowed to go out in the community, we were allowed to compete more and to show the people that a credit union can offer very, very competitive products and services."