“You’ve seen the headlines about the alarming state of some financial institutions. The entire banking and mortgage industry is under a dark cloud. In their desire to maximize profits, many mortgage lenders made questionable loans that have gotten them, and their customers, into trouble. Now, they are turning to the government to bail them out. That means as a taxpayer, you will have to foot the bill.”

It reads like an advertisement to drum up new business, but these words are actually from the most recent newsletter sent to current members of STCU Credit Union in Springfield.

“We don’t get into that kind of trouble,” President and CEO Gary Fishlock said. “Our lending policies are determined by a board elected from among our members. As a not-for-profit organization, we’re not driven by the profits Wall Street demands.”

Fishlock’s outreach to customers is typical of the efforts that institutions are making to reassure depositors and borrowers amid a national financial crisis that has endangered many banks.

In the case of credit unions, however, these are more than just words. Credit unions, which are owned by members and overseen by a local board of directors, have by their very nature kept themselves free of the exotic loans and risky investments that have plagued many large banks — and when the headlines are all screaming bad news, that’s an important message to drive home.

“We have seen some movement of funds coming in, and none leaving,” said Jennifer Gomes Calheno, CEO of LUSO Federal Credit Union in Ludlow. She noted that, during the banking crisis, “we’ve had some concern from our members, but we’ve addressed those, and we haven’t had any money coming out.”

In fact, credit unions, if anything, are reporting an uptick in business, as skittish depositors and investors look for security at a time of deep national anxiety.

Local Flavor

A credit union is a cooperative financial institution that is owned and controlled by its members. Typically, account holders elect a board of directors that governs such issues as interest rates and investments. Those investments tend to be conservative and safe, said James Kelly, president and CEO of Polish National Credit Union in Chicopee.

“If you look at our investment portfolio, we have $180 million in plain, vanilla, boring federal agency securities,” he said. “But in this market, boring is where you want to be. If you go back to the last recession, Polish National went through it like it was nothing.”

And because credit unions tend to write loans they intend to hold onto, and not sell off, underwriting standards are strict, he added.

“If you look at our past-due loans, they’re minimal, not even a half-percent,” Kelly said. “And the thing about it is, we didn’t tighten our lending standards this year; we’ve always had conservative lending standards, and as a result, we’re not suffering the losses the rest of the country has. We never got into that subprime business, which is huge. As a credit union, we’re allowed to invest in pretty conservative stuff.”

Fishlock told BusinessWest that, because STCU keeps its loans in its portfolio rather than packaging them and selling them across the country or around the world, it’s better able to serve customers when their circumstances change. That also contributes to low delinquency, which at credit unions is about 20% that of traditional banks.

“Credit unions aren’t part of the banking problem. We’re not coming to Congress asking for bailouts,” he said. “Credit unions have been around for more than 100 years, and they’ve never received one dollar of federal bailout money — nor would they ever need to.”

Gomes Calheno tells a similar story.

“We’re still doing what we initially started doing, and that’s taking in deposits and lending out money,” she said. “We’re usually pretty conservative in the investments we make; we don’t invest in funds that aren’t stable, which has been the problem for some of the banks outside of New England.”

Statistics bear that out; according to MBA and DB Global Markets Research, of the recent rash of foreclosures, 55% stem from subprime loans. And 89% of the increase in new foreclosures are based in California, Florida, Nevada, and Arizona, far from the Pioneer Valley, which boasts a more stable — if not robust — housing landscape.

Open for Business

Credit unions have been trying to drive home such points in an effort to woo new business with a promise of security and low risk. Some are getting the message.

“I went to a conference last week, and by the time I came back, our deposits had increased by about $7 million,” Kelly said. “We had budgeted for $359 million in assets for this year, and we’re now at $390 million, with the possibility that we could be at $400 million by the year’s end. I never thought we’d be there at this point in time.

“It’s a flight to safety,” he continued, noting that credit unions are required by law, typically, to maintain capital of at least 7% of assets. “We have a good reputation, and we’re at 14% capital. That’s a pretty safe place to keep your money.”

Fishlock related a similar number, noting that STCU is capitalized at 10%, giving it the ability to make loans of all sizes at a time when many institutions nationally have been handcuffed.

And because depositors are member-owners, he added, operations decisions are made from within, not — as in the case of many banks — from outside the region altogether. “We’re reinvesting in the community, not in subprime loans or high-risk ventures.”

Gomes Calheno agreed that a safe haven is exactly what many are looking for amid the national turmoil.

“People have been doing business with us for many years,” she said, “and they have a sense of security with us, rather than with the banks that are changing names every other day.”

Joseph Bednar can be reached at bednar@businesswest.com