First Alliance Credit Union ($284.4M, Rochester, MN) is betting big that an altruistic community and an above-average concentration of nonprofits in its market can help fuel its push to expand financial access for members of modest means.
This summer, the credit union launched its Impact CD, a deposit product aimed at those who want to use their deposits in a way that also benefits the community.
“One thing about the region is we have more nonprofits per capita than a lot of other spaces,” says Brent Rempe, president and CEO of First Alliance. “We also have a little higher-than-average income levels in our community. So being in a highly altruistic community that’s supportive of nonprofits, it feels like there’s an appetite in our community.”
The Rochester, MN market has grown substantially in recent years thanks in part to growth at the Mayo Clinic, but like many suburbs, housing hasn’t kept up with demand. Olmsted County, which includes Rochester, needs an additional 18,000 affordable housing units in the next decade to keep up with projected demand, according to a 2020 study. Another report found Minnesota as a whole needs 100,000 new housing units.
First Alliance plans to use funds from the CD to fuel its mortgage lending, including loans for lower-income consumers, as well as support vehicle purchases, small business expansion, financial access for individuals with ITINs, assistance for those seeking a fresh start, and more. But this isn’t charity — it’s a deliberate strategy to channel deposits into meaningful, measurable change.
“It’s not about donations,” Rempe says. “It’s about funding a lending program for impact.”
The CD offers slightly below what the credit union would pay for its typical CD, but account holders can add on to the certificate balance without resetting the maturation clock. They can also elect to donate the interest earned to the credit union’s foundation.
Not A CDFI, But…
The Impact CD is like a traditional CD, but balances start at $100,000. Five-, seven- and 10-year terms are available at 2.0%, 2.5% and 3.0% APY, respectively, although those rates are subject to change. Importantly for these high-dollar deposits, the credit union has secured excess share protection from ASI/ESI to protect up to $5 million in deposits rather than the $250,000 federal limit available through the National Credit Union Administration.
First Alliance is not certified as a Community Development Financial Institution, although it is exploring the option. One aspect that could make that more challenging, notes Rempe, is the fact that average salaries in its market are fairly high. All the area’s growth, however, means many who need affordable housing are struggling to access it.
With interest rates beginning to come down and further cuts from the Fed expected, credit unions can expect the cost of funds to decline in the years to come. Regardless, says Rempe, the Impact CD strategy provides a cheaper source of funding than brokered CDs or credit from the Federal Home Loan Bank for the same term. Additionally, First Alliance is working to align its lending and deposit products, matching its five-year Impact CD with its five-year ARM, for example.
Long-Term Outcomes
First Alliance is banking on its community relationships and a reputation for doing the right thing to draw interest in the Impact CD.
“I’ve always said I see us not as a financial institution but as a community development institution that happens to offer financial services,” Rempe says. “We’ve developed relationships with nonprofits that are starting to trust us, and we’re hoping there’s some trust transfer there from a user-standpoint. Some of it is just being known for purpose-driven banking.”
First Alliance has used member testimonials in its advertising for years and the Impact CD is part of a larger strategy around how the credit union showcases and lives its mission, vision, and values. Some member stories are already showing up online, with text and video components that emphasize how First Alliance is living its mission.
Rempe didn’t share specific goals surrounding the new CD — credit union leaders are still determining how they’ll track the product — but that doesn’t mean the vision is vague.
“For me it’s about attracting liquidity and who it impacts,” the CEO says. “It’s focused not necessarily on dollars but on how many families become homeowners. How many immigrants we help.”