Balance sheets for credit unions across the country are burgeoning with leases receivable. This is in stark contrast to portfolios of the financial crisis years, when credit unions moved away from offering leases.
During that time, leases dropped from $1.1 billion in the fourth quarter of 2006 to $440 million in the fourth quarter of 2011. However, since hitting a low point, leases have steadily increased, hitting $1.9 billion as of fourth quarter 2016. That’s an increase of 431.2% in five years.
Although leases account for just 0.6% of the industry’s total auto portfolio, in the past year they have sustained growth exceeding 30% every quarter and expanded 55.7% in fourth quarter 2016. The combination of high growth and low market sharecreate an opportunity for credit unions to expand into the leasing game.
Despite the fact credit unions have posted rapid growth in leasing during the past five years, this product continues to exhibit strong asset quality.
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The delinquency rate for leases at year-end 2016 was 0.22% compared to 0.72% for the industry’s auto portfolio. Net charge-offs were similarly lower for leases 0.21% compared to 0.61% for the auto portfolio. Those differences could be theresult of potentially higher credit standards and underwriting guidelines for leases versus loans, but the decreased delinquency risk of leases compared to auto loans shows leases have the potential to become an attractive growth avenue for creditunions.
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That growth avenue, however, tends to be taken advantage of primarily by large credit unions. Credit unions with leases have on average $932 million in assets, compared with the national average of $221 million. Of the 68 credit unions that hold leases,51 have more than $100 million in assets and 20 have more than $1 billion in assets.
One reason leasing is more prominent in larger credit unions might lie in organizational structure, specifically in that larger credit unions are more likely to have the structure and resources that allows them to create a successful leasing model.
According to data from Experian, credit unions owned 1.0% of the national leasing market in 2016 and have maintained that share so far in 2017.
Across the country, just 23 states have credit unions with leases on their balance sheets. Similar to the broader credit union market, credit unions in certain states and regions are more successful in gaining lease share than others. Specifically, credit unions in Colorado, Texas, and New York reported the largest market share 5.0%, 3.9%, and 3.4%, respectively, as of Dec. 31, 2016. Available data for first quarter 2017 shows Colorado credit unions have increased their market share of leases to 7.4%, and New York credit unions are hovering near 5.0% for the first three months of the year.
Aside from these three, credit union market share of leases is trending upward in many states, underscoring ample opportunity for growth. New Jersey credit unions, which have captured a minimal share of the lease market within the state, currently have the second-highest dollar amount of leases receivable of any state $273 million.
Texas credit unions have $682 million of the $1.9 billion in leases receivable reported by credit unions nationally, representing more than 33% of the credit union market share. Three Texas credit unions Credit Union of Texas($1.4B, Dallas, TX),Texas Trust ($1.0B, Mansfield, TX), and People’s Trust($546.8M, Houston, TX) rank in the top 10 in the nation for leases receivable. The value of Credit Union of Texas’ lease portfolio alone is greater than other state in the country.