News coverage of the United States macro economy is growing increasingly positive. It seems we have climbed out of the crater the 2007 to 2009 fiscal crisis created and are now embarking on a new growth phase. To wit:
- The United States economy added more than 1.2 million jobs in the first half of 2013. Those jobs helped lower national unemployment to 7.6%. Each month this year, the U.S. Department of Labor has revised the figures upward from initial reports.
- Consumer confidence is at a five-year high and has risen for three consecutive months.
- Despite higher Social Security taxes and a sequestration that forced furloughs and dampened government spending, consumer spending rose in four of the first five months of the year.
- The Dow-Jones Industrial Average crossed 15,000 for the first time in May 2013. As of July 12, it is up 18% since January.
- Car and truck sales are posting their strongest results in six years. Analysts are saying 2013 new vehicle sales will top 15 million, the highest since before the credit crisis.
- Twelve-month growth for the S&P/Case-Shiller 20-City Composite Home Price Index was 12.1 % as of April, with all 20 cities posting year-over-year increases for at least four consecutive months. This is the largest rise since 2006. Three of the states hit hardest by the real estate downturn Nevada, California, and Arizona are now posting some of the biggest gains.
Credit union reports have also been encouraging.
- Credit unions originated $83 billion in loans during the first three months of the year, up more than 12% from 2012’s record pace. All lending categories posted their best first quarter ever.
- Loans outstanding are growing at the fastest pace since 2009.
- At nearly $15,600, the average member relationship which is composed of both loan and savings balances has reached its highest level ever.
- Credit union member-ownership increased by 2.3 million Americans over the past year.
- Members have opened more than 2.3 million new checking accounts over the past 12 months.
A Foundation For Growth
These results indicate credit unions have momentum amid an economy that is returning to normal. Now is not the time to sit back and ride up the growth curve; now is the time to make investments that will improve the value credit unions deliver to members and strengthen the market impact of credit unions.
This is a critical time for the industry. Credit unions have momentum, but their competition is healthier, too. Banks reported their highest ever quarterly earnings in the first quarter. Competitors are pressing aggressively in markets like auto lending, especially among the most desirable consumers.
Credit unions have diligently served members for more than 100 years. The resurgence in popularity of cooperative financial services during the downturn has put them in a market position that is stronger than ever before. Now is the time to turn being a key financial services provider during times of crisis to being a key financial services provider all the time.
The uncertainty of the economy has forced many credit unions to focus on near-term initiatives over the past few years. They’ve held off on technological investments or have refrained from devoting significant resources to potential opportunities. With the economy stabilizing and credit union performance reaching new highs, it is time to reinvest in the business.
In this year’s planning season, credit union leaders should challenge themselves to think beyond 2014. Management teams and board members need to think about where they want the organization to be in 2016, 2019, or 2024. Without regard to the constraints they face from available resources, management and the board needs to think about what they want the credit union to be. Then, they need to answer some major questions, such as:
- What will our credit union be known for?
- What capabilities will we have?
- What impact will we have on the communities we serve?
- What will our vision mean for the members and their interaction with the credit union?
- What will our vision mean for the credit union’s employees?
- What key investments should we make to realize our vision?
The responses to these questions can open up the credit union to new possibilities and ensure it is looking for and pursuing opportunities.
Opportunities For Credit Unions
Credit unions have a positive, growing reputation. This is a period of golden opportunities, and here are just a few to consider:
Mortgage Lending: The structure of the mortgage lending market changed significantly during the downturn. The two largest mortgage lenders prior to the downturn Countrywide and Washington Mutual were absorbed into Bank of America and JPMorgan Chase, respectively. Additionally, new licensing requirements forced many mortgage brokers to exit the market. As a result, realtors are now looking for dependable, trustworthy lenders.
Credit unions have already expanded their presence in the mortgage market and have more than tripled their national share of the mortgage market since the downturn. So how can they further change mortgage lending? By expanding the value they provide to members.
Many credit unions offer home buying seminars geared toward first-time homebuyers or members who want to be more knowledgeable consumers. Wright-Patt Credit Union ($2.6B, Fairborn, OH) now offers a seminar called Home Staging that it customizes to sellers. Pentagon Federal Credit Union ($16.0B, Alexandria, VA) and TDECU ($2.0B, Lake Jackson, TX) have acquired real estate brokerages to help members buy and sell their homes. Other credit unions are redoubling their efforts to work with area realtors by becoming active in the local board of realtors. And it is becoming more common for a credit union to set up a title company to support the closing process.
Actions such as these enhance the visibility of credit unions in the market. Such strategies also help credit unions expand their internal mortgage lending capabilities. With this kind of proactive approach, it is not out of reach to one day develop a mortgage banking operation that originates, sells, and services loans.
Small Business Lending: Credit unions have an even greater opportunity in small business lending than they do in mortgage lending. NCUA has granted a waiver from the MBL cap to many credit unions through the low income charter designation. But more important and applicable to all credit unions are the opportunities afforded by the retreat from local community banks that traditionally served local small businesses. Bank mergers have resulted in closed branches. The remaining institutions are driven to be more efficient, which has led them to expand their market regions and lose contact with local businesses. And increased regulatory burdens coupled with earningspressures have resulted in larger institutions raising their minimum loan amounts to generate a sufficient return. All of these developments play to credit unions advantage.
Community Partnerships: Credit unions are increasingly viewed as the leading local financial institutions that are committed to and entrenched in the communities they serve. They are active in their chambers of commerce and other business and economic development groups. This is opening doors to new partnership possibilities with high schools, community colleges, universities, and municipalities. It is also leading to new relationships with leading private companies and non-profits. This has implications for not only for credit unions reputation and visibility but also business opportunities.
Opportunities are there. Credit unions need to think boldly while at the same time ensuring the core values that have provided the foundation of their success do not waiver.
Credit unions have a proven strength in, and should stay focused on, putting members in the right loan based on their circumstances. A credit union might take a different route than other lending institutions in order to say yes to a member, but members are better off with the cooperative option. It is up to the credit union to show them why. It is up to credit unions to demonstrate how they help, not hurt, a member’s financial well-being.
The mission of Wright-Patt Credit Union includes helping members to borrow smarter and learn a lot. The credit union does this in part with its lending seminar series, which educates members on how to use credit to the benefit of their entire financial picture. Helping consumers learn as well as borrow is one way credit unions can differentiate themselves from those lenders who are more concerned about volume and the value of assets loaned out rather than the welfare of the borrower.
Keeping the welfare of the member always in the forefront is how credit unions will continue to build, and enhance, their reputation. And in building a positive reputation, credit unions can make the best use of the opportunities available in this new era of possibilities.