A Year One Century In The Making

Credit unions owe their outstanding annual performance not just to economic fortune but also their desire for shared benefit.

By any measure, 2014 was an incredible year for credit unions and their members. Over the past 12 months, more than 3 million checking accounts were opened a first in any calendar year and membership finally surpassed the 100 million mark. Existing member relationships also grew stronger as a result of higher product usage and balances, the latter of which reached an all-time peak on the loan side.

Currently tipping the scale at $1.1 trillion in assets, the credit union industry has been the culmination of everything that an owner, executive, or analyst could wish to see. However, these results can hardly be attributed to the effects of a single calendar year.

Rather they are the hard-earned inheritance of a more than 100-year cooperative legacy, one that has always prioritized working with and for member-owners rather than capitalizing at their expense.

2014 Under The Microscope

From a financial perspective, there was certainly much to be thankful for this year, yet keep in mind that the balance sheet only tells one side of this credit union success story.

Of course, the year’s record $354 billion in loan originations which amounts to almost $1 billion lent to members each day is front and center news. In addition, every segment of the industry’s $721 billion loan portfolio posted higher growth rates in 2014 than the year prior.

The scope of such activity is best understood when viewed in terms of the number of loans granted a record 26.5 million. That is a tremendous number of individuals, families, small businesses, and communities that the credit union system has reached over the past 12 months.

54% of members held a credit union checking account, an important indicator of whether or not the cooperative was their primary financial institution.

Increased lending translated to a rise in market share for each of the primary lending products this past year, including a 1.3 percentage point rise in auto lending to a post-recession high of 16.3%. Likewise, credit card balances grew to $46.4 billion at year-end, now accounting for 5.3% of the total U.S. market.

First mortgage lending declined 39% nationally in 2014 according to the Mortgage Bankers Association. However, credit unions posted just a 22% decline, resulting in a 1.5 percentage point increase in market share to 8.4%. As the economy expands and millennials begin entering the homebuying market, this signals great potential in 2015 and beyond.

The annual numbers on the savings side of the business were equally impressive. For example, 54% of members held a credit union checking account, an important indicator of whether or not the cooperative was their primary financial institution.

The overall share portfolio also accelerated in 2014, particularly in the core savings and checking categories, despite strong lending activity.

New highs in the average member relationship balance which exceeded $16,300 in loans and shares per person at year-end also sparked a 3.1% rise in total income, while higher loan balances resulted in a 4.4% year-over-year growth in loan interest income. Operating expense growth was managed at 5.3%, while net income hit a post-recession high of $8.9 billion.

With total capital now topping $129.8 billion at year-end, credit unions continue to be the best-capitalized sector in financial services. Such evidence only reaffirms the lack of reasoning behind NCUA’s risk-based capital proposal, now in its second iteration.

In fact, time has proven that deep pockets are a lackluster substitute for a true connection to your local communities.

By now it is very clear that this contentious rule which has already failed in banking and would limit credit unions’ ability to respond to member needs by focusing activities towards those deemed less risky by Washington simply has no place in the cooperative model.

An Alternative Definition Of Success

A strengthening economy may be one factor in the industry’s growing prowess, but it’s certainly not the only one, as evidenced by the ongoing challenges that still plague many of the nation’s biggest banks.

In fact, time has proven that deep pockets are a lackluster substitute for a true connection to your local communities the type of bond that can only be built through time, effort, and a shared commitment to success.

One example of the long-term merits associated with such allegiance can be found at Greater Nevada Credit Union ($516M, Carson City, NV).

Prior to the recession, this cooperative’s net worth was over 9% and its assets exceeded $558 million. As the Great Recession hit northern Nevada, unemployment spiked to 13.9% and home values plunged by more than 60%. Every segment of the local economy was affected and, by extension, so was the credit union.

By 2010, Greater Nevada’s net worth ratio had fallen to 5.4% and its assets were headed below $450 million. Community banks experiencing similar declines pulled back from this market or closed, yet the credit union chose to double down on its community investment during these trials.

For years, it provided both on- and off-the-balance sheet benefits to Nevada residents, with the latter including things like paid employee volunteer hours, financial literacy courses for both youth and adults, support for a student-run high school branch, and financial contributions to groups such as Habitat for Humanity.

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Just like the first credit unions formed in the trenches of the Great Depression, Greater Nevada’s idea that such support was the most important performance metric of all was what eventually allowed its members, the community, and the organization itself to turn the corner together.

By December 2014, assets at Greater Nevada were back over $515 million due to double-digit annual loan and share growth. Its return on assets topped 1.1% and its net worth ratio of 10.1% was nearly doubled from 2010 levels. While consumer and mortgage lending remain important in the days ahead, the changed competitive landscape is also presenting the credit union with new opportunities in areas such as small business lending.

This success story is a compelling one, yet it is not unique among credit unions.

And with U.S. economic momentum continuing into 2015, it is likely that even more members will turn to their credit union not just for traditional products and services but for the immeasurable benefit of having a true financial partner at their side, regardless of what the next 100 years will bring.

April 6, 2015

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