Be The Sculptors, Not The Clay

Good decision-making and a focus on the fundamentals has helped cooperatives shape their local economies.

Although the national economy posted a mixed bag of results in the first quarter of 2015, including a repeat of the last year’s contracting GDP early on, credit unions left no uncertainty in their performance during the first three months of this year.

In a quarter typically driven by member savings, record lending activity has culminated in $89 billion in originations as of March 31st. This is up an astounding 20.5% from one year ago.

An annualized uptick in borrowing could be readily seen in nearly every loan category and metric this quarter, including:

  • A loan-to-share ratio of 73.3%, the highest level in six years
    First quarter loan balances grew by 10.5% over the past 12 months, while the share portfolio expanded by 4.4% over the same period.
  • Auto lending at the head of the pack
    New car loan balances increased an incredible 21.4% over the past year while used car balances rose 13.1%. The auto loan portfolio grew by more than $33 billion in the past 12 months, with indirect loan balances increasing nearly 22%.
  • A big bump in first mortgage
    First mortgage originations were up 50% and balances were up 8.8% in the first quarter, but the latter was somewhat muted due to secondary market sales. Sales of first mortgages to the secondary market increased over 78% versus first quarter 2014 as credit unions actively managed interest rate risk
  • More diversification through business lending
    Credit unions originated $4.2 billion in member business loans during the first quarter of 2015, up 3.7% from in the same period in 2014.
  • A steady climb in the credit card portfolio
    Nearly 1.1 million active credit card accounts were added over the past year alone. Balances declined from year-end levels, a typical occurrence as members pay off holiday debt, but these were still 7.6% higher than the same period last year.
  • National results mirrored at the state level
    Annual growth in loans outstanding was at a double-digit pace in 21 states as of March 31st. More than two-thirds of all states also posted growth of at least 10% over the past year.

Market Share, Members, And Products Usage, Oh My!

Credit unions are niche options no longer, at least if national market share numbers are any indication.

In fact, in first quarter 2015, credit unions captured the highest share of the auto financing market since the recession at 16.3% of all loans and leases. As the housing market continues to improve, credit unions have also posted three consecutive quarters with at least a 9% share of all U.S. first mortgage originations. This includes the 9.1% market share achieved in the first three month of 2015 a big jump over last year’s first quarter record of 7.1%. Even credit card market share was at 5.1% as of March 31st, marking the first time cooperatives have ever crossed that 5% benchmark in the first quarter.

These numbers are great wins for the industry but the real victors here are credit union members, a group that has been growing in number (including a 2.9% year-over-year increase in membership as of March 31st) while also actively deepening their relationships.

In fact, the percentage of members with an auto or credit card loan was at 17.7% and 16.6%, respectively, as of first quarter. Those were both higher than their historic counterparts at 16.7% and 16.0% posted one year ago. In addition, the percentage of members with a checking account often an indicator of a consumer’s primary financial institution reached an all-time high of 54.4%, up from 47.1% just five years ago.

As these rates of product usage have increased, so too have average member loan and savings balances. The average member relationship, including all share and non-member business loan balances, was over $17,000 as of March 31st.

By any measure originations and balances, market share, membership growth, or member product usage more consumers are choosing to do business with credit unions.

The Financials Show Determination As Well As Adaptation

Higher loan balances in the first quarter led to higher interest income from loans, which was only slightly offset by lower income from investments. Non-interest income was also higher due primarily to greater member transaction volume in mortgages, credit cards, and debit cards.

Success in credit unions’ core business of growing member relationships resulted in total revenue rising 6.5% versus the first quarter of 2014 an impressive number considering that interest rates have not moved much over the past year.

Operating expenses were well managed over this period, with the operating expense ratio increasing only four basis points over the past year to 3.08%. With revenue rising faster than expenses, net income was slightly higher in March than a year ago while the return on assets stayed flat over the same timeframe.

As the source of credit union capital, higher net income helped push the industry’s total capital past $132 billion. This translated to an 11.4% total capital to assets ratio and a 10.8% net worth ratio as of first quarter strong results that are both post-recession highs.

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Click to see the first quarter industry data that matters most to you.


Adding Fuel To The Fire

For credit unions, the conundrum of where to apply any extra revenue is always an easy decision: reinvest it in a way that matters most to the membership.

For many credit unions, this may include direct rate savings, educational support, philanthropy, or even membership dividends. But it should also include resources to be used in advocating for the cooperative model, so that even more borrowers may benefit more dramatically from this for-profit banking alternative.

Strong financial results continue to demonstrate the lack of need for additional regulatory hurdles that would hinder not enhance member service and value. This ever more obvious fact prompted credit unions, CUSOs, leagues, associations, state regulators, and even members to comment in larger numbers regarding NCUA’s second proposed risk-based capital rule.

Over 2,100 comments were received in total, with most positioned strongly against the rule and many urging that it be dropped entirely.

As of March 31st, NCUA’s own data showed that 91% of credit unions were a CAMEL 1 or 2 and only 12 had fallen below the 10% well capitalized level. An industry which has consistently demonstrated leadership not only in capital but also in meeting consumer needs certainly does not need a model determined by bureaucrats in Washington telling it how to manage its business.

If the first quarter is any indication, regulators and members alike can expect record value to be driven by credit unions into their respective communities this year, regardless of what the economic future may hold.

July 1, 2015

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