June 18, 2012
By Jay Johnson
The growth momentum in credit unions that has continued unabated since the economic downturn pushed industry assets to top $1 trillion in the first quarter of 2012. What began as a flight to safety for many consumers has led to new recognition of credit union value and values.
Households across the country are re-evaluating their relationships with financial institutions. Although the financial stability of an institution remains important, consumers are increasingly looking for more. They want an institution that looks after their savings balances as well as their financial well-being. They are asking more questions about their financial institution: Is it more interested in my financial needs or in promoting its latest product? Is it clear about the “real” rates and fees it charges on accounts? Will it be willing to help me when I need it? Are my savings helping my community or are they going elsewhere?
Consumers have emerged from the downturn with new power. Media outlets ranging from print newspapers and network news to online bloggers have put the spotlight on institution-focused, bottom-line-first policies and practices. The Occupy Movement and Bank Transfer Day are expressions of frustration with what many see as one-sided relationships. Government actions such as the creation of the Consumer Financial Protection Bureau are attempts to correct the imbalances — and in some cases, abuses — in financial institutions’ dealings with consumers.
In this environment, the media increasingly highlights credit unions as alternatives that not only deliver better rates and fees but also put their members first. Credit unions are demonstrating a consistent commitment to their membership that is translating to stronger relationships. New members are recognizing the different approach taken by credit unions and bringing over loan and savings balances. Long-time members have re-engaged and made their credit union their primary financial institution. These dynamics are creating record assets and new highs in lending activity and core account relationships.
Surpassing the trillion dollar mark has already designated 2012 as a landmark year for credit unions. However, asset size is often viewed by credit unions as an outcome of what they are doing for members, not an end goal. That perspective has driven credit unions for more than 100 years and will be the key to their success in 2012 and beyond.
Credit union loan balances reached $579.5 billion as of March 31, rising 2.1% over the past year. However, this modest balance sheet growth of the portfolio does not reflect the record lending activity generated by credit unions. Loan originations in the first quarter were $72.5 billion, a new high for the quarter and one of the 10 largest lending quarters ever for the industry.
Origination activity jumped 24.7% versus the first quarter of 2011 as all major lending categories posted higher volume. Growth in outstanding loans has accelerated over the past year in every loan type except for other real estate loans, which primarily consist of home equity loans.
Refinancing plays a significant factor in the volume. Members are taking advantage of continued low interest rates and improving their cash flow by reducing their monthly loan payment minimums. Credit unions are helping to enact the goals of the Federal Reserve’s low rate policy at the consumer level. According to the Bureau of Economic Analysis, household interest payments nationally have fallen more than $3,000 since 2007, from more than $8,700 to $5,600. Consumers are taking that reduced payment burden and re-allocating dollars to further reduce their debt, increase their savings cushion, or spend on items they have held back on in recent years.
Credit unions across the country have launched initiatives to help members save money through refinancing and are rewarding staff for the amount they have saved members. Educators Credit Union ($1.4B, Racine, WI) had saved its members $20 million by mid-May through its Fast Lane Financing program, bringing the total to more than $50 million since 2008. The credit union tracks its success by the amount members have saved — another expression of credit unions’ member-first philosophy.
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