Credit Unions Lengthen Investments, Increase Borrowings

The massive share growth credit unions have experienced has been well documented over the last year. With loans growing at a much less hectic pace, it's no wonder that the industry loan to share ratio has dipped eight percentage points from the peak 18 months ago. Ironically, even with this influx of shares credit unions have increased total borrowings 52% over the last twelve months. Why would credit unions, which seemingly have more money than they can lend out, need to borrow more funds?

 
 

The massive share growth credit unions have experienced has been well documented over the last year. With loans growing at a much less hectic pace, it's no wonder that the industry loan to share ratio has dipped eight percentage points from the peak 18 months ago. Ironically, even with this influx of shares credit unions have increased total borrowings 52% over the last twelve months. Why would credit unions, which seemingly have more money than they can lend out, need to borrow more funds?

Even though share growth has been in double-digits, the majority of these credit union shares, 90.7%, are in short-term savings. This structure restricts credit unions' ability to loan out or invest funds and earn a sufficient spread.


Looking to increase revenue, credit unions have adjusted their investment strategy to longer-term maturities (see graph below). Credit unions have increased their investments 1-3 years in duration by over $13 billion to gain higher returns.

Adding to this need for longer-term funds is the fact that real estate loans, typically longer in duration than consumer loans, made up 56.8% of all loan growth over the last twelve months. Lowered rates on borrowings give credit unions access to lower cost money to hedge the longer-term assets being put on the books.

The twenty-five credit unions with the largest amount of notes payable are listed in the table below. Their combined loan-to-share ratio and percent of investments greater than one year are 13 and 10 percentage points higher than the entire industry respectively. The amount in promissory notes these twenty-five credit unions hold is 59% of the entire industry.

Rank
St
Name of
Credit Union
Promissory Notes
Loans to Shares
% of Invesments Over 1 Year
ROA
Assets
1
NY
ESL $493,888,103 100.34% 33.72% 1.48% $2,215,347,207
2
TX
San Antonio $229,000,514 125.19% 31.07% 1.80% $1,490,705,540
3
CA
Wescom $202,554,233 84.87% 49.76% 0.82% $2,101,197,137
4
MA
Brockton $179,070,669 111.97% 56.10% 0.78% $930,091,705
5
TX
Randolph-Brooks $174,172,831 73.78% 79.36% 1.57% $1,808,400,493
6
TX
Omniamerican $153,688,600 101.65% 80.68% 1.00% $878,756,124
7
RI
Pawtucket $134,949,459 81.79% 80.19% 1.17% $673,141,479
8
CA
North Island Financial $127,633,234 100.80% 34.50% 0.59% $1,140,197,404
9
FL
Vystar $110,545,466 58.51% 58.69% 0.83% $2,374,678,018
10
TN
Eastman $106,000,000 95.16% 61.03% 1.69% $1,108,295,392
11
OR
First Technology $95,468,476 74.92% 29.17% 1.68% $976,090,656
12
IN
Forum $79,587,783 99.51% 34.47% 1.23% $586,933,100
13
MA
Greylock $74,625,042 81.21% 87.33% 1.03% $621,540,534
14
CA
Meriwest $67,886,000 85.46% 40.96% 0.85% $802,860,048
15
IN
Teachers $66,078,543 92.74% 49.74% 1.09% $1,086,627,769
16
NM
New Mexico Educators $64,080,821 82.26% 22.30% 1.47% $574,324,042
17
FL
Suncoast Schools $60,565,764 78.23% 49.01% 1.48% $3,299,753,908
18
CA
Evangelical Christian $59,302,033 119.20% 21.52% 2.46% $378,420,626
19
TN
Memphis Area Teachers' $56,000,000 44.93% 70.97% 0.91% $461,878,269
20
CA
Xerox $55,605,332 85.62% 85.07% 1.49% $617,442,613
21
OK
Tulsa Teachers $55,000,000 77.04% 73.62% 1.77% $559,295,023
22
FL
Eastern Financial Florida $50,362,510 74.89% 72.47% 0.75% $1,272,392,297
23
MI
Dearborn $50,125,930 57.48% 49.28% 1.31% $1,530,476,259
24
AZ
Arizona $50,000,000 83.65% 62.04% 1.83% $1,028,475,608
25
CT
American Eagle $50,000,000 74.43% 42.36% 1.01% $766,270,800
Averages for 25 credit unions: $113,847,654 83.64% 55.96% 1.26% $1,171,343,682
Totals for 25 credit unions: $2,846,191,343 83.64% 55.96% 1.26% $29,283,592,051

 

 

 

 

Sept. 23, 2002


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