Credit unions are posting outstanding results in 2012. Membership has increased for six consecutive quarters. Core deposits are rising and now account for two-thirds of total share balances. Lending activity is at a record pace through midyear. Asset quality is returning to levels closer to historical norms as the economy gets back on track. Earnings are the highest in seven years.
This performance is the result of credit union success in building member relationships. Consumers are responding to the cooperative values of credit unions, their focus on service, and their ties to and knowledge of their community — whether defined by geography or sponsor group. Cooperative values often translate to value for consumers through better rates and fees. But for many credit unions, their cooperative values go beyond price.
The United Nations has declared 2012 the International Year of Cooperatives, and the cooperative principles are resonating with consumers today perhaps more than ever. Even consumers that are not explicitly aware of the principles notice that the notions of equitable contributions by participating members, emphasis on education, and concern for community are a part of credit unions’ DNA but are often absent in competitors. In an environment in which consumers are looking for a better way, credit unions are standing apart.
As the credit union reach extends to more than 94 million Americans, the core values embodied in the cooperative principles must continue to play an important role in the industry’s future. Credit unions, whose asset base now tops $1 trillion, are increasingly in the media, community, and political spotlight. It is not the size that validates the industry’s success, however, it’s the measurable impact they are making in each member’s life. That impact is what keeps members coming back to their credit union … and bringing others with them.
Outstanding loan balances at credit unions topped $589 billion as of June 30, growing 3.1% over the past year. After declines in balances during 2010 and 2011, balance sheet loan growth is picking up momentum in 2012.
The growth momentum is not concentrated in a single product; it is across the loan portfolio. First mortgage, auto, credit card, and member business loan balances all increased at a faster rate over the past 12 months than at midyear 2011. Other real estate loans was the only category that posted a decline, which could be the result of members refinancing and consolidating home equity lines into their first mortgage loan.
The biggest turnaround in lending results is in new auto loans. In June 2011, new auto loan balances continued their 18-consecutive-quarter decline, dropping more than 12% from the previous June. That trend ended in the second quarter of this year. At midyear 2012, new auto loan balances increased nearly 1%. Although the gain is modest, it is significant given the importance of auto lending for credit unions.
Auto lending remains a core product for much of the industry, and used car loan balances were up 7.1% over the past year. Many credit unions are growing balances by refinancing competitor’s loans at lower rates. This helps reduce monthly payments and often saves members significant amounts of interest payments. Given the low interest rate environment, some credit unions are differentiating their loan products by more than basis points. Neighborhood Credit Union ($313.6M, Dallas, TX) offers an auto loan that combines a competitive rate with complimentary vehicle protection for the first three to six months. Approximately half of its members with this loan extend the protection program beyond the complimentary period, generating additional revenue for the credit union. Through this bundled value package, Neighborhood pushes members to think beyond the interest rate.
Credit cards are another area where growth picked up. The credit card portfolio’s annual growth rate, 4.7%, more than doubled over the past year. Credit card balances have risen at credit unions as other lenders have pulled back. Credit unions have posted annual increases in card balances for at least 10 consecutive years and held more than $37 billion in balances as of June.
More credit unions are looking to their credit card rewards programs to reinforce community or sponsor group ties. Michigan First ($623.3M, Lathrup Village, MI) launched a card that gives 1.5 points for every purchase made in Michigan and one point for purchases made elsewhere. The cards depict scenes from across the state and members have the option of donating points to Michigan charities. Credit unions in Colorado and Oregon also offer local rewards programs as another way to creatively differentiate beyond interest rates.
In addition to auto and credit card, member business and student lending also increased. Member business loan balances were up 8.3% since June 2011, making this the fastest growing loan category. Student lending posted strong growth, rising 53% over the past year. This is a new product line for many credit unions that programs such as Credit Union Student Choice have made more accessible. Although it represents a small portion of the total portfolio, student loan balances reached $1.7 billion at midyear.
Subscribers, click here to read the full 2Q 2012 Industry Performance analysis and reports.