As the nation deals with the recent downgrade of its credit rating by S&P, the credit union industry is presented with a perfect opportunity to step back and evaluate its standing in America's financial system. Cooperatives have long been models of stability, and tough times offer the chance for credit unions to educate consumers on the inherent difference of the cooperative model. Credit union success relies on member success, and as 2Q11 data illustrates, members are taking seriously their role in cooperative success.
Callahan & Associates’ second quarter FirstLook data for more than 7,100 credit unions, representing 98.5% of industry assets, shows these credit unions increased membership 2.6% year-over-year to 91.1 million members. It's the third consecutive quarter that the membership growth rate has increased.
In addition to membership growth, FirstLook credit unions posted an annual increase in the average member relationship of 74 basis points to $15,018. Although growth in this category has slowed, it is important to note that the downward trending growth number is partially influenced by the positive member growth. As these new members become more integrated with their credit unions and begin to use additional products, the average member relationship should increase.
Click on graph to view larger size. | Source: Callahan & Associates' Peer-to-Peer
Core deposits growth, another positive member relationship trend, also affected the average member relationship. Core deposits, including money market shares, share drafts, and regular shares, grew 10.7% from the year prior to reach $514.3 billion. Since core deposits have a relatively lower average balance, their significant growth limited the average member relationship growth.
Credit unions successfully translated increased membership into asset growth. Total loans outstanding increased 52 basis points during the second quarter to $561.2 billion from $558.3 billion in June 2010. The increase in the amount of loans outstanding was largely due to the rise in first mortgages outstanding, which grew 4.1% year-over-year from $217.6 billion in June 2010 to $226.6 billion. This $9 billion dollar increase in first mortgages outstanding year-over-year reflects the re-fi boom of late 2010 that has continued into 2011.
As the increase in core deposits may have limited the growth of the average member relationship, the loan activity at credit unions has also limited the growth. At the end of the second quarter, 44.6% of first mortgages originated by FirstLook credit unions year-to-date had been sold to the secondary market. Once a mortgage is sold, the balance of the loan is removed from the balance sheet and does not count towards average member relationship. Beyond the average member relationship metric, some credit unions retain servicing rights after the mortgage in order to retain the tie to the member.
Moving forward, credit unions will be challenged with fully integrating these new members and continuing to build the average member relationship.