With 99% of the industry reporting second quarter data, credit unions nationwide are demonstrating their strength in lending, managing the cooperative business model, and building member relationships.
Record Mortgage Lending Increases Loan Portfolio
Credit unions accelerated their mortgage lending, building on an already remarkable first quarter. Credit unions set a new record in first quarter 2012 for mortgage lending through the first three months of any year. That trend continued for the first half of 2012. Federally insured credit unions originated $55.7 billion in first mortgages during the first six months of the year, capturing a year-to-date market share of 7.6%. This performance bests the first six months of 2009, in which credit unions originated $55.3 billion in first mortgages and captured a 5.2% market share.
Although first mortgages held on the books increased 7.8%, in the interest of asset-liability management credit unions sold slightly more than half of their originated loans to secondary markets. Fixed-rate first mortgages comprised 14.6% of the asset base for federally insured credit unions, a slight increase from the 14.4% posted in the first quarter.
Business lending, the fastest growing component of the loan portfolio, increased 8.7% over second quarter 2011. All other components, aside from other real estate, also contributed to the portfolio’s year-over-year increase of 3.6%. For example, after a significant period of falling balances in new autos loans, credit unions increased 1.1% in this area from the previous year.
The loan-to-share ratio stands at 67.0%, a 91-basis-point increase from the first quarter. Although this is a normal seasonal uptick in the metric, it is twice the level of the 45-basis-point increase that occurred between the first and second quarters of 2011 and is the largest increase in the ratio since late 2008.
Mortgage Activity Fuels Non-Interest Income, ROA
Credit unions posted an average annualized year-to-date ROA of 86 basis points through the first six months of 2012. That’s up from the 78 basis points posted through the first six months of 2011. Credit unions also posted gains in non-interest income and reduced provision and operating expenses resulting in a two-basis-point increase in ROA over the first quarter of 2012. Non-interest operating income, which includes income from gains on sales of mortgages to the secondary market, posted a nine-basis-point increase over 2011 levels. With the gains credit unions added to reserves, the capital-to-assets ratio stands at 11.0%, up slightly from March’s figure of 10.9%.
Developing Future Member Relationships
Credit unions have enjoyed unprecedented media focus over the past year, and cooperative institutions have used the momentum to develop products that meet members’ needs. Year-over-year, nearly three million members have joined credit unions, representing a growth rate of 3.3%. The last time the industry achieved a similar growth rate was during a period of frenetic bank merger activity in late summer 2009.
But consumers wouldn’t flock to credit unions if for-profit competitors could better serve them. These members aren’t joining for single-product relationships; they are bringing their balances and becoming full-fledged members of the institution. The average member relationship in June 2012 grew 2.6% from the previous June. This ratio normally is flat when there is an influx of new members.
In addition to the 3.6% growth in the loan portfolio, credit unions grew share balances by 7.4%. Both share drafts and regular shares increased at double-digit rates, 16.8% and 12.7% respectively. In 2009 consumers considered credit unions a safe option. Through their actions consumers are proving they now consider credit unions the better option.