Third Quarter Results: Realizing A Temporary Growth Opportunity Or A New Normal?

Credit unions fared better than FDIC-insured institutions in the recession, but the financial landscape may be changed for a long time to come.


Credit unions have outperformed the competition during the recession. Now that the recession appears to be coming to an end, what does this mean for the industry? Will credit unions continue to build on the momentum they have gained over the past two years to create a ‘new normal’ or will they fall back to pre-recession dynamics?

A New Normal

In an October 2009 release from PIMCO, CIO Bill Gross claimed that the economy was entering a "New Normal," a meaningful shift in the economic trends that characterized the old normal that pervaded a time period since the early 70's. Gross makes a series of predictions regarding the new trends that will be ushered in by the new normal:

  • Lower GDP growth
  • Re-regulation, particularly of the financial sector
  • Operational and financial deleveraging
  • Lower return on assets

Regardless of whether or not you agree with Gross, the concept of a new normal is at the very least a useful thinking tool when considering credit union performance. In particular, Gross's comments beg the question of whether the credit union industry may be entering a new normal of its own.

The Third Quarter

The third quarter of 2009 may have marked the technical end of the recession with a 2.8% annualized GDP growth rate. A year ago, the third quarter of 2008 turned a negative 2.7% annualized growth rate in GDP, followed by another three quarters of contraction. While there are many lingering pains — unemployment, pending foreclosures, national debt — the market does appear to be on the path to recovery. So how have financial institutions faired through the recession, and where do they stand on the other side?

  Credit Unions FDIC Insured Institutions

12-mo. Asset Growth



12-mo. Loan Growth



12-mo. Deposit Growth*



Net Worth Ratio**



Delinquency Ratio***



Net Charge-Off Rate



Return on Assets****



Source: Callahan & Associates' Peer-to-Peer Software, FDIC's Quarterly Banking Profile
*Only domestic deposit growth included for FDIC-insured institutions
**Referred to as Core capital ratio in the Quarterly Banking Profile
***Credit unions count a loan as delinquent after 60 days, FDIC measures "noncurrent" loans after 90 days
****Annualized YTD ROA for credit unions is post stabilization expense

The Story Of The Recession…

…is not finished quite yet, although it is nearing a close. As the industry enters the next chapter of economic recovery, the responsibility to craft a new narrative will rest on the shoulders of each credit union.

Will there be a new normal for the economy? A continuance of some of the trends developing in the midst of recession, including reduced credit availability from key competitors, may play to credit unions' cooperative advantage, but it would be dangerous of any credit union to take these trends for granted.

Will there be a new normal for credit unions? While only time will tell for certain, credit unions are well positioned entering the recovery ahead of the competition: the industry remains well capitalized, is posting positive returns (even after the stabilization expense), and maintains higher asset quality. However, some of the record market gains posted earlier in the year in areas such as mortgage and auto lending, are slipping. Will credit unions ensure that this is a temporary drop by taking proactive initiatives with the members and communities they serve?

Ultimately, the "normal" will be determined by the relationships credit unions forge with their new and existing members. While this is not new, the new normal may be a more versatile and competitive industry in the post-recession era. The industry that helped the country through the recession will decide if it will continue to lead in the future.




Nov. 30, 2009


  • This describes to a "T" much of what is currently impacting credit unions in New Hampshire. Success will ultimately be measured by expanding relationships with existing members. Very insightful.
    Steven J. Macek