Time of Transition for CUs

As the structure of the financial services system evolves with the economic recovery, credit unions are poised to become the community lenders of the 21st Century.


As the economy eases out of a recession, credit unions are offering a wider variety of lending products to expand their role in the community while still preserving their uniqueness in the financial services industry.

The nation’s 7,442 credit unions welcomed a 62% increase in net income in the first quarter of 2011 from the year prior, and many have added student loans, unique mortgage products and other borrowing opportunities for their roughly 92 million members. The liquidity growth is giving credit unions “an opportunity to look forward” and gain momentum with lending products, says Jay Johnson, executive vice president of Callahan & Associates, in Callahan's 1Q11 TrendWatch call.

Among the newest lending arenas for credit unions is student lending, which is a now a growing source of portfolio growth. Credit unions, which have traditionally been reluctant to offer students loans, have lent more than $1 billion to more than 220,000 students as of March, according to Callahan's Peer-to-Peer software. The expanding presence at universities has helped coops forge business relationships with schools like Stanford University, Harvard University and the University of Pennsylvania. MIT Federal Credit Union was among the first to form a student lending program.

“Three years ago, these relationships didn’t exist as credit unions were only casually interested in the student lending market,” says Chip Filson, president of Callahan and Associates. “Institutions didn’t often look to the credit unions. Student lending is a whole new way of serving the sponsor community that before hadn’t seen credit unions as an option."

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Credit unions have also had a significant impact on the mortgage market, where there have been several fundamental changes, Johnson says. The CU industry has tripled its mortgage market share in the past three years, offering $8 billion in modifications to first mortgages for 50,000 members in the first quarter. The home equity-type lending has slowed a bit, but more credit unions are refinancing and recapturing some of those equity dollars, the first-quarter data shows. And the largest manufactured housing lender in the U.S. is a credit union – San Antonio Credit Union ($2.9B, San Antonio, TX).

“These are just examples of the different capabilities and the different roles that credit unions have today that have really expanded,” Johnson says.

Total loan balances dropped 0.9%, or $5 billion, from first quarter 2010, though a smaller decline than from 2009 to 2010, as consumer pay-downs exceeded new loan originations. That the decline was weighed by new auto loans, which fell 11.7% in the first quarter compared with the year prior. Aside from home equity loans and new auto loans, all other components of lending increased.

As lending activity has started to pick up, credit unions are on the cusp of being the second-largest depository system in the U.S. Credit unions posted a 24% growth in assets, to $952 billion in the first quarter of 2011 from $770 billion in the fourth quarter of 2007, versus a 32% decline in thrift assets, to $1.26 billion from $1.86 billion during that same time period. Credit Unions have already surpassed OTS-supervised thrift assets, which reported $930 billion in assets in the first quarter of 2011.

“We’re commencing the next century of cooperative credit union performance and I think we’re going to see ourselves having more of a leading role,” Filson says. “We are seeing the opportunity to establish credit unions in new ways that have a very critical role in members’ lives.”

For more information, see Callahan & Associates' 1Q11 TrendWatch, a one-hour information session on latest quarterly report on the credit union industry.




June 20, 2011


  • Digging in under the "headline' numbers presents a very different view, as is almost always the case. Most of the growth is attributed to the largest 170 CUs (eg. the 'mega Credit Unions') - those with over $1 billion in assets (read more: http://bankblog.optirate.com/q1-2011-credit-union-performance-update-are-cus-performing/ ).

    Moreover, we believe that CUs have a lot of work ahead of them given that as an industry they control 50% of the institutions, but only 18% of the branch network, and less than 8% of Assets, Loans and Deposits.

    CUs must work aggressively to attract members - with a laser focus on members who will contribute to growth and profitability - to ensure that the CU sector continues to be viable and relevant.
    Serge Milman | OptiRate