When Uncertainty Abounds, It Pays To Play The Long Game

Credit unions successfully adapted to economic adversity, without losing sight of their cooperative values. Now, these efforts are paying dividends on and off the balance sheet.


Credit unions posted record results in 2013 as members continued to respond to the value provided by the cooperative model. Over the last 12 months, nearly 2.4 million consumers chose to become credit union members, the most ever added in a single year.

Lending activity also surpassed the previous record set last year, with $351 billion in originations as of 4Q13. This was due in part to an 11% annual increase in auto loans, following a surge in new car sales to the highest level since 2007.

Momentum remains strong even as the ecnomic environment changes. 

Momentum remains strong even as the economic environment changes. The bull market continues in stocks with indices reaching new highs on a seemingly regular basis. Interest rates are moving up as the market reacts to the Federal Reserve winding down its bond purchases. The housing recovery continues, with home prices up 11.2% nationally in 2013 according to the S&P/Case-Shiller Index, and consumer spending is on the up and up as employment numbers rise and confidence increases.


These shifting dynamics are clearly evident in credit union performance. With consumers back on their feet, the rate of loan growth has surpassed that of shares for the first time since 2007. In fact, loan growth accelerated in every segment of the portfolio in 4Q13, while share growth slowed as a result of members redirecting some savings back into the stock market.

A rise in interest rates has signaled the end of the mortgage refinance boom, with first mortgage originations falling 23% in the fourth quarter. However, home purchases and home equity lending are expected to pick up in 2014 as the housing market continues its comeback.


The competitive environment is intensifying as the economic picture normalizes. In 2013, banks recorded their fourth consecutive year of higher earnings while also posting their lowest fourth-quarter loan losses since 2006. Competition for auto loans remains strong, and mortgage lenders will be going after a smaller pie in 2014 with refinance volume falling.

The regulatory environment continues to create challenges and uncertainties. It is unclear what impact the launch of the Consumer Financial Protection Bureau's Qualified Mortgage standards will have on mortgage lending in the years ahead. Many lenders, including credit unions, will have limits on how much non-QM volume they can generate due to potential legal risks as well as balance sheet management considerations.

NCUA's risk-based capital rule would shift how credit unions serve their members if implemented as proposed, due to the penalties attributed to activities such as mortgage and business lending as well as CUSO investments. Credit unions are hoping that the addition of Rick Metsger and the expected confirmation of Mark McWatters to the NCUA Board will provide an opportunity to re-set relations with this agency.

Despite a tumultuous change of environment over the last six years, the consistency with which credit unions have continued to meet their memberships' needs has been striking. In fact, it was this surefootedness that provided the foundation for the financial successes realized by the industry throughout 2013.

As the environment returns to normal, the challenge for credit unions will be to ensure that members continue to recognize the positive, lasting impact that the cooperative financial system has on their lives, their communities, and their local economies.

Credit unions are entering 2014 not only with renewed financial strength and enhanced market momentum, but the satisfaction that comes from knowing they did not compromise their values or vision as a result of outside pressures. Meeting the needs of members better than any other financial system has been the main driver of this industry's positive results to date, and it is a path cooperatives expect to walk well into 2014 and beyond.