By David Adams
Each quarter brings the opportunity for our credit union industry to reflect on the latest industry data and trends for our state. The third quarter of 2012 was another excellent quarter for credit unions. This is evident for two primary reasons. First, economic conditions continue to improve both nationally and statewide. Second, the evidence continues to suggest that credit unions continue to benefit from consumer movement away from other financial institutions in order to take advantage of the superior financial products and service levels offered by credit unions.
Before I talk about improving economic conditions, let’s look at the evidence that shows consumer movement to credit unions – starting with deposits.
We recently received the FDIC’s annual release of total deposits for all FDIC-insured branches operating in the state of Michigan. This report is useful because it shows the full picture of deposit information capturing only branches operating in Michigan regardless of where the institution is headquartered. Combining this information with NCUA data, we are able to get a picture of market conditions for FDIC and NCUA insured financial institutions. Our analysis found that Michigan credit unions continue to gain deposit market share. That’s obviously a very positive trend.
While the pace of the market share gain in deposits slowed in the past year, Michigan credit unions now have 18.6% market share compared to 16.2% in 2009. This represents a significant shift of business to credit unions in the past few years as total deposits at credit unions during this three-year period are up over $6.1 billion or 19.5%. For the 12-month period ending with the third quarter of 2012, credit unions reported an increase in their deposits of more than $2 billion, or 5.6%.
The movement to credit unions and gain in market share is not just isolated to deposits. MCUL recently acquired data from Experian AutoCount which tracks loan data registered with the Michigan Secretary of State’s office. The data shows that in the third quarter of 2011 credit unions accounted for 10.4% and 35.2% of new and used auto loans, respectively. In the third quarter of 2012 these same figures are up to 15.7% and 37.8%, respectively.
Data released by the NCUA reflects stronger credit union performance in auto loans showing that the third quarter of 2012 was the best growth quarter in three years for credit unions in the new auto loan category improving by 2.4%. Used auto loan growth was also strong at 2.7%.
Credit union gains in market share will continue to be important in order to grow loan portfolios as loan growth as a result of an expanding economy will continue to be challenging. This is especially true as captive finance companies and banks that have preferred lender status with auto companies will continue to grab a bigger share of the new and used auto loan pie. Experian AutoCount data suggests a continuing tightening of the new auto loan market. The data also shows slowing expansion of the used auto loan market. Together, these two data points clearly show the difficulty credit unions face in growing loans by means other than capturing market share.
Apart from trying to build relationships with members who may have business at other financial institutions, credit unions should continue to attract new members to the credit union brand from those completely unfamiliar with them. The past 12 months ending Q3 2012 have produced a net gain in credit union membership of nearly 84,000 members, with nearly 19,000 of these coming in the third quarter. Credit unions are on pace to have the best year of membership growth in at least eight years.
This is phenomenal news given how challenging membership growth has been in Michigan for the past decade. Our cooperative advertising efforts are contributing to this but so are a lot of other things. The Bank Transfer Day movement and associated big bank fees as well as the tremendous amount of positive credit union publicity can only help contribute to this exciting trend. That said, we’re committed to expanding our cooperative advertising efforts and we hope that our credit union community will continue to respond with their funding support as well as the recommended integration with their own marketing.
With the growth in market share in auto loans, deposits, and the solid growth in membership, the data suggests that demand is high for the products and services offered by credit unions. But this is a time for credit unions to expand their own marketing spends and to think creatively about how to capitalize on what will hopefully be a long-term opportunity.
The other main driver of positive credit union performance in the third quarter comes as a result of the improving economic conditions. Good indicators from credit union data for economic conditions comes from delinquency, charge-off, and bankruptcy figures. Delinquent loans as a percentage of total loans are at 1.13%, down from 1.48% one year ago. Net charge-offs are also down from .96% to .78%. The total number of members filing for bankruptcy is also down compared to last year, falling by 16.5%. Clearly, the financial well-being of credit union members is generally improving and so is the asset quality of credit union balance sheets. This suggests that credit unions are positioned now to take on more risk in lending in order to increase loans and at the same time, provide needed service to consumers and small businesses.
Other noteworthy key performance indicators include the following:
These trends suggest that more credit unions are returning to profitability and at higher levels. Strong capital levels and stronger earnings will position credit unions well for spending more on marketing and product development as well as the needed additional risk that will be taken in future lending.
Economic Performance Update
Also directly impacting credit union performance are trends happening within the general population. Nationally, consumers continue to deleverage. This trend is also true in Michigan. While debt per capita is up slightly over the second quarter, debt per capita is down slightly to $36,290 from $36,810 one year ago and down from the high of $42,000 in Q4 2008. It is obviously a good thing that consumers are saving more and borrowing less but these trends will further challenge credit unions as they try to reduce their liquidity positions.
Unfortunately, the employment situation in Michigan took a small step backward in the third quarter with the unemployment rate back up to 9.3%. This is up from the low of 8.3% reported in April. Nationally, this figure is down for the quarter to 7.9%. The most recent employment report from the Bureau of Labor Statistics showed that thirty-seven states and the District of Columbia recorded unemployment rate decreases, seven states posted rate increases, and six states had no change. Forty-two states and the District of Columbia registered unemployment rate decreases from a year earlier, while eight states experienced increases. The largest over-the-month decrease in employment occurred in Michigan with (-16,500), followed by New Jersey (-11,700) and Minnesota (-8,100).
There is also good news on the housing front. Since this latest recession was a housing-led recession, it is good to see that the recovery is being bolstered with some positive housing news. Nationally, the supply of existing homes for sale is down from 5.6 months of inventory in September to 5.4 months in October for the lowest rate in 6½ years. The number of homes on the market, at 2.14 million, is the lowest in 10 years. Price readings show little change for the month but the median home price, at $178,600, is up 11.1 percent year-on-year and the average price, at $226,300, is up 9.9 percent. The Case-Schiller home price index has shown an increase for Detroit in every month in 2012 except for one. The index was at 69.99 at the end of 2011 and the latest reading for Detroit stands at 76.94. So, finally, it appears that home prices are back on the rise, even in Southeast Michigan.
The auto sector, obviously so important for Michigan’s economy, has also reported very strong results. Total light vehicle sales in the U.S. are up 13.9% from this time last year up to 13.1 million in projected annualized sales. Truck and auto sales from domestic manufacturers are also up compared to last year – a good sign for the Detroit Three.
Despite Congress’ poor handling of the fiscal cliff issues, consumer sentiment is strong, up 2.3 points to another recovery best of 84.9 at the mid-month reading for November. This bodes well for credit unions since consumer sentiment is considered a leading economic indicator and the data could mean continued increases in home and auto purchases as well as other goods. The consumer sentiment report began its rise back in August, about when strength in the housing sector started to get attention. The domestic consumer is the ultimate engine of the U.S. economy and the recent report points to a rising contribution from consumer spending.
So, in summary, Michigan’s credit unions are experiencing record-high levels of deposit and transaction account growth, record-high levels of membership growth, improving asset quality on balance sheets and finally improved growth rates in other loan categories besides member business loans. Also, as the state and national economy continues to improve, so also should growth opportunities for credit unions.
While nobody can predict the final steps taken by Congress on the expiring tax cuts and the mandatory budget cuts broadly labeled as fiscal cliff issues, currently at least, the stock market seems to be betting that the ultimate outcome will not be a drag on the U.S. economy. As those are matters completely outside our control, we should draw from the current economic data that credit unions have a lot of upside opportunity in 2013.
On behalf of the MCUL & Affiliates, I wish to thank our credit union community and its leaders for another very successful year in 2012. Our state’s economy and its residents are better off because of your efforts. My staff and I look forward to helping our industry confront the challenges and embrace the opportunities that lie ahead in 2013 and beyond.
View the “Michigan Priority Report” on CUBE TV for a video summary of MCUL & Affiliates CEO David Adams’ December Priority Report introduction.