Posts Tagged ‘Credit Union’

In the financial  world too “Big to Fail ” is often mentioned. Especially now that the BIG are getting BIGGER and garner the lion’s share of the loan market as well.

The big credit unions also make the most loans, which isn’t surprising. However the percentages are surprising.

  • <$5 Million size credit unions don’t even have a 1% market share, with 1867.
  • $5-$20 Million size credit unions have a 2% market share, with 2072.
  • $20-$100 Million size credit unions have a 10% market share, with 2149.
  • $100+ Million size credit unions have a whopping 88% market share, with 1398. This category represents on 18% of the number of credit unions in this country.

The bigger credit unions are the ones making the majority of the loans. Hopefully there will not be any more CORPORATE SHOCKS, that drain more money from the credit unions to shore up the NCUSIF Fund.

Loans made in 2009 were $583 Million, in 2010 loans declined to $575 Million.

Credit Union Asset Group Size by Loans 2010


While the Credit Union mergers are getting bigger, what is happening to:

  • Asset size of the various Credit Union Groups?
  • Loan size of the various Credit Union Groups?
  • Membership of the various Credit Union Groups?

These are statistics as of the 3rd. Qtr. 2010. Large is considered >$100 Million in Assets. While most would consider this large, banks such as J.P. Morgan Chase, Wells Fargo have asset sizes larger than ALL Credit Unions Combined!

The larger credit unions control 86% of all the assets. Asset growth has been 21.6% since the beginning of 2006, and has slowed quite dramatically with these economic conditions. However you would think that with the bashing of the banks these past few years, that it would have been dramatically higher. Why Not?

Lack of leadership, marketing and branding. Social Media has now entered the arena, only to be embraced by most of the larger credit unions. The smaller credit unions have a great opportunity that they are wasting, and getting further and further behind.

The larger credit unions control 87.75% of all loans granted. Loan growth has been 12.31% since the beginning of 2006 and falling dramatically recently.

The larger credit unions control 78.89% of all membership. Membership has only grown 5.03% since 2006 in total.

What will the next 3-5 years look like for Credit Unions?

< $5 Mil $5-$20 $20-$100 > $100 Mil. Total
Total Assets $3,913 $23,423 $99,758 $792,900 $919,994
% of Total Assets 0.43% 2.55% 10.84% 86.19% 100.00%
Total Loans $1,951 $11,895 $56,361 $507,619 $577,826
% of Total Loans 0.34% 2.06% 9.75% 87.85% 100.00%
Total Members 1,117 4,321 13,988 72,593 92,019
% of Total Members 1.21% 4.70% 15.20% 78.89% 100.00%

So far 2010 has been very quiet with respect to Credit Union takeovers by the NCUA. That trend is now changing and expected to accelerate.

Arrowhead Credit Union is the second largest credit union taken over by regulators. With $876 million in assets, Arrowhead had 24 branches in California and 152,000 members. P. Kay Woods a consultant that was recently working with NCUA and Memphis Area Teachers Credit Union was brought in as interim CEO. P. Kay Woods brought in an addition five consultants to help manage Arrowhead Credit Union.

NCUA liquidated Southwest Community Federal Credit Union of Saint George, Utah on June 30, 2010. Immediately following the liquidation of Southwest Community Federal Credit Union, NCUA entered into an agreement with Chartway Federal Credit Union of Virginia Beach, Virginia, to purchase and assume certain assets and liabilities of Southwest Community Federal Credit Union. At the time of liquidation, Southwest Community Federal Credit Union had approximately $139,094,182 in assets and served 19,041 members.

This is the 10th federally insured credit union liquidation in 2010 vs 87 banks which have been liquidated.

Member accounts remain federally insured by the National Credit Union Share Insurance Fund (NCUSIF) up to at least $250,000.

The NCUA has taken a bold step in these times of debt aversion. Proposing loans from $200 to $1000 and upping the maximum a Federal Credit Union could charge from 18% to 28%. All of this is open to a 60 comment period.

The loans could be for a minimum of one month and a maximum of six months. The member couldn’t have more than one such loan from any one credit union at the same time.

Payday lending is big business, and the APR that people pay is egregious. So does this serve a niche in the marketplace? Will this be the shot in the arm that Credit Unions need to increase revenues in a down market? Currently 352 federal credit unions offer alternatives to payday loans with a principal of less than $500. There also would be a $20 application fee for members.

This brings up a few questions.

  1. What would the fee cost?
  2. How would fees be charged?
  3. Could they be charged multiple times?
  4. How would you determine if a member has more than one loan?
  5. At what point would they be considered delinquent?
  6. What is the performance history of the current credit unions that offer this type of loan?

Many payday lenders advertise lower Apr’s, but when you factor in application fee, interest rate, delinquent fees, what will the true percentage be? How will NCUA calculate this percentage? Most people who have taken out payday loans are still paying.

It’s a viscous debt cycle, would credit unions be better served in educating their members, and helping them with budgeting and debt counseling?

There are many payday lenders across the US, the matrix below is a breakdown.

STATE Number of Payday Lenders RANK
Alabama 1,177 4
Alaska 22 33
Arizona 726 11
Arkansas 275 23
California 2,451 1
Colorado 577 15
Connecticut 42
Delaware 82 31
Florida 1,164 14
Georgia 48
Hawaii 26 38
Idaho 196 24
Illinois 727 27
Indiana 117 44
Iowa (corrupt data?) 412 19
(in dispute)
Kansas 100 37
Kentucky 707 12
Louisiana 1,009 7
Maine 6 39
Maryland 47
Massachusetts 45
Michigan 650 26
Minnesota 55 43
Mississippi 1,100 3
Missouri 1,257 5
Montana 104 28
Nebraska 57 34
Nevada 256 25
New Hampshire 77 32
New Jersey 46
New Mexico 760 10
New York 50
North Carolina 49
North Dakota 76 29
Ohio 1,374 8
Oklahoma 397 21
Oregon 453 18
Pennsylvania 400 41
Rhode Island 5 36
South Carolina 902 9
South Dakota 302 20
Tennessee 1,344 2
Texas 1,675 6
Utah 427 17
Vermont 35
Virginia 743 16
Washington 713 13
West Virginia 40
Wisconsin 439 22
Wyoming 77 30
Total 23,417
Average 468

It’s a balancing act…challenges vs. opportunities of which there are many.

Baby Boomers (born between 1946-1964) start turning 65 in 2011. Now the average age of the credit union member is approaching 50. By 2030 the older population is expected to grow to 72 million, nearly 20% of the population. They are past the prime borrowing years of (25-44).

Do credit unions have the right kind of mix for their products and services?

  • Convenience – How convenient is your one branch Credit Union? Or a credit union that does not deal in cash? Can you imagine in the 21st century that there are some that still do not deal in cash? Right here in Memphis.
  • Mobile Banking, most larger Credit Unions offer, but what about the small to mid size credit union?
  • Online Banking is now a standard feature at banks and now credit unions. How secure?
  • Debit cards are emerging at the payment instrument of choice. According to a PULSE survey, 54% of consumers prefer using a debit card at point-of-sale over other types of payments. (Check 13%; Cash 15%). The new regulation E will deal with overdraft fees to take effect July 1st.
  • Investment services – most banks offer this, however only the large credit unions offer leaving the small to medium size credit union to figure it out.
  • The gap between banks and credit unions offering free checking is narrowing. With credit unions at 71% vs. banks at 57%.

Credit Unions need to be good at online banking along with the personal touch. Most members  will want these services for free. Above all maintain member confidence that their information is secure, and that the credit union is in total compliance. Failure in these areas will quickly erode member confidence and be the catalyst for them changing financial institutions.

Compliance…as any financial institution knows, is key in maintaining safety and soundness with respect to its members,customers and ongoing viability. Lack of compliance can and will be the ruin of many.

  • In an age of financial accountability, how sound are those policies and procedures with respect to compliance? The larger credit unions have the advantage over their smaller counterparts, since most have a compliance officer, training, and resources to ensure compliance.
  • What about smaller credit unions? Where do they turn for guidance when they do not have a compliance officer on staff, but one who ceremonially wears that hat? Are these smaller credit unions spending the necessary dollars to send an employee to training? Are they providing the ongoing training that the staff needs to stay in compliance? My research shows that compliance is sorely lacking.
  • With more than 50% of the credit unions in this country classified as small according to NCUA standards, it’s time they focus on compliance and make sure their policies and procedures are up to date, the employees are trained, and the designated compliance officer has gone to the Compliance school to be certified. Any corner cutting in this area in today’s financial storms will be ruinous to their outcome and their members.
  • If you are a member of a small credit union you might want to ask question’s about their compliance. If I’m a board member then I might want to take a more proactive role to ensure the credit union is in total compliance. Lack of due diligence on their part, will be just as devastating.

Credit Union compliance (Risk) is the new four letter word. Is your credit union compliant?

The credit union movement began with a simple idea – that people could achieve a better standard of living for themselves and others by pooling their savings and making loans to neighbors and co-workers.

A credit union is a cooperative financial institution that is owned and controlled by its members, and operated for the purpose of promoting thrift, providing credit at reasonable rates, and providing other financial services to its members.

The history of credit unions began in 1844, with a group of weavers in Rochdale, England, who established the Rochdale Society of Equitable Pioneers. They sold shares to members to raise the capital necessary to buy goods at lower than retail prices, and then sold the goods at a savings to members. In doing so, they became the first credit union.

  • 1849 — Germany — Hermann Schulze-Delitzsch, a lawyer, establishes a credit society to help shopkeepers and urban workers find relief from loan sharks. Friedrich Raiffeisen, considered the German founder of credit cooperatives, also actively works to ensure better financial services for the working class.
  • 1901 – Canada – It was a Canadian who transplanted the credit union to the Western Hemisphere. In 1900, Alphonse Desjardins organized a credit union (caisse populaire) in Levis, Quebec. The reasons were the same as those in Germany 50 years before. People were poor, interest rates were financially crippling, and the credit union offered a way out. That first Canadian credit union was small by modern standards. The first savings deposit was only 10 cents; the first collection from all the members totaled only $26. Even today, in some countries, credit unions start small. But Desjardins persevered and devoted a good part of his life to credit union development in North America. He founded other credit unions, including the first one in the United States.
  • 1908 – United States – By the beginning of the twentieth century, thousands of immigrants pursuing work and a better life found their way to the mills of the largest textile-manufacturing center in the nation – Manchester, New Hampshire. Although gainfully employed, they were denied the privileges of savings and credit. With counsel and guidance from Canada’s credit union movement leader, Alphonse Desjardins, and the commitment of local attorney Joseph Boivin to serve as the first president and house the credit union in his home, Monsignor Hevey and his parishioners established the first credit union in the United States in 1908. Originally called St. Mary’s Cooperative Credit Association its name was revised in 1925 to La Caisse Populaire Ste.-Marie, or “Bank of the People,” St. Mary’s.