Five years after the collapse of Lehman Brothers and the ensuing economic meltdown, banks are still battling negative PR and the perception that all banks operate like the behemoths that contributed to the financial crisis. But credit unions are singing a very different tune.
They have every reason to, after all. Credit unions were the unintentional recipient of some positive backsplash from bad press the banking industry received after the meltdown of 2008, and now that goodwill is paying dividends.
According to the National Credit Union Administration, during this year’s second quarter, the net worth ratio of credit unions across America increased to 10.5 percent, its highest level since 2008. Loans, too, were up about 2.3 percent in the second quarter and 5.5 percent for the past year. Nationwide, membership topped 95 million, with 2 million of those members having joined up in the past year.
Loan growth at Massachusetts credit unions exceeded the nationwide average, rising 6.7 percent over the past year and 2.5 percent from the previous quarter. And Massachusetts credit unions also added almost 65,000 new members over the past year, with about 25,000 of those joining in the second quarter alone.
So what’s driving loan growth at credit unions? Certainly, many of the usual suspects come into play here: increased, if cautious, optimism about the economy and rising interest rates spurring would-be homebuyers into action are two culprits.
“People are buying up, or they’re buying their first home. Household formation is on the increase. People who were renting maybe now have money saved,” said Tom Gray, senior vice president of lending at Workers Credit Union in Fitchburg. “Three years ago, it might not have been a sound thing to do, but there’s pent-up demand. We’re seeing a lot of people who were unable to sell their home and move to a bigger or smaller home, now they can sell.”
Real Estate Lending Up
President Robert Cashman said that real estate has accounted for a good portion of Metro Credit Union’s growth in the past year, with total real estate lending up 19 percent year-to-date through mid-September.
For the Chelsea-headquartered Metro Credit Union, which recently hit the $1 billion mark in assets, commercial real estate has been an especially strong source of growth.
Car loans are another. Consumers who have put off buying a new (or used, as the case may be) car for the past few years are gaining back the confidence to borrow for that kind of expenditure.
“The vast majority of consumer loan growth we’ve seen this year is new and used car loans,” said David L’Ecuyer, president of Central One Federal Credit Union. He added that Central One mainly lends directly to its members, but other credit unions, like Metro, have reported similar success with their indirect lending programs.
Gray also said that car loans make up a healthy portion of consumer loans at Workers’ Credit Union.
But if your vehicle of choice is a little more environmentally friendly, you might head over to UMass Five College Federal Credit Union in Hadley, which has rolled out a bike loan for college students.
It’s one of several niche loan products that have helped sustain and grow membership at UMass Five in recent years, Jon Reske, vice president of marketing, said to Banker & Tradesman. Another niche product is the credit union’s farm share loan, a zero-percent loan for members of modest means who can’t pony up $500 in January, when CSA farms typically want payment.
Reske concedes that it probably costs UMass Five more money to underwrite those loans than it will ever actually make from them, but that’s beside the point.
“We have had four years of very strong membership growth,” he said, adding that UMass Five’s membership skews younger.
According to Reske, the average age of a new member is 30 years old and about 45 percent of UMass Five’s new membership last year fell between the ages of 18 and 30. Reske splits that group into two segments – 18 to 23 and 24 to 30 – and growth in both age groups tells him the credit union is attracting more than just college students who will move out of the area once they graduate.
More generally, credit union execs attribute increased membership to increased awareness after the financial disaster of 2008.
“When the recession hit, we got a lot of good press. People were saying, ‘Banks are going to get you with checking account fees, go to credit unions.’ People have given us a second look and a third look,” Gray said.
L’Ecuyer said, “I think if any institution is doing well, it’s because they’ve done things consistently well over a period of time. This business requires a certain level of constituency, whether that’s pricing or service.”
Email: lalix@thewarrengroup.com
