Desolate Economic Landscape Doesn't Engulf Michigan CUs
Deposits grew by 6.3% for credit unions in Michigan, which was double the growth in 2007 and almost as high as the past four years combined. In just the fourth quarter of last year, deposits grew by 2.4%.
Kit Snyder, CEO of the $285 million-Consumers Credit Union in Kalamazoo, Mich., said that he surprisingly saw a number of members still bringing in deposits from the stock market. He also said he saw members bringing in money they had at larger banks and that the credit union had three large deposits from local municipalities that were hearing a lot about credit unions and wanted to diversify their funds.
Overall, league President/CEO David Adams said that membership growth has been flat for Michigan credit unions due to the fact that the state has been losing population over the past two-to-three years.
On the positive side, Adams said that while the state is losing population, credit unions are increasing market share and have 44% penetration rate.
Snyder said that Consumers has managed to produce a 10%-13% net membership growth each year for the past several years due to a three-prong membership growth strategy. The strategy entails building convenient branch locations, opening new accounts through indirect lending and opening accounts through member referrals.
While the rest of the country was struggling in the area of new auto loans last year, Michigan credit unions saw a 10.4% growth in new auto loans in the fourth quarter. This growth is compared to flat or negative growth in new auto loans since the third quarter of 2006.
Adams said that he can attribute 50% of that growth to the Invest in America program that started in December. The program generated 1,359 auto loans or $33.97 million in total loans when the initial pilot program started in Michigan in December.
Snyder said Invest in America is gaining momentum the first quarter and that he expects it to continue to show growth throughout the year. In January, the program generated 2,700 loans totaling $68 million.
Snyder also said at Consumers he's seen that the credit union's indirect lending program has helped generate auto loan growth. The key to growing indirect lending he said is having a good relationship with dealers, having a profitable and automated program and to have dealer reserves.
Michigan credit unions also reported a 30% increase in small business loans during 2008 and 5.1% of that growth came in the fourth quarter.
"Credit unions are demonstrating that because they have managed their members' funds so responsibly, they are now in a great position to boost the economy by making loans available for autos, small business needs and mortgage loans," Adams said.
Loans delinquent over 60 days and loan charge-offs also increased during the fourth quarter to a 1.66% rate for delinquencies and a 1.12% rate for loan charge-offs.
Adams said that Michigan credit unions have seen a 1.3%-1.4% delinquency rate for the past four years and 0.7% rate for loan charge-offs and that the increase Michigan credit unions saw was in line with the delinquency and charge-off increase for credit unions nationwide.
"We've been in a one state recession for the past seven years," Adams said. "We're used to tough economic times and that has caused Michigan credit unions to properly manage loans and risk."
Snyder said that the unemployment rate among his membership is in the double digits and that it's looking like that number will continue to go up.
To manage delinquency Snyder's strategy has been to look at how the credit union is underwriting loans. If necessary, he said to centralize lending, reduce risk and examine the credit union's indirect lending. He also suggests looking at how the credit union is doing collections. He said to focus on loans that are 15 days delinquent, increase staff and review loans that are 60 days delinquent or more. If one collections officer is not successful with an account, he suggests partner reviews so another collector can give suggestions and they can work on the account together.
"Start with how well you're underwriting your loans and how well you're doing collections. Start with those two areas and work down."
In this economy, Adams said that he feels there are far more opportunities than challenges for credit unions.
"This should be a year of growth for credit unions, with an emphasis on auto lending and marketing and promotion. Right now there is a temptation to cut marketing, but there's never been a time like this to promote."