Oklahoma: Landlocked Sooners Insulated from Coastal Volatility
But thankfully for credit unions in the Sooner State, the highs and lows of the real estate market felt elsewhere isn’t part of that mix.
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That’s because the state is insulated from the economic volatility experienced on the coasts, said Gary Jones, president/CEO of the Credit Union Association of Oklahoma.
According to the Bureau of Labor Statistics, Oklahoma reported only a 4.7% unemployment rate for June 2012. And, online real estate database Zillow included Oklahoma City and Tulsa in a list of metropolitan areas that have experienced the smallest residential home value decline since market peak; both cities saw home prices drop less than 4%.
“We’re very fortunate here in Oklahoma,” Jones said. “We’re experiencing the same trends, but not quite as volatile as in other parts of the country.”
According to NCUA key economic measures, Oklahoma is as middle-of-the-road financially as it is geographically: during the 1st quarter, credit unions reported 74 basis points of ROAA, 73% of credit unions in the state with positive ROAA, and 1.1% delinquencies to total loans – all fairly average numbers compared with the rest of the country.
The $2.8 billion Tinker Federal Credit Union’s financials are consistent with state averages, which is no surprise considering Oklahoma’s largest credit union represents about one-quarter of the state’s total credit union assets.
ROAA has fallen from recent years at the Oklahoma City-based credit union, thanks to the impact of the economy, corporate assessment, an ever-tightening spread due to low loan rates, and reduced investment earnings, said President/CEO Michael Kloiber. ROAA was 74 basis points as of June 30, down from 108 basis points as of 2011 year-end.
A lower-than-average net operating expense compared to peers and a strong collections team has kept Tinker in the black without having to resort to increasing fee income.
“Improving our ROA by increasing fees and charges is an adjustment of last resort since it would significantly and negatively affect our membership,” Kloiber said.
Kloiber added Tinker’s June 30 0.95% delinquency ratio is the lowest the credit union has seen in three years.
South of Tulsa in Henryetta, Okla., the $44 million First Family FCU is quietly bucking the trend of struggling small credit unions. In fact, President/CEO David Dykes said his credit union’s 127 basis points of ROAA as of June 30 is down from more than 200 basis points during the same period last year.
He said the credit union is facing some challenges this year, but last year’s 200-plus ROAA was the result of an “unbelievable” year in which “charge-offs were low and everything that could go right, did.”
Charge offs and delinquent loans have each run around 1% so far this year, a reflection of First Family’s low-income status and the challenges that come with serving low-income communities. In Oklahoma, Dykes said that includes the lure of casino gambling; the World Casino Directory ranks Oklahoma the #5 state in the country for the number of casinos, with 86.
Expansion has also cut into First Family’s ROAA, as the credit union prepares to open its third branch. Branch employees have been training in the main office for the past few months without having the financial offset of branch income.
Oklahoma did stand out in one enviable category, loan growth, with an 8.2% 12-month figure that is among the best in the country.
Tinker is experiencing positive loan growth, but growth in 2012 has been slow compared to past years, Kloiber. The credit union reported 3.68% growth as of the second quarter, but that figure is down from 5.51% during the same period last year, and year-end growth of around 20% in 2010 and 2009.
Indirect auto loans are still providing growth for Tinker, Kloiber said, as are quarterly pre-approved mailings to members.
“We have continued to see success with that program throughout the recession,” he said.
Loan demand has been “excellent” at First Family, Dykes said. First Family reported nearly 10% loan growth as of June 30, which Dykes said is fueled by consumer lending.
“Our niche is consumer loans – cars, boats, travel trailers, lawn mowers, everything you get in the consumer field and I think that helps us,” he said. In fact, Dykes added that despite a low rate environment in the consumer market, First Family hasn’t had to discount rates as others have to keep up loan demand.
Despite the LICU designation, First Family doesn’t make business loans, nor does the credit union keep residential mortgages on its books. Still, loan to shares is very high – 87.82% as of June 30, which is down from a peak of 97% in Sept. 2010.
As a result of the large loan portfolio, investment earnings are low because Dykes has to keep his remaining assets in relatively liquid, short term investments like certificates with terms of less than six months. However, the credit union’s nearly 8% loan yield as of June 30 more than makes up for its 1.10% investment yield, which while low, is only 28 basis points below peer averages.
Despite the relatively strong economy and good numbers, Oklahoma credit unions have not escaped the increasing regulatory burden, Jones said.
“They’re having to deploy resources to compliance that they would otherwise use for growing their business,” he said. “Some have hired for compliance, others have outsourced and for everyone, it requires more time from senior management to deal with those issues. It takes your eye off the ball.”