ROA in Washington State Proves to Be Evergreen
Washington credit unions took a hit to capital during the corporate credit union and financial crisis like everyone else, but it hit them harder because they had lower aggregate capital to begin with. Thankfully, the aptly named Evergreen State credit unions also have return on assets that has remained higher than the national average to help rebuild net worth.
“ROA for Washington credit unions was–and always has been–higher than the national average,” said David Bennett, director of public relations for the Northwest Credit Union Association. “However, because of the extremely high priority Washington credit unions place on the return to members, especially in the form of lower rates, higher returns and better service, net worth is lower than average.”
According to NCUA financial performance reports, Washington’s credit unions closed 2007 with an aggregate 10.65% net worth and 0.83% ROA, compared to 11.40% aggregate net worth and 0.63% ROA nationally. By December 2009, net worth among Washington credit unions dropped to 9.16%, and ROA had turned negative, with a state-wide figure of negative 0.19%. Compare that to national numbers, where credit unions also bottomed out on net worth with 9.89% but had already recovered ROA to a positive 0.18%.
As of March 2012, however, Washington credit unions are back on trend, reporting lower net worth than credit unions nationally–9.40% in Washington compared to 10.01% nationwide–but also higher ROA with 100 basis points in Washington State compared to 85 basis points nationally.
The members of the $475 million Solarity Credit Union of Yakima, Wash., are still experiencing the after-effects of recession, such as job losses and homes that are under water. However, the credit union’s ROA mirrors the state’s aggregate of 100 basis points, and President/CEO Mina Worthington said she’s pleased with the current state of her credit union. Solarity was rebranded earlier this year after the merger of the $285 million Yakima Valley Credit Union and the $185 million Catholic Credit Union in fall 2011.
“Our ROA is good because we control expenses and look to increase sources of noninterest income,” she said. “We are an agricultural community, so employment here is always a bit volatile. This year, our farmers have done very well. We have not lost any major industries, and our credit union is tied to the community as a whole and not to a select employer group. All in all, I’d say things are better than they were a few years ago.”
Solarity’s fee income has risen over the past year, from 0.63% of average assets as of June 2011 to 1.58% one year later. Operating expenses have remained close to peer averages, but loan yields have held steady while cost of funds have decreased, resulting in a rising net margin, from 3.86% of average assets as of June 30, 2011 to 5.22% as of June 30, 2012. ROA has responded accordingly, with the credit union reporting 158 basis points of profit as of June 30, 2012, up from just 10 basis points one year prior.
And, even though Solarity’s delinquency rate of 2.29% as of March 31 is much higher than the peer average of 1.34%, Worthington said she is nonetheless pleased with her loan quality because the delinquency figure is inflated due to a few large commercial real estate loans. Solarity’s charge-off ratio of 0.15% during that same period is far below peer averages of 0.68%.
Overall, Washington credit unions are reporting 1.3% delinquent loans to total loans as of March 31, slightly below the 1.4% nationwide rate according to NCUA figures.
“Here in Washington between 2008 and 2010, average personal income dropped from $42,791 to $40,920, adjusted to current dollars,” Bennett said. “This essentially wiped out a decade of hard-earned, middle-class wage gains. In 2000, average personal income was $41,000. Washingtonians still haven’t recovered those lost wages.”
Washington’s unemployment rate was close to the national average during the recession, and the state’s July 2012 8.5% rate was slightly higher than the national average of 8.3%, according to the Bureau of Labor Statistics.
However, over the past two years more than 1,700 of the state’s teachers were given layoff notices, according to the Center for Education Data and Research at the University of Washington.
In Vancouver, Wash., iQ Credit Union, with assets of $476 million, serves many of those in education who lost their jobs, and it shows in the credit union’s 0.74% ROA as of June 30.
“There are a lot of things that are bringing about this number,” said iQ President/CEO Roger Michaelis, “including school cutbacks, teacher retirements and budget shortfalls.”
Education job losses also have contributed to iQ’s 2nd quarter delinquency rate of 1.82%. Loan growth is also stagnant, with the credit union reporting -1.88% as of June 30. Washington state credit unions are averaging 2.5% 12-month loan growth as of March 31, according to the NCUA.
Michaelis said auto loans and member business lending are doing well, and the credit union has been funding a few 10- and 15-year mortgage loans.
“That seems to be a bit of good news,” he said.
The $10 million Express Credit Union, a designated low income credit union and community development financial institution, reported negative 3.09% ROAA as of June 30, which reflects the credit union’s field of membership, said CEO Sharon Hall.
Express partners with social service agencies and community organizations to provide products and services through fee-free CO-OP ATMs and community member service representatives, who visit social services locations on a rotating, prescheduled basis. These traveling employees use their secured laptops to provide cashless services and financial education to low income people in their own neighborhoods. They also help members learn to budget, clean up their credit and check systems reports, and learn to navigate the financial services industry.
“This is a very expensive program,” Hall said. “Serving the underserved is not profitable, and that is why no one wants to do it. We are in our third year on this new model and are still really working out the kinks.”
Express also depends upon Treasury grants that aren’t distributed until the 4th quarter of each year.
“We dip in the first three quarters and then spring back up by year end,” Hall said. “However, it is our goal to be sustainable without outside support and only using our own nonprofit for support.”
There’s a demand for the services, however, which is reflected in the credit union’s 17.24% 12-month loan growth as of June 30. Delinquencies are actually lower than the state average, with Express reporting 0.86% compared to Washington’s aggregate 1.4% during the same period. However, charge offs are higher, with Express reporting 1.56% nearly double the statewide average of 0.78% of average loans.
“What you will find interesting is that our low income target market members’ numbers are doing quite well,” Hall said. “Opposite than what the industry would expect. When you give people a second chance and allow them access to education, they pay back their loans and grow their savings.”