Colorado: Economy on a Rocky Mountain High or Just Rocky?
The economic recovery in Colorado is a rocky one, with some industries and cities rebounding while others continue to struggle. However, the state’s credit unions seem to be on a Rocky Mountain high.
Credit unions in Colorado reported a healthy 89 basis points of positive return on average assets during the second quarter, according to the NCUA’s Quarterly U.S. Map Review. That compares favorably to 86 basis points for all federally insured credit unions during the same period.
Colorado ranked seventh in year-to-year asset growth at the credit unions (9.2%) and ninth in year-to-year deposit growth (8.8%), encouraging numbers as credit unions throughout the country find their way through the economic recovery.
“In Colorado there are 99 credit unions with about $15.8 billion in assets,” said Scott Earl, president/CEO of Mountain West Credit Union Association. “The average credit union business loan is $219,000. Its capital is used for local business expansions and to keep them competitive during a time when banks are reducing credit availability.”
Another good sign is how federally insured credit unions in Colorado ranked 10th in the nation for the lowest delinquency rate during the second quarter, sitting at a strong 0.8% of total loans compared to the national average of 1.2%.
Spurring the Colorado economy along is the fact that not only is the Centennial State a major agricultural and mining state, but it’s also a leader in manufacturing of scientific and medical instruments. Gerry Agnes, CEO of the $1.2 billion Elevations Credit Union in Boulder, attributes this to his state’s slow but steady recovery.
“We have some of the top research facilities in the nation located here in Boulder,” Agnes said. “We have a unique community with an unemployment average of 6.5% which is lower than the rest of the state. It’s definitely a good environment to be in.”
Elevations has a good return on assets with a 0.91% for second quarter, thanks in part to a delinquency rate that has improved from last year from 0.90% to 0.67%.
“We have a strong membership base and they pay us back,” Agnes said. “Which is a good thing.”
Colorado often has a postcard image of mountains and ski resorts, but it's also home to vast energy resources (gas, oil and coal), aerospace, manufacturing and health care. Although it has been hit hard this year by wildfires and drought, construction is slowly recovering and an oil and gas boom has brought new dollars and jobs to the northeast part of the state.
In Denver, though, the economy is still wobbly with the unemployment rate stuck at 8.3%, according to the Bureau of Labor Statistics, which is slightly higher than the national average of 8.1%.
However, the $2.2 billion Bellco Credit Union in Greenwood Village, a suburb of Denver, has managed to pull off a 1.41% ROA as of June 30 despite the local economy.
Many factors have contributed to Bellco’s ROA, said CEO Doug Ferraro, including a 6.60% annualized loan growth, an 84% loan to share ratio and net charge offs “lower than we’ve seen in years.” Both net charge offs and Bellco’s delinquency rate have fallen below 1% as of June 30.
“We can attribute much of the improvement to job growth in our local market,” Ferraro said. “In a recent Denver Business Journal article, it mentions Denver ranks third among large U.S. metropolitan areas for job growth over the 12 months ending in July. With members returning to work, we have definitely seen a positive correlation to our delinquency rates. Additionally, Bellco has worked to create a sophisticated risk matrix to help us identify when adjustments are needed to pricing and underwriting in order to keep delinquencies low.”
Ferraro said that his credit union’s loan growth has come from a variety of asset classes through a combination of organic growth, complemented with purchases of loan participations through the Mortgage Liquidity Solutions CUSO.
Bellco began as the phone company credit union, but its field of membership now includes all six counties in the Denver metro area and nearly 1000 SEGs. Ferraro said that Bellco’s membership is so diverse, sector-specific economic fluctuations haven’t had a significant impact; instead, Bellco watches the greater metro area economy.
“For the year ahead, we hope to see continued job growth and further stabilization of the economy,” he said. “We are contributing to this goal by building new branches for our members. In 2012, we built two branches and moved another to a better location, and have plans to build two more by year end. In 2013 we will continue our local expansion efforts, because when we open new locations, we’re delivering value and increasing convenience for our members.”
Another Colorado credit union that has continued to stay on top of the recession in Denver is the aptly named Denver Community Credit Union. This credit union with $232 million in assets has held onto an impressive ROA of 1.20% as of the second quarter.
Two years ago, Denver Community began selling and servicing newly originated mortgage loans into the secondary market. This helped maintain relationships with members without taking on undue interest rate risk, said Shane Silvernale, the credit union’s chief financial officer.
“We then expanded the offering to several smaller credit unions in the area that either didn’t have the volume or processes to justify secondary market activities of their own,” he said. We’ve effectively developed a substantial pipeline of mortgage originations from which we earn income at origination and from the subsequent servicing. Everybody wins and it keeps real estate concentrations low on our balance sheet.”
Denver Community’s consumer loan portfolio has actually increased by an annualized rate of 5% since the beginning of the year. The net decrease to the total loan portfolio is due to the decrease in long-term, real estate balances.
“Since this is an intentional restructuring of the balance sheet, we’d hardly consider it a problem,” Silvernale said. “However, we are learning to live with a loan-to-share ratio much lower than what we were used to in prior years.”
This Denver-area credit union has also had some great delinquency and charge-off rates – 0.60% and 0.53% respectively –because two years ago it recruited collections talent from outside the industry.
“This proved to be a major step forward in managing our asset quality,” Silvernale said. “We now focus heavily on very early stage collections activity with friendly reminder calls at 10 days, rather than waiting for the loans to go delinquent.”
Denver Community primarily serves three adjoining counties in the Denver Metro area: Denver, Adams, and Arapahoe. The membership is highly diverse and is often used as an example of “modest-means.”
“To that end, our membership feels the economic pains resulting from unemployment and under-employment and increasing living costs” Silvernale said. “Generally speaking, however, our members didn’t benefit from rapidly increasing real estate values like others did over the past 10 years. To that end, they also didn’t have as much to lose when home equity values declined. That’s not to say they don’t have their own struggles, but many are coping with the new economic realities. We work hard to be a part of that adjustment with them.”