Fiscal Cliff Could Curse New Mexico
As of June 30, New Mexico credit unions were thriving with a return on assets of 101 basis points, according to NCUA quarterly mapping data. That’s well above the national average of 0.86% ROA. However, the so-called fiscal cliff could curse profitability for credit unions in the Land of Enchantment.
If Congress fails to reach an agreement on the budget by year end, more than 200,000 New Mexico jobs would be at risk of sequestration.
“So many of our members work for the federal government and with a possible sequestration staring us in the face, it’s very unsettling,” said Sylvia Lyon, president/CEO of the Credit Union Association of New Mexico. “Our state is very dependent on federal funding. I just hope that Washington can balance their budget because it will have a big effect on all of us in New Mexico.”
Ninety-two percent of all New Mexico credit unions boasted a positive ROA during second-quarter 2012. Although third-quarter financials are available for most federally insured credit unions, the NCUA has not yet released its third-quarter mapping data.
Loans that are performing better than the national average are behind the profitability. New Mexico’s credit unions reported just 0.7% delinquencies as of June 30, and an incredible 12-month loan growth of 8.3%. In comparison, the national average for delinquencies was 1.2% and loan growth 3.2%.
“The loyalty rate for our credit unions goes way back,” Lyon said. “It has a lot to do with meeting member’s needs and running the [credit unions] conservatively. They run their shops very well here.”
Harold Dixon, president/CEO of the $328 million State Employees Credit Union of Santa Fe runs his shop very well, according to his financial performance reports posted on the NCUA’s website. His reported ROA of 1.54% as of Sept. 30 is something he said he and his staff have worked hard to achieve.
“We contribute our income to a few different factors,” he said. “First, we have a fairly strong yield on assets. We are a true credit union, and we don’t just do A paper loans, so our yield on loans is good from a good mix of credit members. Second, we have a high penetration of checking accounts, which provides us with a strong fee income base, and third, we control expenses.”
Despite operating seven branches, expenses at SECU were 3.98% of average assets, not far above peer. Dixon also credited a well-trained and incented staff for his efficiency.
“We are able to have fewer employees that are cross trained instead of many one skill employees,” he said.
While other credit unions struggle to get the auto loan engine humming again, SECU’s auto loan specials and cross selling staff fueled a third-quarter loan growth figure of 15.52%.
Located in the eclectic, artistic and culturally diverse capital of Santa Fe, the 35,000-member credit union has seen cutbacks in government jobs in the past three years, Dixon said, but for the most part membership has remained fairly stable.
“We look forward to a great year next year, primarily because I believe that it is a great time to be a credit union,” he said. “While big banks continue to be under attack from consumers, people are beginning to see the value in credit unions, and we will continue to promote this as we move into 2013.”
The $190 million Rio Grande Credit Union has consistently produced a high ROA, reporting 145 basis points of profit as of Sept. 30.
According to President/CEO Chris Fitzgerald, the Albuquerque-based institution credits many factors, but said, “In a nutshell, we have developed a model that works with our membership.”
Fitzgerald said that includes pricing products appropriately, managing risk in detail and offering exceptional service.
“We must provide value to the membership if we expect them to continue to use our products and services, which significantly contributes to high ROA,” he said.
Rio Grande’s delinquency rates are equally impressive at 0.42% of total loans as of Sept. 30. However, charge-offs were 1.38%, which Fitzgerald said is in line with collection strategies.
“We are very proactive in working with our collection accounts,” he said. “We find out early in the collection process if the member wants to work with us to get current. If they do, we can be their biggest advocate and support them through a time of need. If not, we aggressively collect and dispose of the collateral and charge off the deficient balance to avoid bottlenecking our collection activities.”
The 21,000-member Rio Grande is hoping to complete a merger with the $30 million New Mexico Central Credit Union, also located in Albuquerque, by the end of 2012. That means a main focus for 2013 will be to integrate those new members into the Rio Grande Credit Union family, Fitzgerald said.
“In order to continue to achieve long-term success, we must continue to improve our Rio Grande Credit Union model for doing business and understanding that we cannot be a one size fits all,” he said. “We need to focus on our niches and continue to strengthen the relationship with our members by offering quality products and services and excellent communication channels.”
Although credit unions are performing well, New Mexico’s economy isn’t as strong as one would think. According to the University of New Mexico’s Bureau of Business and Economic Research, the state’s job creation rate over the past year has placed it 46th among the 50 states, and its economy is expected to sputter until at least 2017.
During the 12 months that ended Aug. 31, the government sector lost 5,800 jobs, professional and business services lost 5,700, construction was down 3,000, miscellaneous services lost 2,600 jobs and financial services lost 1,600. But, six sectors added jobs: educational and health services added 3,000, leisure and hospitality gained 2,300, mining created 1,000 new jobs and 900 new manufacturing jobs were created. The warehousing and utilities and wholesale trade sectors also posted gains.