A better economy and growing membership helped credit unions generate record earnings in 2012, including some in the Dayton area.
Credit unions are nonprofit financial cooperatives. Industry executives say that means profits are invested back in the business to add to reserves, offer higher deposit or lower loan rates and help offer free checking accounts.
Credit unions federally insured by the National Credit Union Administration, which most are, had total net income in 2012 of $8.5 billion, according to a new report from the federal agency. The sector also had a record year in 2011 with 6,800 NCUA credit unions collectively reporting profits of $6.3 billion.
Total assets surpassed $1 trillion last year, another industry milestone, the NCUA said.
Credit unions are experiencing many of the same trends as their for-profit bank competitors — bottom line improvements are coming from an improving economy, which reduces delinquencies. Results were boosted by mortgage activity as more people last year took advantage of low interest rates to refinance their mortgages or buy new homes.
The Federal Deposit Insurance Corp., the federal bank regulator, reported that bank and savings institutions had their second-best profit levels ever in 2012 with $141 billion.
“There’s a very clear linkage in the aggregate between economic performance and credit union performance,” said John Worth, chief NCUA economist.
Credit unions also escaped subprime loans and the massive devaluation that helped lead to the recession in recent years. However, like everybody else, they’ve had to deal with the aftermath of sinking employment and slow economic growth, Worth said.
Local credit unions known to have record-setting years include Fairborn-based Wright-Patt Credit Union and Kettering-based Day Air Credit Union.
“We’ve had steady growth and steady profitability,” said Bill Burke, president and chief executive officer of Day Air. “And we’re limited in our growth because our only source of capital is retained earnings.”
Day Air’s net income last year was $2.6 million, a 14 percent increase from 2011, Burke said. Membership grew 7.5 percent in 2012 to more than 29,000 people.
Day Air last year set a goal to lend more than $100 million. It actually loaned $105 million, Burke said.
“The pipeline of loans remains full and I think that’s great because it’s a key indicator to me that there’s economic stimulus here in the Miami Valley because people are buying things,” he said.
Wright-Patt Credit Union recorded 2012 net income of $37.6 million after taxes, up 71 percent from 2011 net income of $21.9 million, said CEO Doug Fecher. Results include the Greene County credit union’s mortgage company, myCUmortgage, which is a for-profit mortgage company that does back-office mortgage processing for 160 credit union clients nationwide.
Fecher said not including the mortgage company, net income was $20.7 million, relatively flat year-over-year. During 2012, assets grew by $267 million to $2.5 billion, and membership grew 10 percent to more than 240,000 people.
Credit unions are “consistently growing, we’re consistently gaining members and loans and strength,” Fecher said.
However, “there’s a large amount of uncertainty really facing all financial institutions … with financial regulations coming out of Washington, D.C.,” he said. “It’s harder to make a bottom line today than it was a year ago.”
Past years have given credit unions weak loan demand and low interest rates, and while delinquencies are lower, they’re still elevated compared to pre-recession levels, Worth said. Prolonged low interest rates crimp revenues because the main source of income for credit unions and banks is the difference in interest collected on loans and earned on investments, and the interest paid on deposits.
Wright-Patt is Ohio’s largest credit union. With Day Air’s $267 million in assets, the two are among Dayton-Springfield’s five biggest credit unions by asset size. Executives of the region’s other largest credit unions, Universal 1 of Dayton and International Harvester Employee Credit Union of Springfield, said they saw profits but not record levels.
One of NCUA’s findings was that growth was highest in larger credit unions above $250 million in assets.
A challenge is small credit unions don’t have the same resources to handle increasing industry regulations, said Lee Spivey, CEO of FirstDay Federal Credit Union of Dayton, with $86.5 million in assets.
“If you get a new regulation, whether you have 5,000 people on staff or five, you still have to understand the regulation,” Spivey said.
One or two bad loans has more impact on the finances of a small credit union than a big one.
“When you’re a small local organization, you kind of rise and fall on the Dayton economy and it kind of comes down to how you handle the individual risks on the balance sheets,” he said.
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