Credit union numbers have declined steadily in Mississippi and across the country in the last 25 years. But money is flowing into the surviving ones at increasing amounts.
From 2006 to 2010, the number of federally insured credit unions nationally went from 8,362 to 7,339. At the same time, assets ballooned from $710 billion to $914.5 billion.
In 2012, the financial services sector Web site Financial Brands summed it up thusly: “The big are getting bigger, while small credit unions are shrinking. If current trends hold, half the credit unions around today will be gone in the next 20 years.”
The Financial Brands report put the average loss at 233 credit unions per year, a little less than one per day.
With fewer credit unions competing for members, credit union assets nationally surpassed $1 trillion by 2012, according to Financial Brands.
A quarter century ago, Mississippi had more than 200 credit unions. With Keesler Federal Credit Union’s acquisition of Mississippi Department of Transportation Federal Credit Union, the number of CUs will go to 83, said Jimmy Smith, president & CEO of Singing River Federal Credit Union in Moss Point and chairman of the Mississippi Credit Union Association.
Mississippi’s credit unions have about 7 percent of the deposit-and-lending markets, with traditional banks holding the rest. The division of market share has remained consistent over the years, according to Smith.
With combined assets of $4.7 billion, the state’s credit unions average assets of $54 million and have strong capitalization of slightly over 13 percent, according to the Mississippi Credit Union Association.
Smith called the capitalization ratio an object of envy for the credit union sector’s banking competitors. But the cost of doing business lately has begun depleting capital, he added. He cited the range of services and conveniences credit union members have come to expect. “Some are experiencing negative income and that is eating away at their capital,” Smith noted.
As this trend continues, look for Mississippi’s credit union numbers to dwindle even further, Smith predicted.
The Credit Union Way
“It’s simple what we do,” Smith said.
Like banks, credit unions take in deposits and lend money on them. What’s different, Smith noted, is that capital comes from members, with the rare exception being secondary capital available to CUs that serve low-and-moderate-income populations.
A loan-to-share ratio of around 45 percent is typical in the industry, but a ratio of 100 percent can be achieved, according to Smith, who said Singing River loaned out 100 percent of its member deposits last year.
Those loans went out at an average rate of 6.5 percent.
Most credit union loans go to members for residential mortgages and signature loans.
More credit unions are finding willing borrowers through indirect lending. Some, such as Smith’s Singing River’s CU, provide loans to member businesses. “We’re looking at commercial loans in the $150,000 range or less,” Smith said of Singing River.
Business lending has potential for growth industry-wide, according to Smith, who said his credit union is consulting with smaller ones on establishing business lending operations.
“We’re helping those small business members succeed by putting money out there.”
The money credit unions make on loans goes back into the capital pool after deductions for operating expenses.
The trick is not to grow the capital too fast. “That can strain the net income with the deposit rates we offer,” Smith said.
The job is made easier by freedom from earnings pressure, he noted. “Our focus is member driven. We’re not driven to keep the stockholders happy.”
While banks endured a crisis of near-historic proportions late in the last decade, credit unions fared much better by having stayed away from the sort of risky loans and investments their banking counterparts traded in, according to Smith.
“While the Feds were bailing the banks out, we never took a penny,” he said.
Credit unions, in fact, kept lending, Smith noted. “We put up a sign that said we ‘have $24 million to lend, so come see us.’”