A year ago we reported on an economy that was on the ropes, the housing market in a tailspin, unemployment near double digit levels and multiple bank failures. 2010 brought very little change to this bleak financial picture. The economy is still trying to regain traction and move forward, home values are still not anywhere close to pre-recession levels, unemployment remains high (although there have been recent signs of improvement.) The year saw 157 bank failures compared to 140 a year ago.
Through this economic uncertainty, the credit union’s Board opted for a cautious approach and steered a steady, conservative course in 2010. We continued our policy of making sound and safe investments, avoiding risky ventures that promised unrealistic returns. Our Rate Committee approved dividend and loan rates that were very competitive in the marketplace without unnecessary strain on our balance sheet. And, as always, we managed expenses and controlled expenditures, all without reducing the level of service to our members.
A leading indicator of a credit union’s financial strength and stability is its Capital to Asset ratio. The credit union ended 2010 with a very respectable capital to asset ratio of 9.96%, much greater than the 7% range that is considered well capitalized. A strong capital to assets ratio is vital to the success of the credit union allowing us to overcome unexpected assessments and expenses.
Despite the slow economic recovery, Members Credit Union experienced gains in both assets and deposits in 2010, albeit not at the robust level of 2009. Assets increased 3.47% to $233 million while deposits rose 3.4% in 2010 to just under $210 million.
The largest increase among all of our account offerings occurred in our Super 60 Account which rose 20.6%. Our other core deposit products also increased but at a much slower pace. Our time deposits, or share certificates, actually decreased 3.65%. Many of our time deposits were not renewed at maturity, but instead were transferred into more liquid accounts such as our Super 60 Account with hopes that certificate rates may rise in the coming year.
While assets and deposits grew in 2010, our loan portfolio fell 5.8 million dollars, or 5.55%, the sharpest decline since a 6% drop in 1992. During the economic unrest of the last three years, our loan portfolio has decreased over $10 million. Ongoing weak demand for loans is a concern throughout our industry and not a problem specific to Members Credit Union. The credit union’s rates and terms are competitive with other lending institutions yet the demand for loans among our membership is extraordinarily low. Our members are “hunkering down” and waiting for the economy to rebound and employment to stabilize. Since the credit union’s purpose is to help our members attain their financial goals, we do not use teaser credit card rates or other misleading offers to entice our members to incur unnecessary debt just to increase our loan totals. Instead, we offer affordable rates that allow members to receive loans at a reasonable cost when and if they need to do so.
Our loan production does affect the credit union’s bottom line. Currently our loan to share ratio is less than 50%, a percentage that we would like to improve. Money that is not loaned to the membership is instead invested. In the present rate environment, the return on invested money is much lower than the average return on money loaned, therefore decreasing our interest income.
Losses stemming from non-performing loans could also negatively affect earnings in the short term. To date our loan delinquency rates have remained well within an acceptable range. Our Financial Solutions Department has worked diligently to create manageable payment arrangements with many of our members who have fallen behind on their loan obligations. Unfortunately, as was the case last year, we are still faced with a large number of vehicles that have been returned to, or repossessed by, the credit union when a payment agreement could not be reached.
Decreasing loan volume and potential loan losses are not the reasons we did not meet our net income expectations for the year. We fell short of anticipated net income levels because of extraordinary expenses of over $500,000 that were levied to assist in the continued stabilization of the credit union industry. These payments were made to replenish the National Credit Union Share Insurance Fund, which is the body that insures member’s deposits up to $250,000, and also to reinforce the corporate credit union system. These assessments, necessary to keep our industry strong, could adversely affect the dividend and loan rates offered to members and the credit union’s earnings for many years to come. Without these assessments, our projected budgeted net income would have easily been reached.
Just as in 2009, the absence of growth in our membership totals in 2010 is difficult to understand. Despite the addition of several large employee groups – including Hugh Chatham Memorial Hospital and G&B Energy in Elkin, CV Products in Thomasville, Trinity Furniture in Trinity, Edwin Farrell/Lewis Mittman Furniture in High Point, and Kellex Co. in Valdese – membership declined 1.4% in 2010. At a time when many other financial institutions are finding inventive new ways to raise fees and eliminate free checking accounts, the benefit of Members Credit Union membership has never been greater. Our checking account remains fee free as do many of our other services, such as our electronic bill pay and home banking products.
The value of credit union membership can be seen through various media channels – radio, billboards, television, social media, internet, and newspapers – and this awareness campaign will continue in the coming year. We recognize that media promotion alone will not increase our membership totals. In order to stand out in a very crowded field of financial service providers, we must offer unsurpassed service and a never ending commitment to improving our members’ financial well being.
The impact of social media on the future growth of credit unions is undeniable. Social media sites such as Facebook allow members to open a conversation with the credit union to voice opinions, ask questions, or offer suggestions. One of the most significant changes we anticipate over the next several years is the proliferation of social media as a promotional tool and a lesser dependence on traditional media outlets. The challenge we face is to how best harness this powerful medium to be most beneficial to the credit union and its members.
An immediate benefit of the social media phenomenon is that we were more easily able to inform our members and the public of the many different community projects and fundraisers we sponsored this year. A cause that was very close to the heart of many at the credit union was the “Flight of Honor” project which provided the trip of a lifetime for WWII veterans to visit the WWII Memorial in Washington D.C. Through the generosity of our members, the credit union raised $5,500, enough to send eleven members of “the greatest generation” on this wonderful journey. Barbara Tucker, our Director of Training, had the privilege of representing Members Credit Union as a trip ambassador making sure that three of these heroes had a safe and rewarding experience.
Once again the credit union raised money to support the Juvenile Diabetes Research Foundation (JDRF). This is the fourth consecutive year that our members have opened their wallets and pocketbooks to help find a cure for this insidious disease. Over the past four years credit union members and employees have donated over $37,000 in the fight against juvenile diabetes.
After a one year hiatus caused by the poor economy in 2009, the Members Credit Union Charity golf tournament returned and raised $5,000 to add to the MCU Scholarship Fund. From this fund in 2010, sixteen members were granted scholarships worth $12,000, including Lauren Mills of Nebo, NC who received the $3,000 John R. Loftin Scholarship. Since the inception of our program, 168 members have been awarded scholarships worth $130,000.
Our philanthropic efforts throughout the communities we serve have not gone without recognition. At the North Carolina Credit Union League’s Annual Meeting in June 2010, Members Credit Union received second place in our asset category for our food drive conducted with the grand opening of our Elkin branch in the summer of 2009.
Our Supervisory Committee, our State Examiner, and an independent professional auditing firm all performed audits of Members Credit Union within the last year. All examinations confirmed that our records and operating procedures are sound and our financial standing is strong.
We are optimistic that 2011 will bring a more vibrant economy and an increase in employment figures. We do see encouraging signs that we may have rounded the corner of this downturn, as many of our sponsor groups are back to full production and are even adding new workers to their payrolls. As our sponsor companies thrive, our membership totals should rise and our loan portfolio should begin to recover. Regardless of what the new year brings, the credit union will continue to provide quality products and services at a fair price to help our members reach their financial goals.
Thank you for your continued membership and support.