Arizona credit unions earn their way to the top spot

Arizona’s credit unions took the top spot in the country based on the net income they earned compared to the assets under their management during 2012, according to the National Credit Union Administration’s quarterly report released Tuesday.

The report compared credit unions in each state against a number of key financial measures. One of them was net income divided by average assets, or the return on average assets, which measures how well a credit union invests its member’s deposits.

The roughly 50 federally insured, Arizona credit unions earned as a group a net income equal to 1.39 percent of their average assets during 2012. The national average for all federally insured credit unions was 0.86 percent, was which higher than last year’s figure of 0.67 percent.  New Jersey and Connecticut had the lowest return on average assets of 34 basis points. NCUA just started publishing this data in 2012 and rankings for 2011 weren’t readily available.

For members of a credit union, a higher return on average assets could translate into higher savings rates, lower loan rates, and new services like banking by phone. For the credit union itself, it’s a measure of how well it is had made lending decisions, primarily auto loans and mortgage loans, as well as, how well it has controlled its expenses.

Historically, the return of average assets for a financial institution – commercial banks included – ranges from 0.60 percent to 1.50 percent.

A 1.39 percent return of average assets for Arizona’s credit unions is particularly strong. Credit unions are different than banks in that they are created to serve their members, and as such, are less willing to raise fees to cover expenses.

“We take care of our own,” said Kathleen Wallis, the CEO at Prescott Federal Credit Union. “As far as fees…it’s been over two-and-half years since we’ve raised anything.”

When asked why credit unions were doing better, Wallis said, “We doing better because…the rates are so low and we haven’t had a lot of bankruptcies and collection issues.”

Credit unions in Arizona had a delinquency rate of 0.9 percent, the 12^th lowest in the nation, according to the NCUA report. New Hampshire has the lowest delinquency rate at 0.5 percent, and Delaware had the highest rate at 2.6 percent.

Because of its small size, the Prescott based credit union primarily earns its profits providing auto loans to its members, which explains why PFCU didn’t see a lot of delinquency.

Arizona State Credit Union, however,  the second largest credit union in Arizona with over 1.4 billion in assets and more than 125,000 members, had a strong year in both auto lending and mortgage lending, said Paul Stull, Senior VP of Strategy and Brand.

One of the biggest factors that lifted the credit union’s income in 2012 was the thousands of mortgages it refinanced.  The credit union refinanced its member’s mortgages using the Federal government‘s Home Affordable Refinance Program, or HARP. On average, members were able to reduce their monthly payments by $369 per month, Stull said.

“It was a win-win for both the credit union and our members in being able to produce a really profitable year for us, but at the same time also a very good year for our members.”

The credit union ended 2012 with a return on average assets of 1.28 percent, just slightly below the state’s average for all federally insured credit unions of 1.39 percent.

The “big story” in Arizona is the state’s recovery from 2011, according to an email from John Fairbanks, Public Affairs Specialist at the federal agency releasing the report.

“As Arizona’s economy recovers, credit unions are seeing loan delinquencies dropping, which means they are able to hold less in reserve against losses, and that helps boost earnings,” wrote Fairbanks.

In 2011 Arizona credit unions had a loss reserve of 3.5 percent. That figure dropped to 0.20 percent in 2012. That has a significant impact on earning, added Fairbanks.