Credit Union Industry. Brittany Kleinpaste Director of Economic and Policy Research

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2 Credit Union Industry Brittany Kleinpaste Director of Economic and Policy Research aba.com BANKERS

3 Credit Unions: A Trillion Dollar Industry $ Billions $1.3 Trillion $1,200 $1,000 $800 $600 $400 $200 $ Source: SNL Financial

4 Growth in Billion Dollar Credit Unions Source: SNL Financial

5 MI Credit Unions at a Glance Federal Charter 90 Field of Membership Types Multiple Common Bond 31 Community 51 Associational 11 Paid $0 Million State Charter 151 in Income Taxes (2016) ($000) Assets Loans & Leases Shares & Deposits Net Worth Total $56,129,522 $35,358,050 $47,624,743 $6,511,565 Median $71,914 $37,482 $61,654 $7,664 Source: SNL Financial

6 MI Banks at a Glance Federal Charters 25 Charter Type Commercial Bank 15 Savings & Loan Association 10 State Charters 75 ($000) Charter Type Commercial Bank 74 Savings Bank 1 Assets Loans & Leases Paid $304 Million in Income Taxes (2016) Deposits Equity Capital Total $70,793,241 $50,734,007 $54,507,577 $7,040,285 Median $247,508 $167,321 $208,476 $25,722 Source: SNL Financial

7 Credit Unions: 2 of Top 10 MI Institutions Institution Assets ($000) Chemical Bank $17,284,293 Flagstar Bank, FSB $13,980,496 Michigan State University FCU $3,413,046 Mercantile Bank of Michigan $3,062,597 Independent Bank $2,537,351 United Federal Credit Union $2,252,297 Sterling Bank and Trust, FSB $2,163,648 Macatawa Bank $1,739,408 Isabella Bank $1,677,874 Monroe Bank & Trust $1,356,363 Source: SNL Financial

8 MI Credit Unions Leverage Advantages to Grow Annualized Growth June 2006 June % 8.0% 6% 4% 2.8% 2% 0% Credit Unions Banks Source: SNL Financial FDIC Summary of Deposits

9 MI Credit Union Largest Community Deposit Institution* Institution Deposits ($000) Michigan State University FCU $2,956,140 Mercantile Bank of Michigan $2,379,242 Independent Bank $2,245,262 Sterling Bank and Trust, FSB $1,649,216 United Federal Credit Union $1,578,396 Source: SNL Financial and FDIC Summary of Deposits * Community Deposit Institution = banks and credit unions with assets under $10 billion

10 Credit Unions: 9 of the 10 Largest Auto Lenders Institution Auto Loans ($000) Chemical Bank $838,772 United Federal Credit Union $614,234 Michigan State University FCU $524,514 Genisys Credit Union $489,436 Michigan Schools & Gov t CU $481,840 Credit Union ONE $461,689 Advia Credit Union $399,657 Lake Michigan Credit Union $364,498 Lake Trust Credit Union $364,498 Consumers Credit Union $321,084 Source: SNL Financial

11 MI Credit Unions NOT Lending to Low - & Moderate- Income Individuals Upper Income, 18,612 Low Income, 3,427 Middle Income, 10,467 Moderate Income, 7,917 Source: Home Mortgage Disclosure Act 205 HMDA reporting credit unions in Michigan.

12 Majority of Credit Unions Are NOT Lending to Low-Income Borrowers Low-Income 81 Credit Unions Not Making Mortgages 124 Made Mortgages Moderate-Income 68 Credit Unions Not Making Mortgages 137 Made Mortgages Upper-Income 15 Not Making Mortgages 190 Made Mortgages 0% 20% 40% 60% 80% 100% Source: Home Mortgage Disclosure Act 205 HMDA reporting credit unions in Michigan.

13 Credit Unions Primarily Serve Upper Income Individuals Percent of Customers 60% 50% 40% 30% 20% 10% Banks Credit Unions 40% 41% 31% 49% 0% Low-to-Moderate Income Upper Income Source: GAO and Federal Reserve Survey of Consumer Finance

14 Special Tax Privilege Grows Estimates of Total Income Tax Expenditures FY $ Millions Next 10 FY = $35.3 B $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $ Source: Office of Management and Budget

15 Tax Expenditures Reside at Largest Credit Unions Nearly 75% of Industry Profits Held by Less Than 5% Profits: $9.7 B $338 M $1.2 B $1.0 B Number of Credit Unions: 5, ,068 $7.1 B Total Assets of: Over $1 B $500 M - $1 B $100 - $500 M Under $100 M 4,258 Source: SNL Financial

16 Credit Union Pressure Points Common Bond Requirements Business Lending Constraints Lack of Available Capital

17 Common Bond Requirements Community Clearly defined geographic boundaries AND well-defined local community OR a rural district Single Common Bond Associational or Occupational Multiple Common Bond

18 NCUA s FOM Expansion Rule Local Communities That Are Not Local Combined Statistical Areas No requirement to serve the Core Well-Defined Communities That Have No Definition Narrative Responses Local Communities Encompassing Entire States Expansion of rural area definition

19 Membership Continues to Rise Despite Constraints Millions of Members 115 Total Members 110 Annual Growth % 5% 4% 3% 2% 1% % Source: SNL Financial

20 Member Growth By Region

21 Business Lending Constraints Statutory Cap of Percent of Assets Plenty of Work-Arounds Provided Limited Income Designation (47% of industry) Loans Under $50,000 Exempt Guaranteed Loans Exempt

22 Over Half of MI Credit Unions Are Exempt from Business Lending Cap Credit Union Name Assets ($000) MBL Ratio Flagship Community FCU $21, % Country Heritage Credit Union $40, % U.P. Catholic Credit Union $163, % United Federal Credit Union $2,252, % Honor Credit Union $713, % Christian Financial Credit Union $364, % Northland Area FCU $338, % CASE Credit Union $274, % Community Choice CU $853, % Marshall Community CU $853, % Source: SNL Financial

23 Business Lending Continues to Rise Despite Constraints Business Lending, $ Billions $80 $70 $60 $50 $40 $30 $20 $10 $ Source: SNL Financial

24 Lending Continues to Rise Despite Constraints $ Billions Total Loans & Leases $800 Annual Growth $600 $400 $200 14% 12% 10% 8% 6% 4% 2% $ % Source: SNL Financial

25 NCUA s Final Business Loan Rule Playing Games Making Statutory Cap Meaningless Removes Limits on Business Loan Participations to NMs Changing the Calculation of the Cap Redefining Net Worth Failing to Adequately Protect the Insurance Fund Eliminating Safety and Soundness Rules such as: Personal Guarantee Requirements Loan-to-Value Requirements Expanding Aggregate Loan Limits

26 Credit Union Active in Business Lending? Exempt from Cap 17% 1% 2% 27 are close to the cap, constituting less than 0.5% of the industry NO Member Business Loans 65% Business Loans < Half of the Cap 15% Business Loans to Assets > 11.25% 9.80% % 6.00% % Source: SNL Financial No member business loans calculated before all other categories.

27 Lack of Available (Additional) Capital Net Worth, $ Billions $120 Net Worth = Retained Earnings $100 $80 $60 $40 $20 $ Source: SNL Financial

28 NCUA s Pending Supplemental Capital Proposal Will NOT be included in Net Worth Ratio Will be included in Risk-based Capital Ratio Would be uninsured and subordinate to NCUSIF What will it look like?

29 Growing Trend of Low Income Designation 2,500 2,000 1,500 1, Source: National Credit Union Administration

30 NCUA s Abuse of Low Income Designation Low-Income Designation Exempt from statutory cap on member business lending Granted authority to accept non-member deposits Able to issue secondary capital NO EVIDENCE of service to low income individuals required 2,427 30% of Industry $391 billion in Assets 41% of Industry Assets

31 Dort Federal Credit Union Misusing Low Income Designation 50% FOM Population 40% Branch Location 30% 20% 10% 0% Low Moderate Middle Upper Source: ABA Analysis, Census, NCUA

32 Banking Industry s Strategy Equal Tax & Regulatory Treatment for Industries Discussions with, and education of, elected-officials Assaulting NCUA with strong and continuous attacks Developing alliances and coordinating activities with all interested parties to encourage full engagement

33 Keith Leggett s Credit Union Watch Keeping an eye on the credit union scene.

34 Questions? Brittany Kleinpaste Director of Economic and Policy Research

Credit Union Access to Capital

Credit Union Access to Capital & How the Federation Can Help! 2012 AACUC Annual Conference Charleston, SC Terri J. Fowlkes Director, Community Development Investments National Federation of Community Development