Sharonview FCU Plans Balanced, Targeted Growth

Credit unions and analysts are still looking at beautiful numbers in third-quarter results, but they’re increasingly talking about slowing growth and the inevitability of recession – somewhere down the road.

A recent review of third-quarter results by Callahan & Associates found credit unions increasing their net income and shares of key lending markets. Yet the pace of credit union loan growth is slightly slower than the last few years.

Credit unions’ average annualized return on investment was 0.93% for January through September, up from 0.79% for the first nine months of 2017.

Their total loan portfolio was just over $1 trillion as of Sept. 30, up 9.7% from September 2017. The growth rate was down slightly from 10.5% for the previous 12 months.

“Some of the trends are slowing, however this is a really good quarter,” Jon Jeffreys, managing partner of the Washington, D.C.-based consulting company for credit unions, said. “We’re coming off some all-time highs. In historical terms, credit unions are still out-performing on a relative basis.”

Expectations of a slowdown extend to one of the credit unions with a strong record of growth: Sharonview Federal Credit Union based in the Charlotte, N.C., area ($1.6 billion in assets, 80,573 members).

“We know there’s a recession coming, but we don’t know when,” Sharonview COO Ricky Otey said. “We want to maintain our credit quality, but we want to make sure we provide members the products and services they need.”

While Sharonview’s growth has accelerated in the past five years, the credit union is now pursuing targeted opportunities and striving to maintain balance in its growth.

For example, credit cards accounted for $99.5 million, or 7.1%, of Sharonview’s total $1.4 billion in loans as of Sept. 30. While total loans grew 8% in the previous 12 months, credit cards grew only 1.8%.

As one response, Sharonview will be offering a new signature credit card early next year to satisfy members’ desire for higher reward points, and the ability to redeem those points for travel or entertainment.

“We’re not going to be overly aggressive in our credit card portfolio growth, especially not knowing what the economy holds for us,” Otey said. “With continued Fed rate increases and a possible recession sometime in the next 12 to 18 months, we’ve tempered our expectations for growth a little bit. We want to make sure our credit card growth is balanced with the rest of our real estate and consumer lending.”

Sharonview was founded in 1955 by employees of Celanese, a manufacturer of polyester and other synthetic textile fibers in Woodbridge, N.J., and with large plants in the Carolinas.

The company and most of its plants began wilting in the 1980s with the decline of the U.S. textile industry. Meanwhile, North Carolina all but annexed York and Lancaster counties as their ties to South Carolina receded in importance to their ties to the burgeoning Charlotte metro area. Only 6,000 of its 81,000 members are in New Jersey.

Within the space of a few decades, Sharonview had been transported into a new geography.

Board members made a strategic decision five years ago that they wanted a more robust growth strategy. As their president prepared for retirement, they hired a more marketing-focused, forward-thinking CEO.

Enter Bill Partin, who was an SVP at the $1.2 billion Partners Federal Credit Union in Burbank, Calif., for eight years, a period in which it doubled in size.

Partin joined Sharonview just after the end of 2013’s third quarter when it had $995.1 million in assets and 65,000 members. Average yearly growth rates for assets were 2.3% over the previous five years, and 10.5% over the next five years. Membership growth went from 2.8% per year for the previous five years to 4.8% for the next five years.

Partin helped invest in strategies to build the credit union’s brand and visibility in the metro area; he also helped the credit union improve its digital presence and make better use of analytics.

“We are constantly thinking about new and innovative products,” Otey, who came to Sharonview in 2014 from First Niagara Bank of Buffalo, N.Y., said.

Sharonview’s expectation of continued growth led it earlier this year to buy an 180,000-square-foot building about a mile across town for $34 million. It plans to move its corporate headquarters into it by mid-2019. It has not decided what it will do with its current 50,000-square-foot building, which it also owns.

Otey expects Sharonview’s total loan balance will end the year up about 8% from 2017. “We don’t expect to see anything greater than that next year,” Otey said. “If we see 7% overall loan growth next year, that would be a good year for us.”

A big reason is that first mortgage growth has slowed since mid-year. Residential real estate accounts for about two-thirds of Sharonview’s loan portfolio and has shown the largest growth: Balances grew 10% to $925.2 billion as of Sept. 30, the vast majority of them in the Carolinas.

“Historically, a large portion of our mortgage business has been refinances,” Otey said. “We’ve had a lot of energy spent on how to change that strategy to one of originating purchase mortgages.”

The strategy includes building closer relationships with real estate agents and brokers. “It takes time to build those relationships,” Otey said. The goal is to have 60% of originations coming from purchases, but the composition is still far from that goal.

Sharonview will also be cultivating second liens. For members who realize it makes no sense to refinance their first mortgage, but need cash for improvements or debt consolidation, increasing numbers of them will be seeking HELOCs. “That has not been a focus for us in the past. That’s a place where we think there’s opportunity as well,” he said.

Vehicle loan growth has slowed recently. Sharonview started an indirect lending program in the summer of 2018, but with a twist. Instead of targeting new members, the option only shows up for existing members who start seeking financing while buying a car at a participating dealership.

The option was designed more to cultivate deeper ties with members than build the membership rolls. “We don’t use this as a channel to grow membership,” Otey said. “We certainly don’t have a challenge in growing membership.”

While members would be in a stronger bargaining position if they lined up their financing with their credit union before sitting down at a dealership, the reality is that many members don’t. The indirect lending option provides a backstop to keep the loan in-house and a convenience to members who start talking financing inside a dealership.

“It’s better if we can establish the relationship, even an indirect relationship,” Otey said. “Some of our members were purchasing a loan with a dealer, and coming back to the branch to refinance it.”

The results can be seen in the third quarter. The balance for car loans rose 6.5% from June 30 to Sept. 30 to $62 million, compared to a three-month growth rate of 1.9% a year earlier. “It’s been extremely effective for us,” he said.

One of the most pronounced changes in Sharonview’s portfolios is that before the recession most of its car loans were for new cars. Now used cars account for about three-quarters of the balance, but the growth is flattening. In the past year, used car loans rose 1.2% to $192.6 million, while new car loans rose 11.2%.

Lenders are trying to price loans to keep up with multiple layers of risk as people drive their cars for more years and miles, and choose longer loan terms. “Used vehicles are pretty challenging,” Otey said. “When you have an older vehicle with a longer term and higher mileage, that asset starts to depreciate a lot faster.”