Deposit Influx Flat, But Lending Growth Remains Strong
The flood of new deposits that poured into credit unions the past four years continued to dry up in the third quarter, with deposit growth almost flat for the three months ending Sept. 30, NCUA reported last week.
That follows growth of less than 1% in the second quarter. As a result, deposit growth has declined to just 4% for the first nine months of the year, down from double-digit growth of the previous three years-when more than $150 billion of new deposits flowed into credit unions.
On the other hand, loans grew by almost 3% in the third quarter, pushing year-to-date loan growth to a strong 8%, NCUA said.
NCUA Chairman JoAnn Johnson touted the third quarter data as good news. "America's credit unions are in a solid assets and net worth capital position," said Johnson. "Third quarter results are on target considering the steady economic rebound recognized by this data and national indicators. Clearly, with the economic upswing more members are diversifying savings and investments. The third quarter performance in lending growth is indicative of the increased consumer confidence."
The growth in lending, coupled with the continuation of record low rates paid by credit unions-cost of funds-helped credit unions boost their key profitability ratio-return-on-average assets, or ROA, to 0.94 (94 basis points), up slightly from 0.92 in the second quearter and 0.90 in the first quarter. Those figures are still at five-year lows, with many credit unions reporting ROAs in the 0.75 range.
Bill Hampel, chief economist for CUNA, said he was surprised that ROA rose slightly in the quarter because he expected the pressures of the end of the mortgage refi boom and the flattening of the yield curve (when short-term rates are equivalent to long-term rates) to continue to push profitability downward. He suggested that a number of factors, especially the maintenance of record low rates paid on deposits, are enabling credit unions to "lean against" those trends.
But the CUNA economist warned that credit unions are going to have to start raising the rates they pay in order to remain competitive and continue to attract new deposits. "The market is going to force them to do it," said Hampel.
Pacing lending for the third quarter was new car loans, which grew by 4% during the period. First mortgage loans grew by 2% and used car loans by 1% for the three months. Unsecured credit card loans advanced by 1.5% in the third quarter.
The growth in new car lending exceeding that of used car lending was the reverse of usual trends, according to Jeff Taylor, an economist with NAFCU. Taylor, who compiles NAFCU's monthly "Flash" survey of 125 credit unions, attributed the trend to increased credit union marketing to individuals who don't qualify for the "zero financing" of car manufacturers and the expansion of indirect lending programs for credit unions.
Membership growth continued to stagnate, advancing at an annualized rate of just 1.9% for the quarter, the lowest in several years.
The loan delinquency ratio rose to 0.71% for the third quarter, up slightly from 0.67% in the second quarter, and 0.68% in the first quarter; while the charge-off ratio remained stable at 0.52%.
Low interest rates continued to have a toll in the third quarter as the yield on average loans slumped to what may be an all-time low of just 6.20%, down from 6.24% at mid-year, and from 6.88% a year ago. But the yield on average investments rose slightly to 2.53%, from 2.46% at mid-year.
At the same time, cost of funds to average assets remained near all time lows at just 1.38%, up slightly from 1.37% at mid-year, but down from 1.71% a year ago. This was one factor in helping credit unions maintain their ROAs.