ALEXANDRIA, Va. — Third quarter data released by NCUA last week offered more signs of strengthening, leading one economist to declare, "we're officially out of the woods."
But once again most of the growth occurred among the larger credit unions, adding to the growing divide between big and small credit unions.
Loan growth, net worth and membership continue to rise at federally insured credit unions, according to the NCUA data, with Iowa and Idaho leading the way in state-by-state gains.
While overall loan growth increased by 6.8% in the year ending in the third quarter of 2013, NCUA is reporting that Idaho and Rhode Island blew past that, with loan growth of 15.2% and 12.6%, respectively.
"Federally insured credit unions are on the right course," NCUA Board Chairman Debbie Matz said. "The good news is we continue to see strong, positive trends in the industry."
Total loans in the industry rose 2.9% to $631.5 billion in the third quarter, a faster pace than in the previous quarter (2.3%), taking the loan-to-share ratio to 69.7%, the highest level since year-end 2010.
The continuing signs of a steady turnaround, however, come with some concerns. The divide among credit unions large and small persists, with CUs above $500 million garnering much of the gains. Also, credit union investments in longer-term instruments increased during Q3, bringing greater interest rate risk exposure.
The "Great Divide," an issue noted in several previous Credit Union Journal reports, continues. CUs with more than $500 million in assets lead the industry in most performance measures. With $708 billion in total assets, these 422 credit unions held 67% of industry's total assets during the quarter. They also reported a higher return on average assets than the industry as a whole.
Smaller credit unions, again, recorded higher net-worth ratios but lagged in net-worth growth, loan growth, membership gains and ROA.
"Smaller credit unions still face challenges in growing loan volume, generating earnings and attracting members, so NCUA must continue to provide them with needed assistance, training and support," Matz stated.
'Out Of The Woods'
Credit union economists hailed the NCUA data as another step in the right direction.
"I'd say we're definitely out of the woods," said David Carrier, chief economist and director of research at NAFCU. "I would say that we're back to pre-recession conditions on most variables, on the ones that really count." Carrier pointed specifically to delinquencies and charge-offs, which respectively remained steady at 1.0% (a decline from 1.2% last year) and dropped from 73 basis points to 57 points year-over-year.
Net worth ratio advanced to 10.65%, up 15 basis points from the end of the second quarter, the highest level since the end of 2008. Membership rose 0.8%, reaching 95.9 million, a new record. Credit unions have added more than 2 million members in the last four quarters.
Once again, new auto loans played a key role in boosting lending, growing to $69 billion, up 4% from the second quarter and up 11.4% since the end of the third quarter of 2012. Used auto loans increased to nearly $125 billion, up 3.1% from the previous quarter and up 9.7% since the end of the third quarter of 2012.
First mortgage loans reached $262.3 billion, up 3.3% from the second quarter and up 7.7% since the end of the third quarter of 2012. Net member business loan balances grew to more than $44.6 billion, up 2.5% from the second quarter and up 9.3% since the end of the third quarter of 2012.
"If I'm looking for positives in these numbers, it would be the return of consumer loan growth," said Bill Hampel chief economist at CUNA, adding that non-mortgage loans have seen a marked increase in the past year. "The fact that new and used vehicles and student loans grew the way they did is really, really good news for credit unions."
The economist also noted that CUs continue to see strong gains in mortgage originations, despite recent signs that long-term interest rates are on the rise.
"We were expecting mortgage origination rates to slow down, which would mean that this source of revenue would slow down," said Hampel. "It hasn't slowed down; credit unions have made similar amounts of first mortgages in the first, second and third quarters of the year. New mortgage lending... held up in Q3 better than what I expected, so gains from selling those mortgages held up also."
Perhaps the most significant quarterly uptick came in the area of student loans, which grew by 10.2% during Q3 to hit $2.5 billion, a 32% increase since the third quarter of last year.
But rather than say this might be the sign of any kind of bubble in that market, NAFCU's Carrier said he didn't believe there was a ceiling in student lending beyond which CUs would be unable to grow.
"Credit unions make up such a small part of the market that there's a lot of room to grow," he said.
Credit union membership currently stands at a record 95.9 million, having seen an increase during Q3 of nearly 727,000 members, or 0.8%. More than two million members have joined CUs in the last four quarters. Membership at federal insured CUs rose by 2.2% in the year ending in Q3, with. Idaho leading the nation in membership gains (8.9%) and Virginia close behind at 7.8%.
ROA declined from the same period last year, falling to 80 basis points from 86. ROA was only up in eight states and Guam, with Utah holding the highest annualized ROA at 144 basis points.
- Ray Birch contributed to this report.
