The lowest interest rates in a generation slowed deposit growth at credit unions in the first half but spurred borrowing, according to a credit union consulting firm.

Deposits at the nation's 12.912 credit unions totaled $248.7 billion on June 30, only 6.6% more than a year earlier, after a 9.6% increase in the previous 12 months, according to Callahan & Associates, a Washington-based credit union consulting research firm.

But loans grew 5.9%, to $148.9 billion, after a mere 1.3% increase in the year-earlier period.

"We're seeing the end of the effect of the recession," said William Hampel, chief economist for the Credit Union National Association, the industry's largest trade group.

"People are spending more, and they're not building up savings. The softer savings growth is the mirror image of the stronger loan growth."

Searching for Higher Returns

Many consumers, faced with low interest rates at depository institutions, are also taking their savings in search of higher returns elsewhere, said Jay Johnson, director of data services for Callahan & Associates.

A lot of the decline in deposits is due to disintermediation, Mr. Johnson said.

"People are moving away from traditional financial institutions to mutual funds and other areas," he said. "People are looking for other places to earn money."

Credit unions' total assets rose 7.7%, to $277.4 billion, after a 10% increase from mid-1991 to mid-1992. Three more credit unions joined the $1 billion-plus club, raising its membership to 12.

The newcomers are Orange County Teachers Federal Credit Union. Santa Ana, Calif.; LMSC Federal Credit Union, Sunnyville, Calif.; and Citizens Equity Federal Credit Union, Peoria, Ill.

Big Institutions Gain

The largest institution. Navy Federal Credit Union in Merrifield, Va., saw deposits increase by 16.5% in the period and assets climb to $7.6 billion.

The assets of the 100 largest credit unions grew faster than the industry -- 9.3%.

The top 100, whose $69.5 billion in assets represents 25. 1 % of total credit union assets, enjoyed a 7.7% loan growth.

Low interest rates pushed industry increases in return-on-asset and capital-to-asset ratios, Mr. Hampel said. The average return climbed to 1.5% from 1.3%, and the capital ratios rose to 9.3% from 8.5%.

Earnings Climb

Net income for the first six months of 1993 came in at nearly $2 billion. up from $1.6 billion in the year-earlier period. The top 100 earned $525.2 million in the first six months.

"The increase in net earnings is an accident -- it's not something planned for or caused by actions of credit unions to increase net income." Mr. Hampel said. "Failing interest rates pushed up net income. If interest rates rise or stay the same, net income will go back down." "With low rates the cost of funds has been going down slightly, but credit unions are keeping their spreads up at the same level," added Mr. Johnson. "Credit unions are just doing well at managing the spreads."

The average loan-to-share ratio to 59.9% from 60.3% as deposit growth outpaced loan growth, Mr. Johnson said.

'Aggressive Lenders'

Founders Federal Credit Union. Lancaster. S.C.. enjoyed the highest loan-to-deposit ratio -91.5% -- among the 100 largest credit unions. Founders ranked 84th in terms of asset size, with $365.1 million.

"We're aggressive lenders," said Richard Plyler, vice president of branch operations. "We look for reasons to make loans to people."

He cited a diverse portfolio and competitive pricing as reasons for the institution's showing. As of August, the institution had $375 million of assets and was 92.4% loaned out with a loan portfolio worth $307 million.

Founders' delinquency rate, down from 1.4%, now stands at 0.8% -- just above the June industrywide average of 1.1%. Delinquency for the top 100 weighed in at 0.7%.

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