1Q: Loans Slow, Participations Rise, ROA Up, & Net Worth Drops

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First-quarter 2021 U.S. credit union trends continue showing a changing world for the industry nationwide as they served members going from winter into spring.

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Total loan growth has noticeably slowed as members continue paying down certain types of debt, such as credit cards, personal loans, and home equity loans/HELOCs (home equity lines of credit). Hence, many credit unions have turned to loan participations offered in the industry to boost their yields.

Meanwhile, return on assets (ROA) is spiking to a level not seen in years, but the industry’s net-worth ratio continued declining.

Overall, credit unions’ balance sheets continue revealing an economy in recovery, household budgets recuperating, members still in financial need, savings rates still high, and record low interest rates mostly incentivizing purchases of homes and used vehicles — or refinancing of both.

This evolving picture was presented by Callahan & Associates during this week’s “First Quarter Trendwatch” webinar (see entire slide presentation). From March 31, 2020 – March 31, 2021 (year-over-year unless otherwise noted), U.S. credit unions experienced the following trends: 

High-Level Snapshot Trends
The industry’s balance sheet continued to grow as federal stimulus checks and tax refunds flowed into deposit accounts.

  • Share (deposit) balances are rising at the fastest pace on record and have doubled over the past nine years.
  • First-quarter loan originations increased 31 percent as both mortgage and consumer loan production accelerated.
  • However, balance sheet loan growth is slowing as members continue to pay down debt.
  • Increased share (deposit) inflows, combined with slowing loan growth, is resulting in the lowest loan-to-share ratio since 2013.
  • ROA (return on assets) has nearly doubled since last March.
  • Membership growth has picked up since last March.
  • Credit unions continue to shift to more full-time employees while reducing part-time roles.

Deposit (Share) Trends
Core deposits continue to grow at a record pace as stimulus checks and tax refunds flow into checking and savings accounts; deeper member engagement is evident in higher usage of checking accounts; and savings balance increases are driving the average member relationship to a new high.

  • Share (deposit) growth is accelerating to a record pace.
  • Federal stimulus payments are evident in quarterly share growth dynamics.
  • Certificate-of-deposit (CD) balances have fallen over the past year as members moved money into more liquid accounts.
  • Checking account penetration is at record highs — a good sign of increasing member engagement.
  • The average member relationship expanded nearly 11 percent as share (deposit) balances continued to climb.

Loan Trends
Record first-quarter loan originations were driven by consumer lending; loan balances continued to rise but at a slower rate than recent years; and asset quality improved across all areas of the industry’s loan portfolio.

  • Consumer loan originations are up substantially for the first time since the onset of the COVID-19 pandemic.
  • Despite record originations, members are paying off existing loans almost as fast as new credit can be granted.
  • First mortgages make up the bulk of net loan growth over the past six quarters.
  • First mortgages are the largest component of the industry’s loan portfolio.
  • Over the last three quarters, credit unions have increased loan participations in response to high liquidity and low interest rates.
  • Delinquency rates continued to improve across the collective loan portfolio.
  • Credit unions originated more than 98,000 more mortgages in the first three months of 2021 than a year ago — and this constituted nearly double the first-mortgage originations in first quarter of 2017.
  • Credit unions originated 1 million more loans to members in the first quarter of 2021 compared to the same period a year ago.

Earnings and Capital
Lower interest rates pushed the industry’s net interest margin to the lowest level on record; non-interest income increased due to mortgage sales and interchange income; and even though earnings rose, asset growth pushed capital ratios lower.

  • Revenue stayed flat due to low interest rates.
  • Loan yield and cost-of-funds are declining at a similar rate, but lower investment yield amid high liquidity is impacting the industry’s interest margin.
  • As the industry’s interest margin tightens, asset growth is significantly outpacing operating expense growth.
  • Due to increases in mortgage sales and interchange income, other operating income increased $1 billion year-over-year.
  • Fee income fell 2.4 percent over the year as credit unions waived or reduced fees.
  • Credit unions remain well-reserved and have reduced quarterly provision expenses.
  • ROA (return on assets) has continued to climb since first-quarter 2020.
  • Although earnings remain solid, asset growth is reducing capital ratios.
  • Asset growth is nearly double the rate of return on equity, leading to a decline in the industry’s net worth ratio.
  • Despite record balance sheet growth, 94 percent of credit unions remain well-capitalized.
  • More than 98 percent of credit union assets are well-capitalized.

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