Top 10 Credit Unions Show Refi Surge in Third Quarter

Originations accelerated for the nation’s 10 largest credit unions in the third quarter as members scrambled to refinance mortgages, but net income fell slightly.

A CU Times analysis of call reports posted by the NCUA in the past week shows the Top 10 credit unions originated $33.8 billion in loans of all kinds in the three months ending Sept. 30, up 14.9% from 2018’s third quarter. Their members increased 8% to 19.3 million.

The Top 10 account for about one-sixth of the nation’s credit union assets and members, and their results offer an early glimpse of trends for other U.S. credit unions, which the NCUA will release in about a month.

Top 10 real estate originations rose 28.2%to $11.8 billion in the third quarter—a growth rate three times as fast as the second quarter and fueled by a wave of refinancing triggered by this year’s falling interest rates. The improvements were a break from the third quarter of 2018 through the first quarter of 2019 when real estate originations fell.

Non-real estate originations reached $22.3 billion in the third quarter, rising 10.6%— up from a 6.7% gain in the second-quarter.

The 10 credit unions generated net income in the three months ending June 30 that was the annual equivalent of 1.15% of their average assets. The ROA was down 15 basis points from 2018’s third quarter and down 9 bps from the second quarter.

Income gains in all major categories offset higher operating costs in the third quarter:

• Net interest income (measured before loan loss provisions) grew 7.9% to $2.3 billion — lagging the 10.8% growth of average assets.
• Fee income grew 14.4% to $288 million, while other operating income rose 21% to $538 million.
• Employee compensation rose 16.6% to $948.4 million, while other non-interest expenses rose 16.3% to $888.6 million.
• Loan loss provisions rose 20.5% to $569.4 million,
• Leaving net income of $774.4 million, down 1.7%.

The origination gains helped credit unions end the third quarter with total loans of $189.3 billion, up 7.2%

Loan quality remained strong, but key ratios weakened slightly for the quarter. The overall net charge-off ratio was 1.03%, up 9 basis points from 2018’s third quarter. Loans 60 days or more delinquent rose 11 bps to 1.00%.

Cars make up a large portion of the non-real estate lending for all credit unions, and those loans have been slowing down for the past four years. The latest data from CUNA shows the portfolio value for total car loans in August was up 4.6% from August 2018. Among the Top 10, total car loans reached $43.4 billion as of Sept. 30, up 4.5% — about half the growth rate of their average assets.

The Top 10’s portfolio balance for new car loans grew only 1.5% to $19.9 billion as of Sept. 30. Used car loans did better, growing 7.3% to $23.5 billion at Sept. 30.

The biggest change for all lenders this year has been the unexpected surge in mortgage refinancing.

The Mortgage Bankers Association estimates that first mortgages originated by all lenders rose 32% to $605 billion in the third quarter, with 38% of the value from refinances.

MBA expects refis to peak at $632 billion in the fourth quarter, a 61% increase from 2018′s fourth quarter with 51% from refinances.

The Top 10’s results reflect this with first mortgage originations rising 31.8% to $10.3 billion in the third quarter.

But the value of first mortgages in the Top 10’s combined portfolios grew only 4.2% to reach $88.5 billion in residential first mortgages on their balance sheets as of Sept. 30.

One reason is the slower runoff of mortgages. Another is that the bulk of the gains came from refinances, with the credit unions gaining some members, some existing members swapping paper with their credit union and some members refinancing elsewhere.

The other major reason is that most of the gains were in 30-year, fixed-rate mortgages that credit unions tend to sell, which boosts their non-interest income but not their loan portfolios.

And a minor reason is that the NCUA origination numbers for first mortgages include commercial loans backed by real estate. This is still numerically much smaller than residential loans in credit union portfolios, but their value is increasing much faster. Commercial loans backed by real estate stood at $3.9 billion as of Sept. 30, up 25.8%.

The Top 10 credit unions and their total loan originations for the third quarter were:

1. Navy Federal, Vienna, Va. ($110.1 billion, 8.9 million members) with $18.1 billion, up 17.2%
2. State Employees’ Credit Union, Raleigh, N.C. ($40.9 billion, 2.5 million members) with $2.5 billion, up 17.9%
3. PenFed Credit Union, Tysons, Va. ($24.8 billion, 1.8 million members) with $2.8 billion, up 20.6%
4. BECU, Seattle ($21.8 billion, 1.2 million members) with $2.5 billion, up 13.8%
5. SchoolsFirst Federal Credit Union, Santa Ana, Calif. ($16.1 billion, 920,031 members) with $1.3 billion, up 39.8%
6. First Tech Federal Credit Union, Mountain View, Calif. ($12.9 billion, 598,346 members) with $1 billion, up 17.5%
7. Golden 1 Credit Union, Sacramento, Calif. ($12.9 billion, 1 million members) with $1.1 billion, down 9%
8. Alliant Credit Union, Chicago ($12 billion, 483,907 members) with $1 billion, up 10.8%
9. America First Federal Credit Union, Riverdale, Utah ($11.5 billion, 1.1 million members) with $2.5 billion, up 13.9%
10. Suncoast Credit Union, Tampa, Fla. ($10.4 billion, 861,191 members) with $1.1 billion, up 8.8%.