Top 10 Credit Unions' 4th-Quarter Originations Spike as Income Slides

Heavy levels of mortgage refinancing allowed the nation’s largest credit unions to continue to increase loan originations in last three months of 2019, even as originations continued to slow for cars and other non-real estate loans.

The 10 largest credit unions by assets generated $34.7 billion in loans in the three months ending Dec. 31, up 21.6% from originations during 2018’s fourth quarter.

Fourth-quarter net income was strong, but it was 7.2% lower than 2018’s fourth quarter, and followed a 1.7% drop in third-quarter income.

The Top 10 represent 19.6 million of the nation’s 122.3 million credit union members, and hold $276.9 billion in assets — about one-sixth of the movement’s total. While they tend to have faster growth and higher margins than smaller credit unions, they are important bellwethers of trends shared with others, whose results will be released by NCUA in bulk in about a month.

This round of results shows net income declining as both net interest income and operating income fell. While payroll expenses rose much faster than average assets, the effect was largely cancelled as managers hemmed in other operating expenses.

Net interest income — the largest source of income — grew at a pace slower than average assets. Credit unions generated $2.3 billion in net interest income measured before loan loss provisions during the fourth quarter, up 7.4%, while average assets rose 10.8%.

Net interest income represented an annualized 3.41% of their $275.2 billion in average assets for the three months, down 11 basis points from 2018’s fourth quarter.

Fee income was 0.31% of average assets, down 12 bps, while all other forms of operating income rose 2 bps to 0.74%.

While employee compensation and benefits rose 18 bps to 1.44% and the number of full-time employees rose 7.4% to 40,488, all other operating expenses fell 21 bps to 1.21%.

Lastly, provisions for loan losses rose just 1 basis point to 0.85%.

The resulting $655 million net gain was 7.2% lower than in 2018’s fourth quarter, and represented an annualized 0.95% of the quarter’s average assets, 18 bps lower than ROA in 2018’s fourth quarter.

The effects of the refinancing boom can be seen in fourth-quarter originations as real estate loan production grew 55.2% — six times faster than other loans. The result is in sharp relief from 2018’s fourth quarter, when real estate originations fell 14.8% from 2017’s fourth quarter, while non-real estate loans rose 13.6%.

Fixed-rate first mortgage originations during the three months ending Dec. 31 were $10.9 billion — double those of 2018’s fourth quarter.

Altogether, first mortgages rose 83.6% to $12 billion, while second liens fell 80% to $275.5 million. Also, credit unions more than doubled their origination of commercial loans backed by real estate to $487 million.

Car and other non-real estate loan originations rose 8.6% to $22.4 billion in the fourth quarter. That’s down from a year-ago growth rate of 10.6% as of 2019’s third quarter.

The Top 10’s results for the fourth quarter compared with 2018’s fourth quarter are:

1. Navy Federal, Vienna, Va. ($112 billion, 9 million members) originated $5.5 billion in real estate loans, +38.1%, and $12.3 billion in others, +7.3%. ROA was 1.39%, -32 bps.

2. State Employees’ Credit Union, Raleigh, N.C. ($41.4 billion, 2.5 million members) originated $1.3 billion in real estate loans, +36%, and $1.3 billion in others, +8.3%. ROA was 0.67%, 0 bps.

3. PenFed Credit Union, Tysons, Va. ($24.8 billion, 1.9 million members) originated $967.9 million in real estate loans, +76.5%, and $2.1 billion in others, +22.2%. ROA was 0.20%, -26 bps.

4. BECU, Seattle ($22.2 billion, 1.2 million members) originated $980.9 million in real estate loans, +57.9%, and $1.5 billion in others, +4.8%. ROA was 1.24%, +3 bps.

5. SchoolsFirst Federal Credit Union, Santa Ana, Calif. ($16 billion, 936,243 members) originated $853.4 million in real estate loans, +124.6%, and $552.3 million in others, +5.2%. ROA was 1.14%, +6 bps.

6. First Tech Federal Credit Union, San Jose, Calif. ($13.1 billion, 610,473 members) originated $774.6 million in real estate loans, +55%, and $267 million in others, +7.8%. ROA was 0.61%, -6 bps.

7. Golden 1 Credit Union, Sacramento, Calif. ($13 billion, 1.1 million members) originated $370.7 million in real estate loans, +27.5%, and $644.8 million in others, -24.5%. ROA was 0.07%, -49 bps.

8. Alliant Credit Union, Chicago ($12.2 billion, 493,675 members) originated $511.9 million in real estate loans, +198.3%, and $815.5 million in others, +17.7%. ROA was 0.40%, unchanged.

9. America First Federal Credit Union, Riverdale, Utah ($11.7 billion, 1.1 million members) originated $686.2 million in real estate loans, +107.7%, and $2 billion in others, +28.1%. ROA was 0.43%, -69 bps.

10. Suncoast Credit Union, Tampa, Fla. ($10.5 billion, 874,011 members) originated $402.7 million in real estate loans, +124.2%, and $851.5 million in others, -2.1%. ROA was 1.01%, -4 bps.