Callahan Projects Healthy 4Q Gains for Credit Unions

Credit unions increased their loan originations and net income in the three months ending Dec. 31, 2019, capping off a decade that analysts at Callahan & Associates said Thursday was one of the best ever for the movement.

“We ended the year surging,” Jay Johnson, Callahan & Associates chief collaboration officer, said during its quarterly Trendwatch webinar. “We have an environment that’s good for 2020.”

The three-month dollar volume of loan originations hit record highs in the second, third and fourth quarters, according to research from the Washington, D.C.-based credit union company.

“Mortgages are really driving it,” Callahan & Associates President/CEO Jon Jeffreys said. “That momentum may continue. That will supply really strong growth through the year.”

Credit unions originated about $158 billion in loans in the three months ending Dec. 31, up 29% from 2018’s fourth quarter.

First mortgages accounted for $58.5 billion of those fourth-quarter originations, an 81% increase from 2018’s fourth quarter.

Other real estate loans fell 6% to $8.5 billion, while non-real estate loan originations rose 12% to $91 billion.

Membership and portfolio balances grew at a slower pace than previous years. The slowdown in growth on the automotive side has been driven in part by a sharp slowdown in indirect lending after several years of aggressive expansion among some credit unions. One factor is enthusiastic competition on interest rates.

“We’ve been hearing from a number of credit unions they wanted to back off a little bit,” Johnson said.

Credit unions held $229.6 billion in indirect loans at the end of 2019, much of it for cars. That balance was only 2.7% greater than the end of 2018, and the slowest yearly growth rate since 2012. Growth ranged from about 20% to 22% from 2014 to 2016, and was 14.3% in 2018.

While net income fell for the largest credit unions in the fourth quarter, Callahan found the movement as a whole showed a gain.

Callahan projected net income rose 8.6% for the three months ending Dec. 31, and was an annualized 0.93% of average assets, up slightly from ROA of 0.92% in 2018’s fourth quarter.

Twelve-month ROA for 2019 was 0.93%, up from 0.92% in 2018, and well above the 0.75% to 0.80% range from 2014 to 2017.

Credit unions have attracted new members and deepened existing relationships over the past five years.

At the end of 2019, an all-time high of 58.8% of members had a share draft account, up from 53.9% in 2014. Members with auto loans rose 3.7 percentage points to 21.3%, and credit card usage rose 1.1 points to 17.7%.

The average member held $19,472 in loans and deposits with their credit union at year’s end, up from $16,248 at the end of 2014.