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Credit unions had a strong first quarter. With shares growing at the fastest pace in four years and loan quality remaining high, the industry is positioned for momentum in 2007. The first quarter results released from the Federal Deposit Insurance Corporation by comparison, pointed to struggles in the nation’s 8,650 banks.
Credit Union Growth Outpaces Banks
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Quarterly Growth
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|
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Banks
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Credit Unions
|
|
Deposit Growth*
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0.9%
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4.2%
|
|
Loan Growth
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0.6%
|
0.2%
|
|
RE Loan Growth**
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-0.3%
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1.3%
|
|
Credit Card Growth
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-7.8%
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-2.9%
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Asset Growth
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1.0%
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3.4%
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# of Insitutions
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-31
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-58
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*Domestic deposits
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**Residential
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The up-tick in share growth for credit unions was the highest level of quarterly share growth, at 4.2% ($25.6 billion) since the first quarter of 2003. Where did these shares come from? Some were brought in because of the 0.5% quarterly jump in membership, the highest level in the past two years.
Credit union real estate loan growth remains modest at 1.4% since the end of 2006. Despite the slow growth, originations during the first quarter of the past four years have been on the rise. Much of the activity was brought about by re-financings. Because of higher loan quality, credit unions did not have to restrict lending standards as much as banks did during the weakening of the real estate market. The effect on banks can be seen in the –0.3% quarterly decline in their mortgage portfolios.
The Credit Union Difference Seen in the Business Model
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Business Model
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Banks
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Credit Unions
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Net Interest Margin
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3.32%
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3.09%
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Non-Interest Income
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2.09%
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1.24%
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Provision for Loan Loss
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0.31%
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0.30%
|
|
Operating Expenses
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2.94%
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3.34%
|
|
ROA
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1.21%
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0.73%
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ROA for both banks and credit unions decreased significantly over the first quarter. The main driver of this for banks was a 54.6% increase in their provisions for loan loss as banks had significant uncertainty in their loan portfolios. For credit unions, higher dividends to members caused the drop in ROA as the interest expense increased 37.8% over the past year. This illustrates the credit union difference.
Overall, 2007 holds a lot of promise for credit unions. With share growth at its strongest point in years and loan growth steady, the industry is on solid footing to increase their market share in the financial services sector.
