Industry Performance By The Numbers (1Q 2014)

A break down of the industry’s financial performance and impact in 1Q 2014.

 
 

Lending

Credit unions serve up an extra $4.5B consumer loans in this quarter over 2013 levels.

Auto Lending

A revitalized car market results in peak balances achieved and new territory gained.

Mortgage Lending

Shifting consumer priorities provide a lesson in adaptability.

Market Share Maps

Credit Cards

The power of plastic appeals to members and credit unions alike.

Member Business Loans

Balances rise at a double-digit pace over the past year.

Investments

A constant influx of rates and rules keeps strategies short.

Member Relationships

Core product usage by members continues to rise.

Earnings

Increased lending actually lifts interest income and margins.

Shares

Credit unions connect with an ongoing consumer priority.


Lending

Credit unions serve up an extra $4.5B in consumer loans this quarter over 2013 levels.

Consumer lending led credit union origination activity at the start of 2014, up 10.2% over the first three months of last year with an additional $4.5 billion loaned out to members. This increase has helped offset lower mortgage originations as refinancing volume continues to slow due to higher interest rates.

New auto loans were the fastest growing segment of the loan portfolio, up 13.8% from March 2013. Used autos posted strong growth as well, increasing 11.3% annually as of the first quarter.

As members become more confident in the economy, they are borrowing more and saving less. As a result, loan growth now outpaces share growth at credit unions, a shift that first took hold in the second half of 2013 and is continually becoming more pronounced. The annual growth of outstanding loans at credit unions was 8.8% as of March 2014, with annual share growth at 3.6%.

41%

The percentage of mortgage originations in the U.S. that are expected to be refinancings in 2014, down from 63% in 2013.
Source: Mortgage Bankers Association

0.81%

The reportable delinquency rate for credit unions as of March 31, which is the lowest level since 2007 and well below the banks’ rate of 2.46%.
Source: Callahan & Associates’ Peer-to-Peer Analytics

Auto Lending

A revitalized car market results in peak balances achieved and new territory gained.

Auto lending surged in the first quarter as consumers ramped up car purchases. The auto loan portfolio grew by 12.2% over the past 12 months, marking the first time since the recession that auto loans posted double-digit growth. Credit unions also recorded the highest outstanding auto loan balances in the industry’s history this quarter, reaching $205.5 billion.

Used auto loan balances continue to rise, growing by 11.3% to top $131 billion as of March, while new auto loan balances total $74.1 billion after posting 13.8% annual growth. This marks the second consecutive year in which the new auto loan growth rate has exceeded that of used autos.

According to AutoCount data from Experian Automotive and analyzed by Callahan & Associates, credit unions have increased their national share of auto loan originations from 13.4% in the first quarter of 2011 to 15.3% in the first quarter of 2014. As credit union market share rises, captive auto lenders and banks are experiencing a corresponding decrease in market share.

Overall Auto Sales

16.4 million

The total number of outstanding auto loans at Credit Unions as of March 2014.

15.3%

Credit Unions’ Year-to-date market share for auto originations in the first quarter of 2014.
Source: Experian Automotive and Callahan & Associates’ Peer-to-Peer Analytics

Mortgage Lending

Shifting consumer priorities provide a lesson in adaptability.

Mortgage origination volume continued to slow in early 2014, as higher interest rates reduced member demand for refinancing. In the first three months of the year credit unions originated $17.5 billion in first mortgages, down 44% from the same period in 2013.

Despite this decreased volume, national market share is larger than it was a year ago, with credit unions accounting for 7.7% of the $226 billion total U.S. mortgage originations reported by the Mortgage Bankers Association in the first quarter. This is higher than the 6.5% achieved by cooperatives in the first quarter of 2013 and is only surpassed by the 8.2% market share recorded in the first quarter of 2012.

Credit unions may get some slight relief with regards to mortgage regulations later in 2014, following the implementation of qualified mortgage (QM) rules in January. The Consumer Financial Protection Bureau (CFPB) has issued a proposal that would allow lenders to refund points and fees over the 3% limit for qualified mortgages if they were mistakenly exceeded during the origination process. As both lenders and regulators finally experience QM rules in practice, many credit unions want more flexibility within this regulation.


Market Share Maps


Credit Cards

The power of plastic appeals to members and credit unions alike.

Credit card balances reached nearly $42 billion in March, with a 7.5% annual growth rate that signifies the highest first quarter watermark for this metric. The total number of credit cards has also reached a new post-recession peak and members are increasingly turning to their credit union for this payment option, with nearly 1.1 million active credit cards added over the past year. This represents a 7.5% increase in active cards from March 2013 and is five times larger than the growth reported five years ago. All together, there were 15.8 million active credit card accounts reported at the end of the first quarter.

As of March, close to 57% of the industry managed a credit card program for its members, up from 53% a year ago. Credit unions also reported over $90 billion in unused lines of credit within these programs.

The average credit card balance grew slightly over the past year to $2,664 as of March 2014. Member penetration also rose during the same time frame, with 16.0% of members using a credit union credit card at the end of the first quarter.

4.87%

Credit unions’ credit card market share increased 28 basis points over the past year to reach this level as of March 2014.

16.0%

The percentage of members with an active credit union credit card.


Investments

A constant influx of rates and rules keeps strategies short.

Managing the investment portfolio against a backdrop of continued lower short-term rates and regulatory uncertainty remains an important component of credit unions’ balance sheet strategy. Although the total investment and cash portfolio was down 2.9% from March 2013, credit unions have received a higher return on their investments.

In fact, the average yield on investments has crept up since bottoming out at 1.07% in the first quarter of last year, reaching 1.14% in the first quarter of 2014.

Federal agency securities are still the primary vehicle of choice at credit unions, representing 49% of total investments. But there have also been large increases in cash invested at other financial institutions from the end of 2013 to March, including balances at the Federal Reserve (from $56.3 billion to $70.9 billion) as well as an increase in cash at corporate credit unions (from $19.1 billion to $25.3 billion). Credit unions may simply be seeking to keep more funds liquid in anticipation of making new loans or they could be waiting for rates to rise.


Earnings

Increased lending activity lifts interest income and margins.

The total revenue of $12.4 billion achieved by the credit union industry through March 2014 is down 23 basis points compared to first quarter 2013. In the first three months of this year, credit unions reported growth in both loan and investment interest income, which helped offset a decline in non-interest income. Because of accelerating demand for loans, loan income rose by 1.9% to reach $8.0 billion in the first quarter. Investment income also benefited from higher interest rates, growing 7.3% over the past year to reach $1.1 billion.

The growing loan portfolio has driven a rise in the net interest margin, which increased 3 basis points annually through the first quarter. This is the first time since 2010 that the metric has increased year-over-year.

Conversely, non-interest income was lower in March 2014 versus the first three months of 2013, with fee and other operating income declining 5.5% and 8.7% respectively. Other operating income levels were particularly affected by reduced income from mortgage sales to the secondary market as first mortgage volume slowed. Credit unions sold $5.7 billion in loans to the secondary market in the first quarter of 2014, down 68.8% from a year ago.

Operating expenses were 3.7% higher this quarter compared to the first quarter of 2013, driven largely by increases in salaries and benefits. Because expenses rose slightly slower than the pace of asset growth, the operating expense ratio dropped one basis point to 3.03%.

Return on assets was 0.78% through March 2014, five basis points below first quarter 2013 results. With asset growth slowed due to lower share inflows, the need for higher earnings is lessened. Even with a lower ROA, the industry’s net worth ratio has still increased 30 basis points to reach 10.6% as of March.

2.80%

The net interest margin for credit unions in the first quarter, up 3 basis points from the first quarter of 2013, the first time since 2010 that the metric has increased year-over-year.


Shares

Credit unions connect with an ongoing consumer priority.

Members added $33.4 billion in share balances during the first three months of 2014, a 3.6% growth rate from the beginning of the year. Annual share growth is comparable to the end of 2013, falling only 3 basis points to reach 3.6%. Although this metric was stable in the first quarter of 2014, the spread between loan growth and share growth is widening as loan growth continues to accelerate.

Share growth is being driven by core deposit categories. Regular shares posted the largest increase over the past year, growing 7.6% to reach nearly $333 billion. Share draft balances were the second fastest growing, up 5.9% over the same period to reach nearly $131 billion. Even money market balances have increased 4.4% since last March to stand at $220.3 billion.

Longer-term savings options have remained relatively unpopular, as members are still hesitant to lock up their funds in a low interest rate environment. IRA/Keogh balances are down 1.2% from last March, while share certificate balances have also declined 3.0% over the same period.

$7.3 billion

The amount member balances in share draft accounts increased between March 2013 and March 2014.