No. 1: Auto Growth Remains Strong; Indirect Slows Slightly
At fourth quarter, the indirect share of the entire credit union loan portfolio hit 20.2%, which represents nearly $200 million in loans.
Although the rate of indirect growth has slowed, the total portfolio expanded an impressive 11.3% in 2017. Year-over-year indirect growth fell 3.4 percentage points, however, the deceleration was seen across all asset bands:
Credit unions <$100M: -0.5%
Credit unions $100M-$500M: -3.6%
Credit unions $500M-$1B: -3.5%
Credit unions $1B+: -3.6%
New and used auto balances expanded 13.2% and 10.3% year-over-year, down 3.6 and 2.1 percentage points from the rates post at year-end 2016, respectively.. Despite the slight deceleration in growth, the outlook for the industry remains robust headed into 2018. Read more about that shift on CreditUnions.com.
No. 2: Loan-To-Share Ratio Hits Highest Level Since 2008
At fourth quarter, the industry’s loan-to-share ratio of 82.5% rose 3 percentage points year-over-year and is at its highest level since the third quarter of 2008. Loans increased 10.0% year-over-year, while shares increased 6.0% over this same period.
Fourth quarter’s share growth is a 1.6 percentage point drop from fourth quarter 2016, and halts three consecutive years of positive share growth increases. Interestingly, as total share growth slows, so do growth in money market accounts and regular shares; in contrast, both share drafts (by 0.5 percentage points) and share certificates (1.4 percentage points) outpaced year-over-year growth rates.
Future share certificate growth is something to watch as liquidity continues to tighten throughout the industry, certificates represent an avenue for cooperatives to fund new loans.
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No. 3: Earnings Gap Pushes Spread To Lowest Year-End Difference Since 2009
At fourth quarter, the difference between the industry’s net interest margin and operating expense ratio is 10 basis points, the tightest gap since the three basis point difference in 2009, reducing the industry’s need for non-interest income as loan and investment income are increasingly covering a larger portion of credit union’s operating expenses.
Margins have broadly improved at credit unions over the past few years thanks to favorable economic conditions. Favorable economic conditions, including rising interest rates, have pushed yield on credit union investments 53 basis points higher since 2013. Over that same period, the net interest margin has steadily grown from 2.80% to 2.99% in fourth quarter 2017.
The operating expense ratio, meanwhile, has fallen 7 basis points between fourth quarter 2013 and 2017, indicating greater efficiencies in the cooperative industry’s operating model.
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