Deposit Growth in 2014 Hinges on Member Loans
As the nation slowly thaws out after brutally cold weather, credit unions may continue to see a bit of a freeze when it comes to deposit growth this year.
“Our current forecast assumes deposit growth will remain muted until credit unions can place a larger share of assets into member loans,” said Dave Colby, chief economist for CUNA Mutual Group in Madison, Wis. “Growth will be controlled by continued low deposit pricing.”
Indeed, industry data showed the national average rates paid on deposits fell again to new record lows, according to CUNA Mutual Group's December CU Trends Report, which cited data from CUNA. This trend is reaffirmed by NCUA third quarter data that showed credit unions’ cost-of-funds at just 59 basis points, down 15 basis points from a year ago. Even though money market accounts combined with other savings products had significant gains, certificates of deposit and individual retirement accounts have been down year-to-date and year-over-year.
Meanwhile, the loan growth trend that began in 2011 continues, the NCUA reported. Total loans in the industry rose 2.9% to $631.5 billion in the third quarter of 2013. In nearly every lending category, including new and used auto loans, first mortgage loans and member business loans, federally insured credit unions saw growth, the agency said.
Across the country, stories of loan growth permeate. For instance, Alabama and Florida's 279 credit unions increased their loan portfolios by more than $900 million in the third quarter of 2013, with member business lending accounting for a notable portion of the growth, the League of Southeastern Credit Unions reported.
In Alabama, credit unions added $187 million in new loans from the second quarter to the third quarter, according to Call Report data, with nearly $8 million of those loans coming from member business lending. Florida experienced a similar trend with credit unions increasing their loans by $753 million during the same period, with $61 million coming from MBLs. For the first three quarters of 2013, Alabama credit unions made more than $20 million in loans to small businesses, while Florida's added $142 million in MBLs.
“You can clearly see over the past three years more consumers are looking for loans,” said LSCU & Affiliates President/CEO Patrick La Pine. “Credit unions have been in a great position to help their members purchase new and used autos, as well as new homes. Member business loans have picked up over the past 10 quarters as more businesses recognize credit unions want to help them grow their business.”
Like many others in the industry, the $4.2 million Fort Roots Federal Credit Union in North Little Rock, Ark., saw some of its members tightening their financial belts during the Great Recession, said Vicki Pettit, loan manager and assistant manager, the Cornerstone Credit Union League recently reported.
However, when consumer confidence increased, loan demand began to pick up as well, Pettit noted. The credit union experienced a 14% increase in loans from Sept. 30, 2012, to Sept. 30, 2013. At $2.3 million, Fort Roots FCU's loan portfolio is at the highest it's been in two years, Pettit said. While the credit union has not seen much growth in new vehicle loans, used auto financing was up 55% in the third quarter of 2013.
Meanwhile, in Pennsylvania, the number of credit unions offering business lending has increased so much – 133 active business lending contacts at 32 credit unions statewide – that the Pennsylvania Credit Union Association said it has provided its complete list of lenders to the Pennsylvania Small Business Development Centers so that credit unions can get more referrals from those offices.
Despite the lending success stories, NCUA Board Chairman Debbie Matz said smaller credit unions still face challenges in growing loan volume. She also cautioned that interest rate risk, particularly in rate-sensitive deposits, fixed-rate mortgages and certain investments, is something credit unions should take very seriously.