Top 10 CUs Show Real Estate Revival

The nation's 10 largest credit unions showed healthy gains in both real estate and other loan originations in the second quarter, breaking a string of three quarters of declining mortgage production.

Meanwhile, their already-strong returns improved as continuing big gains in interest income and low loan losses overcame rising expenses and a drop in noninterest income, according to a CU Times analysis of call reports posted by the NCUA in the past week.

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The Top 10 account for about one-sixth of the nation's credit union assets and members. Their results tend to be better than smaller credit unions, but their trends in income and loan production tend to align with results for credit unions nationwide, which the NCUA will release in about a month.

The Top 10 generated net income in the three months ending June 30 that was the annual equivalent of 1.24% of their average assets, up nine basis points from their return on average assets in 2018's second quarter.

The largest single contributor to returns came from net interest income (measured before loan loss provisions), which was $2.5 billion, up 19.4%.

The interest gains allowed the Top 10 to overcome an 8% drop in noninterest income and absorb expenses that rose faster than their 10.5% gain in assets.

Fee income rose 8.7% to $269.4 million, while other operating income fell 24.9% to $357.2 million.
Employee compensation rose 12.9% to $884.2 million, while other noninterest expenses rose 11.8% to $843.1 million.
Loan loss provisions rose only 3.1% to $580.7 million, leaving net income of $819.5 million, up 19.2%.

In the three months ending June 30, credit unions originated $31.9 billion in loans of all types, up 7.3% from 2018′s second quarter. Real estate originations rose 8.7% to $10.5 billion, up 8.7%, while other loans rose 6.7% to $21.4 billion.

The origination gains were a dramatic improvement from the first quarter, when total originations fell 1.2% as real estate fell 14.7% to $6.3 billion, and other loans rose only 4.8% to $17.7 billion. Real estate originations had also fallen 3.2% in the third quarter and 14.8% in the fourth quarter of 2018.

The real estate improvement among the big credit unions followed a national trend as residential mortgage originations reversed course in the second quarter.

In the first quarter, originations fell 5% to $325 billion, but rose 10.8% to $501 billion in the three months ending June 30, according to the Mortgage Bankers Association in Washington, D.C.

Purchase originations rose 6.3% to $355 billion in the second quarter among all lenders, while refinances rose 23.7% to $156 billion.

The MBA said it expects U.S. third-quarter originations to rise 20.4%, with a 6.9% increase in purchases and a 62.2% surge in refinances. In the fourth quarter, the increase is expected to be 4.8%, with a 3.4% increase in purchases and an 8.9% increase in refinances.

The net effect for credit unions for the first half was that total originations were up 3.1% with a 1.7% drop in real estate offset by a 5.3% gain in other loans.

The origination gains helped credit unions end the second quarter with total loans rising 7.8% to $185.2 billion, and membership rising 7.9% to 18.9 million.

The Top 10 and their total originations in the quarter were:

Navy Federal, Vienna, Va. ($106 billion, 8.6 million members) with $17.4 billion, up 11.6%.
State Employees' Credit Union, Raleigh, N.C. ($40.6 billion, 2.4 million members) with $2.4 billion, up 10%.
Pentagon Federal Credit Union, Tysons, Va. ($24.4 billion, 1.8 million members) with $2.3 billion, down 15.2%.
BECU, Seattle, Wash,. ($21.2 billion, 1.2 million members) with $2.4 billion, up 19.2%.
SchoolsFirst Federal Credit Union, Santa Ana, Calif. ($16 billion, 897,015 members) with $1.1 billion, up 18.6%.
Golden 1 Credit Union, Sacramento, Calif. ($12.6 billion, one million members) with $1 billion, down 2%.
First Tech Federal Credit Union, Mountain View, Calif. ($12.6 billion, 581,930 members) with $1 billion, up 1.5%.
Alliant Credit Union, Chicago, Ill., ($11.8 billion, 467,991 members) with $902.4 million, down 8.1%.
America First Federal Credit Union, Riverdale, Utah ($11.2 billion, 1 million members) with $2.2 billion, down 0.4%.
Suncoast Credit Union, Tampa, Fla. ($10.3 billion, 844,897 members) with $1.1 billion, up 8.6%.

The biggest origination gains for residential real estate were made by Navy Federal with $5.5 billion (+17.5%), Golden 1 with $354.5 million (+40.6%) and SchoolsFirst with $540.5 million (+27.7%). They fell for PenFed with $564.8 million (-46%) and First Tech with $626.7 million (-17.1%).

Large gains in real estate-backed commercial loan production were made at BECU with production doubling to $180 million, and at First Tech, where they nearly tripled to $47.2 million.

The largest gains in non-real estate loan originations were made by BECU with $1.6 billion (+18.8%) and First Tech with $366.6 million (+45.4%). Declines occurred at Golden 1 with $1 billion (-2%) and Alliant with $902.4 million (-8.1%).

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