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Loan growth slows for credit unions YOY but still tops double digits

Credit unions saw a slowing of year-over-year loan growth in the third quarter of 2017, but that expansion still measures in double digits.

Credit unions grew total loans to $947.49 billion at Sept. 30, an S&P Global Market Intelligence study found. That marked a 2.6% increase from the linked quarter and a 10.5% rise from the year-ago quarter. Comparatively, the year-over-year growth rate was 10.8% in the 2017 second quarter and 10.7% in the 2017 first quarter. The 2017 third-quarter growth was mainly driven by vehicle loans and closed-end first-lien one- to four-family loans.

Aggregate loans were up by 1.0% quarter over quarter among U.S. banks and thrifts, to a total of $9.557 trillion. This still represented a year-over-year loan growth of 3.5%. Loan growth over the year was spread across many sectors, including $162.80 billion in real estate, $48.41 billion in commercial and industrial, and $58.15 billion in consumer.

La Crosse, Wis.-based Marine Credit Union, with assets of $758.9 million, had total loans of $614.0 million at the end of the third quarter. That represented year-over-year loan growth of 15.7%. Marine also saw 17.2% deposit growth over the year, bringing its total deposits to $507.3 million.

President and CEO Shawn Hanson said in an interview that he is optimistic about lending heading into 2018 because the economy continues to be strong, most markets are near full employment and consumer confidence is on an eight-year upward trend and near all-time highs. "People are working and people are spending," he said.

Hanson said rising interest rates have not yet impacted consumer borrowing and likely will not in 2018. Depositors are seeing more options for higher-yielding certificates and money market accounts, which will create increased liquidity pressure for community financial institutions in 2018, he said.

Deposits at credit unions increased 6.7% year over year to $1.165 trillion, bringing the industry's loan-to-deposit ratio to 81.34% at the end of the 2017 third quarter, up from 78.52% a year earlier. Money market deposit accounts and other savings deposits increased by $46.70 billion over the year to total $686.75 billion. Meanwhile, banking sector deposits climbed 3.3% year over year, boosted by a $344.05 billion increase in money market deposit accounts and other savings deposits, resulting in an aggregate loan-to-deposit ratio of 72.30%.

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Golden 1 CU, with assets of $11.34 billion, had total loans of $8.07 billion at the end of the third quarter. That represented year-over-year loan growth of 17.1% for the Sacramento, Calif.-based credit union. Golden 1 also saw 9.7% deposit growth over the year, bringing its total deposits to $9.91 billion.

Chief Marketing Officer Doug Aguiar said in an interview that rising interest rates are a sign of an improving economy, and they can motivate buyers who are thinking of purchasing a home or car while interest rates are more affordable. He said the credit union is seeing increased interest in its home equity lending programs with members leveraging their homes as an asset due to the combination of slowly rising interest rates as well as home price appreciation in California. In addition, more sophisticated, less risk-averse borrowers in the higher-priced markets are exploring adjustable-rate mortgages, he said.

Given its size, as the sixth-largest credit union in the U.S. based on assets, Golden 1 CU considers the large Wall Street banks as its primary competitors, Aguiar said. "We offer the financial products, services, and digital innovations consumers expect from a large institution while staying true to our mission of providing value, convenience, and exceptional service," he said.

For Marine CU, Hanson said consumer borrowing and mortgage should be strong in 2018. "Although the [Federal Reserve] is expected to continue increasing short-term rates, we're seeing a flattening of the yield curve, creating no significant upward pressure on mortgage rates," he said.

Marine is not seeing much competition from community banks in its core consumer and mortgage products. That is partly because it is different from most credit unions in that it operates around subprime credits and makes loans to borrowers that other financial institutions avoid. Deposit customers seem to be more agnostic, but liquidity has not tightened much yet. "But we expect it will if lending remains strong and short-term rates continue to rise," he said.

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Click here to view aggregates for U.S. credit unions, here for U.S. commercial banks, here for U.S. savings banks and here for U.S. savings & loan associations.
Commercial banks, savings banks and savings & loan associations report deposit information on Call Report Schedule RC-E and loan information on Call Report Schedule RC-C. These schedules can be accessed under the Regulatory Financials section of a company's Briefing Book page on the MI web platform or in MI Office.