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Gap widens between credit unions and banks on YOY loan growth

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Gap widens between credit unions and banks on YOY loan growth

U.S. credit unions continued to outpace banks in year-over-year growth for both loans and deposits at the end of the first quarter of 2017.

Credit unions grew total loans to $895.51 billion at March 31, an S&P Global Market Intelligence study found. That marked a 1.8% increase from the linked quarter and a 10.7% rise from the year-ago quarter. By contrast, the year-over-year growth rate was 10.5% in the 2016 fourth quarter and 10.1% in the 2016 third quarter. The 2017 first-quarter growth was mainly driven by vehicle loans and closed-end first-lien one- to four-family loans.

Aggregate loans were down by 0.1% quarter over quarter among U.S. banks and thrifts, to a total of $9.297 trillion. This still represented a year-over-year loan growth of 4.0%. Loan growth over the year was spread across many sectors, including $206.64 billion in real estate, $50.53 billion in commercial and industrial, and $70.94 billion in consumer.

Fairmont, W.Va.-based MVB Bank Inc., with $1.43 billion in assets, had total loans and leases of $1.15 billion at the end of the first quarter, which represented year-over-year growth of -2.2%. But Chief Deposit Officer Todd Buterbaugh said the bank has no concerns on the lending side and actually sold more than $60 million in loans at the end of 2016 to revise its commercial real estate concentration. He said there were also a few unexpected payoffs at the beginning of 2017. "Our pipelines are good," he said.

Buterbaugh called CRE the bank's bread and butter and added that MVB has the opportunity to do virtually as much lending in that space as it likes. But regulators want to see less CRE concentration and more capital tied to those loans, he said. Buterbaugh also said owner-occupied and C&I loans are now being targeted by MVB because opportunities abound and because they would diversify the loan book. C&I also brings additional deposits in many cases, he added.

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Barry Collier, senior commercial loan officer for Heritage Bank of Nevada, said in an interview the bank's market is northern Nevada and that area is experiencing strong growth with large technology companies including Tesla, Alphabet's Google, Apple, Switch and Amazon moving significant pieces of business there. "The companies have only started to build locations, and most of the jobs will be established over the next five years," he said. The local development authority estimates upward of 50,000 new jobs will be created, he said. "With this, I expect our growth to continue in both loans and deposits," Collier said.

Year-over-year deposit growth for Reno-based Heritage was 20.5% at the end of the first quarter. With $760.6 million in assets, Heritage also had total loans and leases of $528.6 million at the end of the first quarter, which represented year-over-year growth of 10.0%.

Collier said construction lending is strong given the growth and limited supply of housing. That is also the case with multifamily, he said. Heritage is seeing demand for C&I loans as well, although growth trends there are a little deceptive because the market has done so well that companies have limited need for operating lines of credit, and usage has dropped significantly, Collier said.

Deposits at credit unions increased 8.4% year over year to $1.153 trillion, bringing the industry's loan-to-deposit ratio to 77.65% at the end of the first quarter, up from 76.01% a year earlier. Money market deposit accounts and other savings deposits increased by $65.19 billion over the year to total $681.77 billion. Meanwhile, banking sector deposits climbed 5.3% year over year, boosted by a $550.43 billion increase in money market deposit accounts and other savings deposits, resulting in an aggregate loan-to-deposit ratio of 71.06%.

MVB at the end of the first quarter had total deposits of $1.14 billion, which represented year-over-year growth of 3.93%. But Buterbaugh said actual growth has been even stronger considering that the bank allowed about $50 million in CDs and brokered funds to run off.

Many institutions still have a stockpile of deposits, and those banks have been slow to move their rates, Buterbaugh said. But in each of MVB's markets, there is a bank that is pricing up deposits because it either needs them or is scared it won't be able to get them if rates continue to rise. "All it takes is one bank to screw up the pricing," he said. MVB is still busy gathering deposits to meet loan demand but getting those funds at the right cost is key, Buterbaugh said.

Auto lending is the space where credit unions are giving MVB the stiffest competition, especially in Virginia and Washington, D.C., which Buterbaugh said feature "monster" institutions such as Navy Federal Credit Union. "You're not going to touch them," he said. "They're going to crush you."

And if those credit unions want or need deposits they can also beat the bank consistently on price there too. Buterbaugh said it is also often difficult to match the home equity products put out by those credit unions. "You've got to be a Wells Fargo [& Co.] or Bank of America [Corp.] to be able to compete," he said.

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Click here to view the map for median loan growth in PDF format.
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 SNL web or in SNLxl.