Credit Unions Kept Pace With Mortgages in 2020 Posted by AVCU on 9:27 AM

 Credit unions kept up with other lenders in mortgages last year, while falling behind in automotive loans.

Data released Tuesday by the FDIC showed the economic effects of the pandemic were similar for banks and credit unions: Big increases in savings, small growth for loans and surprising resilience in returns on average assets.

Credit unions held $384.5 billion in auto loans as of Dec. 31, just 0.9% more than a year earlier, according to the Credit Union Trends Report released Tuesday by CUNA Mutual Group of Madison, Wis.

Meanwhile, auto loans at banks grew 1.7% to $491.7 billion, and auto loans held by captives and others grew 9.1% to $351.7 billion.

Until mid-2019, credit union auto loans were growing much faster than banks. Since then, growth rates at banks have been at least twice that of credit unions.

As a result, credit union market share has shrunk. They ended 2020 with 31.3% of automotive loans, down from 32.1% a year earlier and a post-Great Recession peak of 32.6% in 2018.

New car loans fell 3.8% to $144 billion in 2020 after falling 0.1% in 2019. Used car loans grew 4% to $240.6 billion last year, the same pace as 2019.

Steve Rick, chief economist for CUNA Mutual Group, said he expects new auto loans to resume growth in the second quarter. He said several factors combined last year to drive down automotive lending.

“The pandemic raised job and income insecurity among potential new auto buyers, rapid loan originations two to three years ago precipitate larger loan balance amortization today, new auto sales declined 14% over the last year, members used ‘cash out’ funds from mortgage refinances to pay off auto loans and rapid growth of indirect auto lending has leveled off,” Rick said.

Credit unions fared better with mortgages. They held $523.3 billion in first mortgages on Dec. 31, up 10.9% from the end of 2019. Banks held $2.2 trillion in residential mortgages on Dec. 31, up 0.4% from a year earlier.

Fixed-rate first mortgage loan balances rose 14.2% in 2020, the fastest annual pace since the 17.6% reported during the housing bubble of 2008, according to CUNA Mutual Group.

Like autos, household saving trends cut into balances for credit cards and home equity lines of credit. Credit cards fell 6.4% to $62.6 billion and second-lien real estate loans fell 7.5% to $86 billion “due to members rolling existing loan balances into refinanced first mortgages,” Rick said.

“By year-end, fixed-rate first mortgages made up 33.7% of all loans, the highest in credit union history,” he said. Their share of the portfolio was up from 31% at the end of 2019 and 22.6% at the beginning of the Great Recession in 2007’s fourth quarter.

However, mortgage balances have been highly managed. Banks have tended to sell a much higher percentage of their mortgages, although credit unions have increased their sales in recent years.

A truer picture of the trend is mortgage originations. Credit unions originated $291.1 billion in first mortgages in the 12 months ending Dec. 31, up 63% from 2019, according Callahan & Associates, a credit union company based in Washington, D.C.

Originations for other lenders increased at the same rate to $3.4 trillion, comparing data from Callahan and the Mortgage Bankers Association, also of Washington, D.C.

Those numbers showed credit unions had 8% of the $3.7 trillion in originations last year, about the same share as the year before.

Narrowing interest margins and lower fees have cut into earnings for more than a year, but the pandemic triggered huge loan loss provisions for both banks and credit unions. The provisions cut deeply into earnings, but things could have been worse. Both banks and credit unions ended the year with margins at or slightly below those of 2019’s fourth quarter.

Banks were much more aggressive in making provisions for potential loan losses after COVID-19 was declared a pandemic March 11, 2020.

Banks’ provisions each quarter in 2019 had ranged consistently between an annualized 0.28% and 0.32% of average assets, but in 2020 they ramped up to 1.08% in the 2020’s first quarter and 1.20% in the second quarter. Banks dropped them just as dramatically to 0.27% in the third quarter and 0.07% in the fourth quarter.

Credit unions reacted slower. Their provisions ranged from 0.42% to 0.44% in 2019. In 2020 they rose, but peaked at a relatively lower level: 0.64% in 2020’s second quarter. They have subsided more gradually as well. In the fourth quarter they were 0.30%.

Callahan has estimated credit unions’ annualized return on average assets (ROA) was 0.83% for the three months ending Dec. 31 — just 2 basis points above 2019’s fourth quarter and up from the first-quarter low of 0.53%.

Banks had a similar pattern. Their pre-tax ROA was 1.38% for the fourth quarter, down from 1.49% in 2019’s fourth quarter, but up from the second-quarter low of 0.40%.