As with many credit unions, BECU’s lending contracted in the third quarter
The credit union saw large gains in lending and strong profits, but its loan portfolio shrank in the third quarter.
That’s likely to describe many credit unions. In this case, it filed for BECU, the fourth largest credit union in the country, based on assets of $ 29.6 billion as of September 30. BECU is based in Tukwila, Washington, a small community in the greater Seattle area. In the past year the number of members increased by 4.4% to 1.3 million.
BECU emailed comments on its findings from Robert Gatlin, Vice President of Financial Planning and Analysis for BECU.
Net income for the three months ended September 30 was $ 70.7 million, or 0.97% of average net worth for the year. That compared to 0.93% in the second quarter and 1.20% a year ago. Among the top 10 credit unions, their earnings ranged in the middle of a group ranging from 0.37% for the First Tech Federal Credit Union of San Jose ($ 14.7 billion, 652,828 members) to 1.77% for the Navy Federal Credit Union of Vienna, Virginia, was sufficient. ($ 151 billion, 10.9 million members).
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Last year, BECU’s net income fell 6.7%, but Gatlin said a bigger impact on ROA was a 15% increase in average wealth.
BECU’s auto loan portfolio was stable at $ 2.6 billion from the second through the third quarter, down 5.8% year over year. The pattern at BECU was similar to that of credit unions overall: new car loans are down from 2020 levels while used car loans have increased.
“Overall, we’ve seen strong auto loan volumes,” Gatlin said. “The story behind the numbers is prepayments that have been well above historical norms for over a year. We believe that the members are provided with liquidity and have the possibility to repay existing loans. “
Another similarity to the general trends was net interest margins, which have been falling over the past two years.
BECU’s net interest income (before loan loss provisions) was $ 29.1 billion for the third quarter, or 1.98% of average assets for the year. That was a decrease from 1.99% in the second quarter, 2.48% a year ago, and 3.06% two years ago.
“Net interest margin (NIM) has decreased while net interest income has increased every quarter of 2021. The main driver behind the decline in NIM was the continued growth in deposits flowing into lower-yielding investments / cash, which diluted the percentage, “said Gatlin.
NAFCU chief economist Curt Long said last month that he expects net interest margins to bottom out by the fourth quarter but will remain low for a while. In the top 10, it was 2.89% in the third quarter – slightly higher than in the last three quarters, but below the value of 3.45% two years ago.
BECU total utilizations for the three months ended September 30 were $ 2.9 billion, 11% more than the second quarter and 33% more than a year ago. However, the total loan balance was $ 12.7 billion as of September 30, a 6.1% decrease from the previous year.
Residential real estate leases were $ 967.9 million, 10% more than the second quarter and 38% more than a year ago. However, the balance declined 12% in 12 months to $ 6.1 billion as of September 30. As with many credit unions, secondary market sales are an important factor.
“New property issuance was strong in the third quarter, but given the strong secondary market prices, we decided to sell a significant portion of it to the secondary market instead of keeping it in the portfolio,” said Gatlin.
BECU’s first mortgage sales in the secondary market skyrocketed in the second quarter of 2020 but declined last year. Sales accounted for 53% of primary mortgages in the first half but only 35% in the third quarter.
BECU sold $ 364.2 million of its first mortgages in the secondary market in the third quarter, 20% less than in the second quarter and 29% less than a year ago.
As of September 30, home custody loans were $ 1.5 billion, 0.8% less than the second quarter and 15% less than a year ago. “Home equity balances have come under pressure from strong mortgage refi trends amid low interest rates from 2021 through the third quarter,” Gatlin said.
Similar patterns apply to non-real estate categories:
- Production excluding real estate was $ 1.8 billion, 8.3% more than the second quarter and 19% more than a year ago. The balance fell 4% to $ 4.4 billion.
- The credit card balance was $ 1.1 billion as of September 30, unchanged as of June 30, 3.1% less than a year ago.
- The Paycheck Protection Program loans are expiring quickly as planned. BECU’s balance on September 30 was $ 36.1 million, 53% less than three months earlier and 62% less than a year earlier.
- Unsecured personal loans (minus PPP loans) were $ 275 million as of September 30, up 2.5% from June 30 and down 6.7% year over year.
The exception was commercial real estate production, which was $ 191.5 million in the third quarter, 60% more than the second quarter and 16 times more than a year ago. The balance rose 11% to $ 2.2 billion.