Like many credit unions, BECU loans decline in the third quarter
The credit union posted big deal gains and strong earnings, but its loan portfolio shrank in the third quarter.
This is likely to describe many credit unions. In this case, he turned to BECU, the country’s fourth-largest credit union, based on its $ 29.6 billion in assets as of September 30. BECU is based in Tukwila, Washington, a small town in the greater Seattle area. Over the past year, its membership has grown 4.4% to 1.3 million.
BECU provided revenue comments via email from Robert Gatlin, BECU’s vice president of financial planning and analysis.
Its net income for the three months ending Sept. 30 was $ 70.7 million, or 0.97% annualized of its average assets. This compared to 0.93% in the second quarter and 1.20% a year ago. Among the Top 10 Credit Unions, its revenues were near 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. ($ 151 billion, 10.9 million members).
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Over the past year, BECU’s net profit fell 6.7%, but Gatlin said a bigger impact on ROA was a 15% gain in average assets.
BECU’s auto loan portfolio was stable at $ 2.6 billion from the second to the third quarter, and was down 5.8% from a year earlier. The trend at BECU was similar to that of credit unions as a whole: New car loans declined from 2020 levels, while used car loans increased.
“We have seen a strong overall volume of auto loans,” said Gatlin. “The story behind the numbers is prepayments, which have been well above historical standards for over a year. We believe members are cash-strapped and have the capacity to repay existing loans. “
Another similarity to the overall trends was net interest margins, which have been declining for the past two years.
BECU’s net interest income (before loan loss provisions) was $ 29.1 billion in the third quarter, an annualized rate of 1.98% of its average assets. This was down from 1.99% in the second quarter, 2.48% a year ago and 3.06% two years ago.
“The net interest margin (NIM) has declined while net interest income has increased each quarter of 2021. The main cause of the decline in the NIM has been the continued growth of deposits, which translates into investments. / low yielding cash, which diluted the percentage, ”Gatlin said.
NAFCU chief economist Curt Long said last month he expects net interest margins to bottom out by the fourth quarter, but remain low for some time. For the Top 10, it was 2.89% in the third quarter – slightly higher than the previous three quarters, but lower than the level of 3.45% two years ago.
Total creations of BECU for the three months ending September 30 were $ 2.9 billion, up 11% from the second quarter and 33% from a year ago. However, the total loan balance stood at $ 12.7 billion as of September 30, down 6.1% from the previous year.
Residential real estate installments totaled $ 967.9 million, up 10% from the second quarter and 38% from a year ago. However, the balance fell 12% year-over-year to $ 6.1 billion as of September 30. Like many credit unions, aftermarket sales are a major factor.
“Real estate builds were strong throughout the third quarter, but we chose to sell a significant amount in the secondary market rather than hold them in the portfolio given the high secondary market prices,” said Gatlin.
BECU’s first mortgage sales in the secondary market surged in the second quarter of 2020, but have declined in the past year. Sales accounted for 53% of first-half mortgage originations 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, down 20% from the second quarter and 29% from a year ago.
Second-tier residential real estate loans were $ 1.5 billion on September 30, down 0.8% from the second quarter and 15% from a year ago. “Home equity balances have been strained due to strong mortgage refi trends given the low interest rates of 2021 in the third quarter,” Gatlin said.
Similar trends were observed for the non-real estate categories:
- Non-real estate production was $ 1.8 billion, up 8.3% from the second quarter and 19% from a year ago. The balance fell 4% to $ 4.4 billion.
- Credit card balances were $ 1.1 billion as of September 30, unchanged from June 30 and down 3.1% from a year ago.
- Paycheck Protection Program loans are quickly canceled, as planned. BECU’s balance was $ 36.1 million as of September 30, down 53% from three months earlier and 62% from the previous year.
- Unsecured personal loans (minus PPP loans) were $ 275 million as of September 30, up 2.5% from June 30 and down 6.7% from a year ago. year.
An exception was commercial real estate production, which stood at $ 191.5 million in the third quarter, 60% more than in the second quarter and 16 times more than a year ago. The balance increased 11% to $ 2.2 billion.