Financial Picture Brightens for CUs

CUs expand earnings and control delinquencies and charge-offs.

March 15, 2011

Credit union earnings, shares, assets, and investments grew despite slowing loan demand and the continuing economic challenges, according to fourth-quarter call reports submitted to NCUA by the nation’s 7,339 federally insured credit unions.

Exhibiting solid earnings, credit unions’ 2010 return on average assets (ROA) grew to 0.51%, up from 0.45% in the third quarter and 0.18% at year-end 2009.

NCUA reports that operating expenses, including stabilization expenses, cost of funds, and provisions for loan losses, declined.

Although credit union membership declined 0.3% during the fourth quarter, total membership grew 0.68% to 90.5 million members over the full year.

Shares and deposits expanded in each quarter of 2010, whereas loans contracted 0.4% in the fourth quarter and 1.34% for the year. However, used automobile, credit card, and first mortgages remain popular.

Used vehicle loans expanded 3.43% during the year and 0.2% during the fourth quarter. First mortgage real estate loans grew 2.69% during the year and 0.7% in the fourth quarter.

Meanwhile, new vehicle loans declined 16.4% for the year and 4.1% during the fourth quarter. Unsecured credit card lending increased 3.1% for the year after declining 2.9% in the first quarter of 2010.

“Credit unions, as a whole, are exhibiting positive trends in their operations,” says NCUA Chairman Debbie Matz. “As the nation emerges from a prolonged economic contraction, the stabilization of many strategic indicators and evidence of improving economic trends demonstrate positive developments for credit unions.

She notes that virtually every key ratio improved by year-end:

  • Net worth grew to 10.06%;
  • Return on average assets grew 33 basis points (bp) after recovering from a decline in 2008 and showing slight improvement in 2009; and
  • Delinquencies, charge-offs, and cost of funds declined.

Delinquencies remained at historically high levels, however, ending 2010 at 1.74%. But this statistic represents a 10 bp improvement over the final 2009 number of 1.84%.

Similarly, the dollar amount of net charge-offs declined 7.1% during 2010, lowering the net charge-off ratio to 1.13% in the third and fourth quarters, 8 bp below the year-end 2009 level of 1.21%.

Bankruptcies on the rise

Credit union member bankruptcies continue to increase. Although the 334,041 member bankruptcies reported during 2010 exceed the 2009 level 323,733 by 3.3%, this figure represents a significantly slower pace than the increases reported in 2007, 2008, and 2009, which ranged from 35% to 44%.

Plus, although loans charged-off due to bankruptcy increased 8.1% during 2010, the rate of increase slowed significantly compared to the 60.7% growth rate in 2009.

“I am pleased to see that credit unions are working diligently to assist their members as distressed real estate markets and high unemployment persist,” Matz says. “Loan modifications comprise 2.08% of total loans, as credit unions reported more than $11.7 billion modified consumer, real estate, and member business loans at year-end 2010.”

Key balance sheet and income statement data for 2010:

  • Assets increased 3.4% to $914.5 billion from $884.6 billion;
  • Loans declined 1.3% to $564.8 billion from $572.5 billion;
  • Shares increased 4.5% to $786.5 billion from $752.7 billion;
  • Investments increased 13.4% to $238.9 billion from $210.7 billion;
  • Net income increased 208.3% to $4.6 billion from $1.5 billion; and
  • Net worth increased 5.2% to $92.1 billion from $87.6 billion.

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