5 takeaways from NCUA's Q1 data

July 2, 2020 5:00 AM

Credit unions reported a significant drop in earnings, increased delinquencies and higher provisions for credit losses for the first quarter.

Those were some of the takeaways from the National Credit Union Administration's first-quarter performance data, which was released on Wednesday. The data is significant because it marks the first system-wide look at how credit unions have fared during the coronavirus crisis.

The full picture, however, may not be available for some time, since the outbreak was only getting started as the first quarter came to a close. NCUA's second-quarter reporting should be released sometime in late summer.

The first-quarter release wasn't all bad news. Credit union growth continues, though at a slower pace, and some loan categories continue to see strong growth.

Read on for highlights from the report. Coverage of fourth-quarter 2019 data can be found here.

Membership slows again

Credit union membership growth slowed for the year ending March 31, with credit unions adding 4.1 million members for a total of 121.4 million members. In contrast, credit unions added 4.6 million members in the year ending March 31, 2019, according to NCUA data.

The quarter also saw a continuation of long-running consolidation trends, with the number of federally insured credit unions totaling 5,195 as of March 31. That’s down from 5,236 at the end of last year and 5,335 at the end of the first quarter of 2019.

The number of credit unions with a low-income designation continues to rise. Sixty institutions received that classification in the 12-month period ending March 31. These institutions totaled 2,571 at the end of the first quarter.

Federal credit unions continue to make up the lion’s share of the industry, with 3,255 FCUs, compared with 1,940 active state-chartered institutions. That’s 95 fewer federal charters and 40 fewer state charters than NCUA reported at the close of the first-quarter in 2019.

Lending slide continues

Credit union lending slowed as the pandemic spread in March, with the industry ending the quarter with loan growth of 6.5% ($68 billion) to reach a total of $1.1 trillion for the year. In the year ending March 31, 2019, loan growth was 7.9%, or $76 billion.

One bright spot, however, is that the average loan balance was up 2.9% to $15,872, a 2.9% increase from one year earlier.

Auto lending, a key credit union loan product, was up just 2.1% ($374.3 billion), a steep drop from the $7.7% growth that sector saw one year ago. New auto loans in particular grew just 0.7%, while used car loans saw a 4% year-over-year increase.

Growth in credit card spending was also down, rising just 5.5% ($3.3 billion) for a total of $64.4 billion. The year ending March 31, 2019, saw a 7.7% increase in this space, and the drop this year can be attributed both to an overall slowing of credit card growth as well as consumers reducing credit card spending as the pandemic hit and statewide stay-at-home orders were put in place.

Private student lending at credit unions increased at a slower pace as well. This category ticked up just 5.4%, to $5.6 billion, after rising 16.8% in the year ending March 31, 2019.

There were a few bright spots. Mortgage lending was up 8.6% ($38.8 billion) to hit a total of $488.1 billion, after a 7.2% increase one year prior. Similarly, commercial loan growth was up by 16.5% compared with 12% growth last year.

Steep drop for net income

Not surprisingly, given the tough economic environment, net income was down, falling a whopping 40%, to $8.4 billion, at the end of March.

NCUA said the decline was partly due to increases in provisions for loan and lease losses, which rose 34.1%. By comparison, at the end of March 2019, credit loss expenses had fallen 5%.

With the slowdown in lending, interest income during the first quarter was up just 3.3%, compared with a 14.8% increase one year prior. Noninterest income grew at the same rate, though that figure was a slight gain from the 2.6% growth rate posted for the year ending March 31, 2019.

Expenses were also up, with interest expenses rising 12.9% and noninterest expenses climbing 9.7%. NCUA said increases in labor costs — which rose 9.8% — were the cause of more than half of the uptick in noninterest expenses.

The industry’s net interest margin dropped slightly to 3% of average assets ($47.3 billion), compared with 3.2% ($46.9 billion) as of March 2019.

Assets up as ROA takes a tumble

The industry’s total assets increased 8.8%, to roughly $1.6 trillion, for the first quarter. Yearly asset growth at the close of the first quarter in 2019 was 6.3%.

Similarly, insured shares and deposits at federally insured credit unions rose 7.5% to hit $1.3 trillion, a 2.5 percentage-point increase from the year ending March 31, 2019.

The industry’s net worth ratio dropped slightly to 11.01%, down from 11.13% one year prior. The loan-to-share ratio was also relatively stable, standing at 81.1% at the close of Q1 compared with 82.4% one year prior.

However, return on average assets dropped substantially, falling from 95 basis points at the end of March 2019 to 53 basis points at the end of the first quarter. Median ROA fell to 41 basis points, down 14 basis points from one year earlier.

By comparison, the ROA figure for March 2019 was up 5 basis points from one year prior, while median ROA saw an 8 basis-point lift during that same 12-month period.

Delinquencies could be worse

Delinquencies are also on the rise, increasing 6 basis points from March 2019 to 63 basis points. The industry’s net charge-off ratio also saw a one basis-point increase, to 58 basis points.

Loan performance deteriorated across all major categories, NCUA said, including an 11 basis-point increase in credit card delinquencies to 137 basis points for the year ending March 31.

Auto lending saw a 5 basis-point increase to reach 58 basis points, while delinquencies on fixed-rate real estate loans rose from 31 basis points to 35.

Commercial lending delinquencies also rose from 63 basis points in March 2019 to 73 basis points this year.