6 takeaways from NCUA's Q4 data

By Jackie Stewart and Aaron Passman

Credit unions had another successful year in 2019, but new data from the National Credit Union Administration illustrates that the industry has its share of hurdles ahead. That's according to the latest Quartelry Credit Union Data Summary from the regulator, released Thursday.

For one thing, membership growth continues to dip, while lending slows and delinquencies in some categories are on the rise. Net income was also up for the year, though the agency noted that metric fell sharply between the third and fourth quarters. ROA also dropped between the third and fourth quarters. Expenses for the industry also continue to rise, driven in part by significant upticks in labor costs.

Read on for more highlights from the report.

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Membership and institutions
Membership ticked up by 4.2 million members in 2019 for a total of 120.4 million members by year-end. However, that’s a decline from the 4.9 million members who joined in 2018.

The number of institutions serving those members continued to fall. There were 5,236 federally insured credit unions in operation at the end of 2019, a 2.5% decline from the 5,375 operating at year-end 2018. As reported, the overall number of institutions dropped by about 30% between 2010 and the end of 2019, though credit union membership rose by a similar margin during that same time period.

The number of federal credit unions still far exceeds that of state-chartered institutions, with NCUA reporting 3,283 FCUs in business at year-end compared with 1,953 state-chartered federally insured shops. Still, the number of state charters is growing as charter conversions tend to be from federal to state, and state charters hold roughly half of the industry’s total assets as of last fall, despite representing just over one-third of total institutions.

The number of credit unions with a low-income designation also continues to rise, with 2,605 CUs now certified as LICUs, up from 2,554 at the end of 2018.
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As an industry, credit unions increased loan volumes by 6.2% ($64 billion) throughout 2019 to a total of $1.1 trillion. The average outstanding consumer loan balance at year-end stood at $15,669, a 2.4% increase ($371) from the year before.

Loan balances rose in every major category last year, with commercial loans seeing a particularly large jump. CUs’ commercial lending increased 15.3% year over year ($10.9 billion) to a total of $81.8 billion. Mortgages were up 7.5% ($33.4 billion) for the year to a total of $480.3 billion by the end of Q4.

Non-federally guaranteed student loans rose by 7.4% ($400 million) to reach $5.5 billion.

Auto lending growth has slowed to just 2.5% for the year, a $9.2 billion increase to hit $375.1 billion overall. Used car loans were up 4% ($8.5 billion) but new auto sales were up just 0.3% ($400 million) from one year prior.

Credit card balances rose by 6.8% ($4.2 billion) for a total of $66 billion. As reported, annual credit card growth continues to decline, which could present problems for CUs if consumers begin to further curtail their spending.
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Net income
Credit unions earned $14.1 billion, up almost 9% from a year ago, according to fourth-quarter data from NCUA. However, net income fell roughly 4% from the third quarter.

Interest income surged more than 13%, to $61.3 billion, while noninterest income increased roughly 7%, to $21.2 billion, year over year. Credit unions also reported an expanding net interest margin, which rose almost 8%, to $47.8 billion.

However, noninterest expenses also ticked up by almost 9%, to $48.4 billion, with labor costs making up more than half of that increase.

Return on average assets totaled 0.94%, up 2 basis points from a year earlier but down 4 basis points from the third quarter. The median ROAA was 60 basis points, an increase of 4 basis points year over year, according to NCUA.
Shares and deposits
Shares and deposits ticked up more than 8%, to $1.3 trillion, according to NCUA data. Regular shares totaled $444.6 billion, up more than 3%. Other deposits increased roughly 11%, to $667.2 billion, largely because of share certificate accounts, which increased more 20%.

However, the loan-to-share ratio in the fourth quarter dropped to 84% from 85.6% a year earlier.
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Industry-wide, delinquency rates stood at 71 basis points at the end of last year, unchanged from the same period in 2018, though NCUA said loan performance was mixed across several categories.

Delinquency rates for fixed-rate real estate loans were down by 2 basis points to 42BPs, while delinquencies on credit cards rose 5 basis points to hit 140BPs. Delinquencies on auto loans dropped one basis point to 65 BPs, while commercial loans saw a 4 basis point drop to end the year at 67BPs.

Overall the industry saw a slight decline in net charge-offs, dropping from 58 basis points in Q4 2018 to 56 basis points at the end of 2019.
Big problems for small CUs
Large credit unions continue to see the bulk of the industry’s growth.

Twenty-two credit unions joined the billion-asset club last year, with 330 institutions now holding assets of $1 billion or more. Those CUs hold 68% of total industry assets and reported loan growth of 9.7%, membership growth of 8.4% and a 12.4% lift in net worth.

Moving down the asset spectrum, CUs with assets from $500 million to $1 billion now hold 11% of industry assets but only saw a 0.3% increase in membership and a 1.9% lift in total loans. Net worth at these institutions was up 3.3%.

The numbers get worse as asset size declines.

CUs with assets from $100 million to $500 million saw a 3% drop in outstanding loans while membership fell 4.6%.

Those with assets from $50 million to $100 million saw a 2.4% drop in loans and a 4.3% decrease in membership.

Credit unions with assets from $10 milion to $50 million experienced a 5.8% decline in membership and a 3% decline in lending, while net worth fell 1%.

At the bottom of the list, CUs with assets under $10 million – representing just 0.4% of total system assets – saw membership and lending decline by 9.1% and 7%, respectively, while net worth fell 4.6%.

Overall, industry asssets increased almost 8%, to roughly $1.6 trillion, from a year earlier.