ALEXANDRIA, Va. — Loan growth at federally insured credit unions continues to rise, along with net worth and membership totals, according to third quarter data released by NCUA today.
The continuing signs of a steady turnaround, however, come with some concerns. The divide among credit unions large and small persists, with CUs above $500 million garnering much of the gains. Also, credit union investments in longer-term instruments increased Q3, bringing greater interest rate risk exposure.
Total loans in the industry rose 2.9% to $631.5 billion in the third quarter, a faster pace than in the previous quarter (2.3%), taking the loan-to-share ratio to 69.7%, the highest level since year-end 2010.
Net worth ratio advanced to 10.65%, up 15 basis points from the end of the second quarter, the highest level since the end of 2008. Membership rose 0.8%, reaching 95.9 million, a new record. Credit unions have added more than two million members in the last four quarters.
"Federally insured credit unions are on the right course," NCUA Board Chairman Debbie Matz said. "The good news is we continue to see strong, positive trends in the industry."
Once again new auto loans played a key role in boosting lending, growing to $69 billion, up 4% from the second quarter and up 11.4% since the end of the third quarter of 2012. Used auto loans increased to nearly $125 billion, up 3.1% from the previous quarter and up 9.7% since the end of the third quarter of 2012.
First mortgage loans reached $262.3 billion, up 3.3% from the second quarter and up 7.7% since the end of the third quarter of 2012. Net member business loan balances grew to more than $44.6 billion, up 2.5% from the second quarter and up 9.3% since the end of the third quarter of 2012.
Perhaps the most significant quarterly uptick came in the area of student loans, which grew by 10.2% during Q3 to hit $2.5 billion, a 32% increase since the third quarter of last year.
ROA declined from the same period last year, falling to 80 basis points from 86. Net income increased $1.8 billion in the third quarter, a drop from the $2.2 billion increase recorded in the second quarter and the $2.1 billion increase recorded in the third quarter of 2012.
Total assets grew by $558 million to $1.06 trillion. Overall, share and deposit accounts at credit unions declined during the quarter by $3.6 billion to $905.9 billion, in contrast to increases in recent quarters.
The Great Divide, an issue noted in several previous Credit Union Journal reports, continues. CUs with more than $500 million in assets lead the industry in most performance measures. With $708 billion in total assets, these 422 credit unions held 67% of industry's total assets during the quarter. They also reported a higher return on average assets than the industry as a whole. Smaller credit unions, again, recorded higher net-worth ratios but lagged in net-worth growth, loan growth, membership gains and ROA.
"Smaller credit unions still face challenges in growing loan volume, generating earnings and attracting members, so NCUA must continue to provide them with needed assistance, training and support," Matz stated.
Credit union membership currently stands at a record 95.9 million, having seen an increase during Q3 of nearly 727,000 members, or 0.8%. More than two million members have joined CUs in the last four quarters.
CU investments fell slightly as a share of assets in the third quarter, but the portion of those investments going into longer-term instruments has grown since the third quarter of 2012. The share of assets in investments with maturities of three years or more increased to 11.9%, compared with 9.4% in the third quarter of 2012. The share of assets in investments with maturities five years or longer increased to 4.4% in the third quarter, compared to 3.1% in the third quarter of 2012.
"As interest rates go up, credit unions could be caught between a rock and a hard place," Matz said. "They have been paring expenses and reducing loan loss reserves to maintain earnings. However, as they make new loans at lower interest rates than older loans coming off their books, they have been making longer-term investments to increase yield. If credit unions haven't planned carefully, the value of those investments could decline when rates rise."
--Aaron Passman contributed to this report.
