ALEXANDRIA, Va.— Loans, membership and net worth at federally insured credit unions continued to rise during the last quarter of 2013, but net interest margins remain on the decline, according to fourth quarter data released Monday by NCUA.
NCUA Chairman Debbie Matz warned in a statement that while the current rate environment has created challenges for profitability, CUs must steer clear of over-concentration in long-term investments. Compressed net interest margins also led to a lower return on average assets year-over-year.
"It's easy to get trapped chasing near-term profits by increasingly concentrating investments in long terms," said Matz in a statement. "That can imperil a credit union because it increases interest rate risk. The growth in five-to-10 year investments of nearly 60% is cause for concern. For many credit unions it may be prudent, at this time, to accept lower return on assets to avoid exacerbating interest rate risks."
The final quarter of 2013 marked the 11th consecutive quarter of loan growth with loans at credit unions increasing by 2.2% during the final quarter of 2013.
Lending rose 8% compared to the end of 2012, including increases in nearly every loan category. Other loan growth highlights include:
- New auto loans grew by 12.8% from Q4 2012 and 3.5% from Q3 2013 to $71.4 billion
- Used auto loans rose by 10.5% from Q4 2012 and 1.9% from Q3 2012 to more than $127 billion.
- First mortgages were up 8.8% year-over-year, and up 2.1% from Q3 to $267.8 billion. Almost 62% of those loans have fixed rates.
- Net MBL balances increased 10.1% year-over-year, and 2.8% from Q3 to nearly $46 billion.
- The student lending market (non-federally guaranteed loans) grew to $2.6 billion, a whopping 30% increase year-over-year, and a 4.3% lift over Q3.
The overall loan-to-share ratio reached 70.9%, the highest level since the close of 2010, and loan growth outpaced deposits for the first time since Q4 2007.
Membership Surges; Overall Investments Dip
Echoing Matz's warning, long-term investments continued to grow all last year, though there was a decline during the latter two quarters of the year. Overall investments grew from $280 billion to $290 billion during the first two quarters, then shrunk to $285 billion by year-end.
The bulk of that decline was in short-term investments, while the most significant growth came in five-to-10-year maturities, rising by nearly 60% ($14 billion) year-over-year.
CUs added 2.4 million members to their rolls for the year, culminating in a new high of 96.3 million total, while the number of CUs dropped by almost 4% for the year (1% in Q4) to 6,554.
Additional highlights from NCUA's report:
- Return on average assets stood at 78 basis points at the close of Q4, down from 80 annualized BPs at the end of Q3 and down from 85 basis points at the end of 2012. The agency attributed the year-over-year decline to downward pressure on net interest margins as a result of the current rate environment.
- Net income dipped to $159 million, a 1.9% drop from Q3 and a decline of $321 million (3.8%) from 2012.
- The industry remains well-capitalized with an aggregate net worth ratio of 10.79%, up 13 basis points from the end of Q3 and the highest level since Q1 2009. 97% of CUs reported net worth at or above the required 7%.
- Total assets grew in Q4 by $5.3 billion, reaching $1.06 trillion for the year, a $40-billion increase over 2012. Share and deposit accounts were up by $4.2 billion to a total of $910 billion, a $32-million lift over 2012.
- Delinquency and charge-off ratios remained steady, with delinquency ratios down by 0.01% from the previous quarter to 1.01%, and from 1.16% at the close of last year. Net charge-off ratio held steady at an annualized 57 basis points.
- The "Great Divide" shows no signs of letting up, as large CUs continue to outperform their smaller counterparts. The 426 CUs with $500 million or more in assets held 67% of all assets during Q4 and reported higher returns, while smaller CUs saw higher net worth ratios but lagged behind in growth areas such as net worth, lending, membership and return on average assets.
