Industry Profitability Up During Q1, But Lending Continues To Lag

Register now

ALEXANDRIA, Va.-NCUA reported last week that credit union profitability rose to 74 basis points for the first quarter, up from 51 BPs in the fourth quarter of 2010, and the best performance in four years.

First quarter ROA was just 47 BPs last year, negative 151 BPs for the first quarter of 2009, and 60 BPs for the first quarter of 2008.

"The solid financial start to 2011 shows the resilience of the industry, and credit unions as a group continue to make solid progress during the economic recovery," said NCUA Chairman Debbie Matz. "Significantly, return on average assets increased by 23 basis points to 74 basis points during the most recent quarter."

In comparison, the FDIC reported last week that banks' profitability rose to 87 BPs for the first quarter, from 53 BPs for the same period last year.

The rising credit union profitability was fueled by a continued decline in operating expenses and cost of funds as well as the provision for loan loss expenses. In addition, credit unions have yet to accrue for expected charges for the corporate credit union bailout, or a National CU Share Insurance Fund assessment, as they did in each of the last three years.

Still, the move from 51 to 74 basis points first-quarter ROA "could be construed as a positive sign that credit unions are on the road to recovery from the recent recession," said NCUA Chairman Matz.

However, some indicators for troubled assets remain high. Loan delinquencies and loan charge-offs continued near historic highs, at 1.62% and 1% respectively, for the first quarter, although both key indicators continued to trend downward.

Loans, which declined by 1.4% last year, fell another 0.86% in the first quarter, while shares (deposits) rose by 3.21%.

Overall, the credit union industry had net income of $1.7 billion in the first quarter, but the net worth ratio dropped 10 basis points from the prior quarter to 9.96% as assets grew more rapidly than capital, NCUA reported.

Some of the more specific numbers from Q1 include:

• CU membership increased to 90.8 million members from 90.5 million at the end of 2010.

• Credit union total assets continued to grow and stood at $939 billion on March 31, a jump of nearly $25 billion during the quarter.

• CUs reported 88,585 members filed bankruptcy in the first quarter of 2011, 11,391 less than the first quarter of 2010. "The percentage of loans charged off due to bankruptcy, however, rose to 23.07% from 21.54% as of March 2010," NCUA said. "The dollar amount of outstanding loans subject to bankruptcy in March 2011 was 7.9% lower, or $127.6 million less than March 2010."

• Investments, not including cash on deposit or cash equivalents, increased 6.22% last quarter to $253.8 billion from $238.9 billion.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER