Profitability Plunges at the Nation’s CUs

ALEXANDRIA, Va. – Never in the past two decades have credit unions lived up their not-for-profit structure so much as they did in the first quarter–as the industry’s profitability plummeted to its lowest in many years. NCUA reported yesterday that net income plunged 7.4% in the first quarter as lending was flat, pushing return-on-average assets down to just 0.73. That’s down from 0.82% in the fourth quarter of 2006; 0.88% in the third quarter, and 0.81% for the first quarter last year. NCUA attributed the lower earnings to stagnant loan growth–just 0.2% in the first quarter-continued increase in cost-of-funds, the rates credit unions pay their members. Michael Schenk, senior economist at CUNA, had additional reasons, citing the continuation of the flat yield curve; as well as NCUA’s letter to credit unions last year downplaying the importance of profitability, saying a 1% ROA is no longer required to gain a CAMEL 1 rating. “There is some seasonality to it,” Schenk told The Credit Union Journal yesterday. “But some of it is a reflection of what the Agency did last year with its Letter to Federal Credit Unions on earnings.” NCUA said shares increased a strong 4.2% in the first quarter, pushing up assets by 3.4%; while membership increase by 0.5%.