According to mid-year statistics released by NCUA last week, federally-insured credit unions posted strong share (deposit) and asset growth during the first half of 2008. Shares grew by 8 percent through the first six months of 2009 to $735.5 billion and assets increased by 7.3 percent to $870.1 billion.
However, credit unions barely reported any loan growth as loans increased from $566 billion to $570 billion during the first half of the year. Used automobile loans grew 2.8 percent and first mortgage real estate loans and lines of credit grew 3.2 percent, while new automobile loans declined 2.8 percent and other mortgage loans declined 3.2 percent.
Credit unions added about $1 billion in equity capital during the first half of the year to $85.8 billion. However, the growth in capital did not keep pace with the growth in assets during the first six months of 2009. As a result, the net worth leverage ratio for credit unions slipped from 10.62 percent to 10.03 percent by mid-year; but was higher than the 9.67 percent reported at the end of the first quarter.
Credit unions reported a net income of $1.168 billion as of June 2009 – 42 percent below the $2 billion in profits reported for the comparable six month period in 2008. The return on average assets was .28 percent, as of the end of the second quarter in 2009. Strong growth in non-interest income – up almost 95 percent from June 2008 levels to slightly more than $8.6 billion as of mid-year 2009 – helped to offset cost associated with the NCUSIF stabilization expense and higher provisioning for loan and lease losses. Provisions for loan losses almost doubled from the comparable period in 2008 to slightly less than $4.6 billion.
The recession took a toll on asset quality as loans 60 days or more past due grew to $9 billion. In comparison, allowance for loan and lease losses was $7.5 billion. Credit unions have added almost $1.3 billion to their loan loss allowance accounts during the first half of 2009. This is comparable to the increase in loans 60 days or more past due over the same time period.
As a percent of total loans, delinquent loans increased by 21 basis points during the first half of the year to 1.58 percent of all loans. The delinquency rate on real estate loans at credit unions was 1.62 percent as of June 30, 2009 – 42 basis points higher than it was at the end of 2008. However, the delinquency rate for interest only and payment option mortgages went from 3.72 percent to 5.73 percent during the first half of 2009. Business loans 60 days or more past due were 3.03 percent – up 80 basis points since the beginning of the year.
Net charge-offs were almost $3.3 billion as of mid-year 2009 – almost 72 percent higher than the prior June’s level. During the first half of 2009, the ratio of net charge-offs to average loans grew from 0.85 percent to 1.15 percent.
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It is my opinion credit unions are making unsound loan decisions at below market interest rates. As depicted in this article. I cannot wait for the day when the press gets ahold of their credit quality. Maybe someday they will held accountable and end up paying taxes like the rest of the banking industry.
ReplyDeleteHrm...let's put some of these numbers in context, starting with these "unsound loan decisions." Over the past two years, loan delinquency at CUs increased by 2.6x to 1.59%, roughly in line with the doubling of the unemployment rate (general benchmark). FDIC-insured institutions, on the other hand, experienced delinquency rates increase by a factor of 5 to 4.35%. Credit unions are the ones making unsound loans? Additionally, credit unions report delinquency at 60 days, not 90 like banks.
ReplyDeleteBut wait, we're also talking about rates. Credit unions reported a higher ROA than banks and thrifts while operating on a tighter net interest margin, all while maintaining a higher capital ratio.
Even more, while Dr. Leggett laments about skyrocketing provisions at credit unions, provisions for loan losses at credit unions are around 82% of the delinquency portfolio, compared to a pitiful 64% at banks. Even if there is this some kind of credit quality issue at credit unions, they are in a much better position to deal with it.
Better loan decisions, higher capital ratios, higher coverage ratios: just some of the reasons why credit unions aren't "paying taxes" (although, they do pay taxes, you may want to clarify what you were going for there)