NCUA: Earnings Up Sharply from One Year Ago

The National Credit Union Administration (NCUA) noted that although asset growth was anemic, earnings improved at federally-insured credit unions during the third quarter.

NCUA reported that assets, loans, and shares (deposits) grew by 0.4 percent, 0.1 percent, and 0.3 percent, respectively. Because shares were growing at a faster pace than loans, the loan to share ratio has dropped to 72.71 percent at the end of the third quarter of 2010 from 77.94 percent a year ago.

While loan growth was relatively flat during the quarter, used vehicle loans expanded 1.8 percent. Also, unsecured loans increased 1.4 percent and
real estate loans rose 0.1 percent. However, new vehicle loans declined 3.6 percent.

Credit Union See Improved Profitability

NCUA is reporting that profits at federally-insured credit unions were up almost 72 percent from a year ago to $3 billion, as of September 30, 2010. The return on assets (ROA) was up 17 basis points from a year ago and 5 basis points from the prior quarter to .45 percent.

NCUA attributed the improvement in the ROA to declining cost of funds, lower provision for loan loss expense, and higher fee and other income offsetting higher operating expenses. For example, provisions for loan and lease losses were down almost 24 percent from a year ago to slightly less than $5.3 billion.

Credit Unions Build Net Worth During the Quarter

Stronger earnings during the third quarter helped federally-insured credit unions to build their net worth. NCUA reported that credit union net worth improved by $1.3 billion during the quarter to $90.6 billion. As of the end of the third quarter, the net worth ratio for federally-insured credit unions was 9.97 percent, up 9 basis points from the second quarter.

Asset Quality Appears to Be Stabilizing

Asset quality appears to be stabilizing as the delinquency ratio stood at 1.74 percent compared to 1.76 percent in the first quarter of 2010 and 1.73 percent in the second quarter of this year. As of September 30, 2010, federally-insured credit unions reported holding almost $9.9 billion in loans that were 60 days or more past due.

One exception was the delinquency rate on business loans. As of September 2010, the delinquency rate on business loans was 4.29 percent -- 16 basis points higher than second quarter delinquency rate and 93 basis points above the delinquency rate a year earlier.

Moreover, delinquent business loans represented a disproportionate share of all delinquent loans. Although business loans were approximately 6.2 percent of all credit union loans, delinquent business loans accounted for more than 15 percent of all delinquent loans.

In addition. the net charge-off rate fell by 3 basis points during the third quarter to 1.13 percent. Net charge-offs were slightly more than $4.8 billion as of September 2010 compared to $5 billion a year ago.

NCUA further noted that as of September 2010, nearly 2 percent of all loans were modifications.

Foreclosed and repossessed assets grew 8.3 percent to $1.8 billion in the third quarter. Foreclosed real estate was up 43.7 percent from a year ago and 9.1 percent from the second quarter of 2010 to slightly more than $1.5 billion..