Press
Credit Unions end 2013 with positive financials, but risks loom ahead
ALEXANDRIA, VA (March 3, 2014) – America’s credit unions saw growth in several key indicators during 2013, but other trends were less positive, and National Credit Union Administration Board Chairman Debbie Matz sounded a note of caution, urging credit unions not to leverage their futures by taking on excessive interest rate risk.
“The current rate environment is a challenge for profitability, but federally insured credit unions should avoid falling into the trap of over-concentration in long-term investments,” Matz said. “It’s easy to get trapped chasing near-term profits by increasingly concentrating investments in long terms. That can imperil a credit union because it increases interest rate risk. The growth in 5-to-10 year investments of nearly 60 percent 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.”
Loans, membership and net worth saw continued positive growth in the fourth quarter of 2013, but net interest margins continued to decline. Compressed net interest margins contributed to a fall in return on average assets compared to the fourth quarter of 2012. NCUA today released the new figures based on Call Report data submitted to and compiled by the agency for the quarter ending Dec. 31, 2013.
Loan Growth Continues for 11th Consecutive Quarter
Loan growth continues its upward trend. Total loans at federally insured credit unions rose nearly 2.2 percent to $645.2 billion in the fourth quarter of 2013. Loans grew nearly 8.0 percent compared to the end of 2012. Lending continued to rise in nearly every category, including:
- New auto loans grew to $71.4 billion, up 3.5 percent from the previous quarter and up 12.8 percent from the fourth quarter of 2012.
- Used auto loans increased to more than $127 billion, up 1.9 percent from the previous quarter and up 10.5 percent from the fourth quarter of 2012.
- First mortgage loans reached $267.8 billion, up 2.1 percent from the previous quarter and up 8.8 percent from the fourth quarter of 2012. Nearly 62 percent of first mortgage loans in the latest reports had fixed rates.
- Net member business loan balances grew to more than $45.9 billion, up 2.8 percent from the previous quarter and up 10.1 percent from the fourth quarter of 2012.
- Non-federally guaranteed student loans grew to $2.6 billion, up 4.3 percent from the previous quarter and up nearly 30 percent from the fourth quarter of 2012.
- Payday alternative loans grew to $27 million, up 21 percent from the previous quarter and up 27.6 percent from the fourth quarter of 2012.
The growth in loans contributed to a rise in the overall loans-to-shares ratio, which reached 70.9 percent, the highest level since the end of 2010. Loan growth among federally insured credit unions out-paced growth in deposits for the first time since the fourth quarter of 2007.
Long-Term Investments Surge as Credit Unions Seek Greater Yield
Growth in long-term investments continued unabated during 2013, despite a decline in investments overall during the second half of the year.
Federally insured credit unions’ investments grew from $280 billion at the beginning of the year to $299 billion at the end of the second quarter, then declined to $285 billion by the end of the year. Most of that decline was in short-term investments. The most dramatic growth occurred in 5-to-10 year maturities, which increased by $14 billion, or nearly 60 percent, from the end of 2012.
In a rising interest rate environment, excessive exposure to longer-term investments as loan growth expands could pose risks for credit unions. Exposure to long-term assets has tripled since year-end 2007. During 2013, investments greater than 3 years increased by 32.6 percent, rising to $118.4 billion, an all-time high. Long-term investments as a share of assets stood at 11.8 percent, up from 9.4 percent at the end of 2012 and up from 3.4 percent at the end of 2009.
Credit Unions Add 2.4 Million Members in 2013, Consolidation Trend Steady
Membership in federally insured credit unions grew by slightly more than 343,000 in the fourth quarter of 2013 and by more than 2.4 million for the year. At the end of the fourth quarter of 2013, membership stood at 96.3 million, another new high.
The number of federally insured credit unions fell to 6,554 at the end of the fourth quarter, 66 fewer than at the end of the third quarter, a decline of 1.0 percent in the quarter and 3.9 percent for the year. The decline is consistent with trends spanning four decades.
Return on Average Assets Declines and Quarterly Earnings Slow
Federally insured credit unions’ return on average assets ratio stood at 78 basis points at the end of the fourth quarter. The ratio is down from 80 annualized basis points at the end of the third quarter and down from 85 basis points at the end of 2012. Much of the year-over-year decline is due to downward pressure on net interest margins created by the current interest rate environment.
Annualized net income at federally insured credit unions declined $159 million, or 1.9 percent, from the third quarter to the fourth quarter of 2013 and declined $321 million, or 3.8 percent, from the fourth quarter of 2012.
Net Worth Ratio Climbs as Credit Unions Remain Well-Capitalized
The aggregate net worth ratio was 10.78 percent at the end of the fourth quarter, up 13 basis points from the end of the third quarter, its highest level since the first quarter of 2009.
The vast majority of federally insured credit unions remain well-capitalized, with 97 percent reporting a net worth at or above the statutorily required 7.0 percent. The percentage of well-capitalized credit unions is slightly higher than the previous quarter.
Assets Continue Rise, Shares Grow for the Quarter
Federally insured credit unions’ total assets grew by $5.3 billion in the fourth quarter, and $40 billion for the year, to reach just over $1.06 trillion. Overall, share and deposit accounts at credit unions rose during the quarter by $4.2 billion to $910 billion, compared to $878 billion at the end of 2012. Rate-sensitive money market shares continued to grow.
Delinquency and Charge-Off Ratios Remain Steady
Delinquency and net charge-off ratios for federally insured credit unions both dipped slightly in the third quarter. The delinquency ratio fell to 1.01 percent in the fourth quarter from 1.02 percent in the previous quarter and from 1.16 percent at the end of 2012. The net charge-off ratio held steady during the fourth quarter at an annualized 57 basis points.
The percentage of loan charge-offs due to bankruptcy also held steady at 20.5 percent, which is below the 21.5 percent level at the end of 2012.
Larger Credit Unions Outperform Smaller Credit Unions Again
Federally insured credit unions with more than $500 million in assets continued to lead in most performance measures. With $716 billion in combined assets, these 426 credit unions held 67 percent of all total assets during the quarter. They also reported a higher return on average assets than credit unions as a whole. Smaller credit unions once again recorded higher net worth ratios, but lagged in net worth growth, loan growth, membership gains and return on average assets.
A summary of credit unions’ current ratios and growth from the fourth quarter of 2012 to the fourth quarter of 2013 by asset size for selected metrics follows:
|
Above
$500 million
|
$100 million to $500 million
|
$10 million to $100 million
|
Under
$10 million
|
|
|
Net Worth Ratio
|
10.6 percent
|
10.8 percent
|
11.7 percent
|
14.7 percent
|
|
Net Worth Growth
|
Ç 9.6 percent
|
Ç 6.5 percent
|
Ç 3.1 percent
|
È 1.3 percent
|
|
Loan Growth
|
Ç 9.9 percent
|
Ç 7.2 percent
|
Ç 3.4 percent
|
Ç 0.5 percent
|
|
Membership Growth
|
Ç 5.1 percent
|
Ç 2.3 percent
|
È 0.2 percent
|
È 2.3 percent
|
|
Return on Average Assets
|
93 basis points
|
60 basis points
|
32 basis points
|
-16 basis points
|
For more information about the performance of federally insured credit unions, NCUA makes the complete details of the December 2013 Call Report available online here. A summary of fourth-quarter performance is available here, and financial trends data for federally insured credit unions are available here.
NCUA is the independent federal agency created by the U.S. Congress to regulate, charter and supervise federal credit unions. With the backing of the full faith and credit of the U.S. Government, NCUA operates and manages the National Credit Union Share Insurance Fund, insuring the deposits of nearly 96 million account holders in all federal credit unions and the overwhelming majority of state-chartered credit unions.