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Highest Loan Growth Since 2006; Interest-Rate Risk Moderating, but Still a Concern

ALEXANDRIA, VA (December 4, 2014) — Federally insured credit unions boosted lending in all categories in the third quarter of 2014, the National Credit Union Administration reported today.

“Making investments in members and their communities is what credit unions are all about,” NCUA Board Chairman Debbie Matz said. “An improving economy stimulates loan demand, and lending growth contributes to continued economic growth. So, it comes as no surprise that the credit union system grew with and boosted the economy in the third quarter. In fact, federally insured credit unions had their highest annual loan growth rate since the first quarter of 2006.

“The fact that credit unions are turning towards making loans and reducing their reliance on long-term investments is encouraging,” Matz said. “A loan to a member is the best investment a credit union can make and benefits members directly. To protect the safety and soundness of the credit union system, NCUA will continue to carefully monitor signs of interest-rate risk.”

NCUA today released the new figures based on Call Report data submitted to and compiled by the agency for the quarter ending Sept. 30, 2014.

Outstanding Loans Up 10.1 Percent in the Past Year
In the third quarter of 2014, outstanding loan balances rose 10.1 percent from the third quarter of 2013 to $695.3 billion. Year-over-year:

• New auto loans grew 19.4 percent to $82.4 billion.
• Used auto loans increased 12.2 percent to $140.3 billion.
• Net member business loan balances rose 12.6 percent to $50.4 billion.
• Non-federally guaranteed student loans expanded 21.9 percent to $3.1 billion.

First mortgage real estate loans reached $286.4 billion, up 9.1 percent from a year earlier. Sixty percent of first mortgage loans outstanding had fixed rates.

Second-mortgage loans rose 1.1 percent for the year ending Sept. 30 to $71.5 billion. Prior to the third quarter of 2014, second-mortgage loans had contracted year-over-year since the second quarter of 2009.

The growth in total loans over the year, combined with modest deposit growth, resulted in a continued upswing in loan-to-share ratio. That ratio increased by 4.3 percentage points to 74 percent, the highest ratio since the fourth quarter of 2009.

Long-Term Investments Continue to Decline
Total investments by federally insured credit unions (excluding cash on deposit and cash equivalents) declined slightly from the previous quarter to $288.4 billion. Total investments fell $5.1 billion, or 1.7 percent, from the third quarter of 2013.

Investments with maturities of one to three years rose $2.9 billion from the previous quarter and $2.4 billion from the third quarter of 2013. Investments with maturities greater than three years declined $5.8 billion from the previous quarter and by $3.5 billion from the end of the third quarter of 2013.

As a share of assets, total investments declined slightly from the previous quarter to 26 percent. Long-term investments (those with maturities of at least three years) were 11.1 percent of assets, down from 12 percent in the third quarter of 2013.

Though stabilizing as a share of assets, high levels of long-term investments in the asset portfolio could pose interest-rate risk for credit unions as interest rates rise.

Membership Nearing 99 Million as Consolidation Trends Continue
Membership in federally insured credit unions grew by 808,900 in the third quarter of 2014 to 98.7 million. The number of federally insured credit unions fell to 6,350 at the end of the third quarter, 270 fewer than at the end of the third quarter of 2013, a decline of 4.1 percent. The decline is consistent with long-running consolidation trends within the credit union system.

Return on Average Assets Up, Net Income Up 8.6 Percent
Federally insured credit unions’ return on average assets ratio rose to an annualized 83 basis points through the end of the third quarter, a slight increase from the previous quarter and 3 basis points above the third quarter of 2013. Net income through Sept. 30 was $6.8 billion, up 8.6 percent from a year earlier.

Interest income grew $484 million from a year earlier to $9.3 billion for the quarter. Non-interest income increased $132 million from the third quarter of 2013. Expenses in the third quarter of 2014 were up 0.9 percent from the third quarter of 2013.

Net Worth Rises, Credit Unions Remain Well-Capitalized
The aggregate net worth ratio for federally insured credit unions was 10.93 percent at the end of the second quarter, 17 basis points higher than the previous quarter and 28 basis points higher than the end of the third quarter of 2013.
Overall, federally insured credit unions remain well-capitalized, with 97.5 percent reporting a net worth ratio at or above the statutorily required 7 percent, compared to 96.6 percent at the end of the third quarter of 2013. Less than one percent of federally insured credit unions are below the adequately capitalized standard.

Assets Continue to Rise, Shares Up From a Year Ago
Federally insured credit unions’ total assets stood at $1.1 trillion, growing $51.2 billion, or 4.8 percent, from the third quarter of 2013.

Overall, share and deposit accounts declined slightly from the previous quarter to $939.1 billion—possibly reflecting seasonal factors—but were 3.7 percent higher than the $906 billion at the end of the third quarter of 2013. Share drafts and regular shares each were up 7.3 percent from a year ago. All other deposits were up 0.7 percent.

Delinquency and Charge-Off Ratios Steady; Bankruptcy Losses Decline
Delinquency and net charge-off ratios for federally insured credit unions were flat between the end of the second quarter and the end of the third. The delinquency ratio remained at 0.85 percent and was below the 1.02 percent ratio in the third quarter of 2013. The net charge-off ratio was 48 annualized basis points, down from 49 basis points in the previous quarter and down from 56 basis points a year earlier.

The percentage of loan charge-offs due to bankruptcy at the end of the third quarter was 19.7 percent, below the 20.8 percent level at the end of the third quarter of 2013.

Growth Trends among Large and Small Credit Unions Remain Steady
Federally insured credit unions with more than $500 million in assets again led in nearly every performance measure during the third quarter. These 447 credit unions held more than $766 billion in combined assets, or 69 percent of the system’s total assets. They also reported faster growth and higher returns on average assets than the credit union system as a whole.

Credit unions with assets of less than $10 million recorded higher net worth ratios but showed slower growth in loans, net worth and return on average assets, while membership declined.

A summary of credit unions’ current ratios and growth from the fourth quarter of 2013 to the third quarter of 2014 by asset size for selected metrics follows: