NCUA: Loans Up and Delinquencies Fall in First Quarter

ALEXANDRIA, Va.-Even as loan growth begins to creep back up, delinquencies at credit unions dropped 9.6% in the first quarter of 2004, according to NCUA’s call report data covering America’s 9,290 federally insured credit unions. Federally insured credit unions reached a near record-low delinquency ratio, NCUA gleaned from credit union call reports, as it declined from 0.76% to 0.68% in the first quarter. According to the agency, this “attests to the quality of loan and underwriting skills exhibited throughout the credit union community.” NAFCU Senior Economist Jeff Taylor agreed. “Credit unions are doing a good job of knowing their borrower,” he said. He added that credit unions have not “taken it on the chin” as other financials have in the ever-fluctuating economy. Additionally, NCUA said it was a positive sign that credit unions had begun working to sell their fixed rate mortgage loans in anticipation of increased rates this year. Loans held for sale increased 41.6%, mostly fixed mortgages, in anticipation of an interest rate hike. “NCUA encourages credit unions to be proactive in effective asset liability management in order to prevent losses in a fluctuating interest rate market,” a release said. Economists, including himself, have been predicting for a couple of years that interest rates will go back up, Taylor noted. “It’s good [credit unions are selling] because they’re realizing, finally, that interest rate are going to go back up.” While home equities are still going strong, replacing the boom in real estate lending over the last couple years will be the challenge. Taylor said he expects credit unions to look to other forms of lending, particularly business lending, to pick up the slack. “What was interesting,” Taylor continued, “was that new auto loans out grew first mortgage loans.” He explained that has not happened in a while because of the historically low interest rates. Credit union loans grew 1.1%, from $376.1 to $380.2 billion in the first quarter of 2004, NCUA said. The largest growth was in the new cars category at 1.68%, from $63.8 to $64.8 billion. Real estate loan growth, the largest category of credit union loans, trailed in second at 1.23% finishing out the quarter at $119.0 billion. Used car loan also increased (1.15%) to $82.1 billion. On the other side of the balance sheet, share savings increased a total of 2.8%, up from $528.3 to $543.3 billion. Specifically, share drafts were up 4.36% from $65.3 to $68.1 billion. Regular shares increased 4.22% to $200.0 billion, according to NCUA’s call report data. NCUA also reported that federally insured credit unions’: * Assets climbed 2.8%, up from $610.1 to $627.2 billion; * Investments increased 1.0%, from $160.8 to $162.3 billion; * Net worth rose 2.09%, up from $65.4 to $66.8 billion; * Loan to share ratio fell from 71.2 to 70.0%; and * Membership grew 0.5%, from 82.4 to 82.9 million members. Credit unions’ collective return on average assets has been squeezed a bit by the low interest rate environment, Taylor observed. NCUA data showed it dropping from 0.99% to 0.90% in the first quarter; historically, it has hovered around 1%. “That’s just pretty tight spreads right now,” he said. However, the economist added he was “cautiously optimistic” that rates will rise gradually and not shoot up so fast credit unions have to play catch up. “A gradually rising interest rate environment is desired by most financials,” he said. He also predicted it could take about a year to crank credit unions ROA back up around 1%. As far as 2005 forecasting, Taylor said its pretty much “a crapshoot.” [email protected]