Credit union profits were constrained by higher provisions for loan losses in the third quarter, despite a sharp increase in net interest income.
A Credit Union Times analysis of NCUA data shows the 5,761 federally insured credit unions filing call reports for third quarter earned $2.8 billion in the three months ending Sept. 30, up 10% from 2016's third quarter.
Net interest income rose 10% to $8.6 billion and non-interest income rose 3% to $4.7 billion. Expenses rose 7% to $10.5 billion for the third quarter.
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Return on Assets (ROA) was essentially flat at an annualized rate of 0.81%. The 10 credit unions producing the largest volumes of profits accounted for 18% of the quarter's net income. Six were among the Top 10 by assets, but the other four ranked from 11th to 21st in assets, and each generated $24 million to $28 million in net income. They were:
- Mountain America CU, Salt Lake City, Utah ($7 billion in assets, 703,617 members)
- ESL FCU, Rochester, N.Y. ($6.2 billion in assets, 346,946 members)
- America First FCU, Riverdale, Utah ($9.2 billion in assets, 884,223 members)
- Randolph-Brooks FCU, San Antonio, Texas ($8.5 billion in assets, 705,877 members)
Loan loss provisions were $1.8 billion for the three months ending Sept. 30, up 37% from a year ago and 21% from the second quarter.
Part of the increases came from three credit unions with large stakes in taxi medallion loans, which have lost value as regulated taxi drivers have lost business to Uber, Lyft and other online players. They accounted for 0.2% of all credit union loans, but nearly 6% of loan loss provisions in the third quarter. They were:
- Melrose CU, Briarwood, N.Y. ($1.5 billion in assets, 22,158 members)
- LOMTO FCU, Woodside, N.Y. ($193.3 million in assets, 2,819 members)
- Progressive CU, New York, ($501.5 million in assets, 3,102 members)
Together the three posted $163.4 million in loan loss provisions, which pushed them into the red by $168.4 million during the third quarter, worsening from a $39.2 million loss a year ago and a $50.9 million loss in the second quarter.
Delinquency rates were 40% at Melrose, 22% at LOMTO and 15% at Progressive, with each showing increases from the previous and year-ago quarters.
The industry average for 60-day-plus delinquencies to total loans was 0.79% in the third quarter, up from 0.75% in the second quarter and 0.77% in 2016's third quarter.
There was also a sharp deterioration among the smallest credit unions — the 491 with less than $2 million in assets. Although they have a negligible impact on statistics for the movement as a whole, the peer group has seen far less benefit from the economic rebound than larger credit unions.
Those credit unions lost $267,217 in the third quarter (-30% ROA), compared with a $3,056 gain a year ago and a $512,655 loss in the second quarter.
The largest peer group of credit unions, those with $500 million or more in assets, accounted for 75% of assets and 85% of net income in the third quarter. These 532 credit unions earned $2.4 billion even after posting $1.2 billion in loan loss provisions. ROA was 0.92%, compared with 0.49% for all other credit unions.
For this group and the 1,043 credit unions with $100 million to $499 million in assets, loan loss provisions for the quarter represented an annualized 0.54% of average assets, up from 0.42% a year ago and 0.44% in the second quarter.
The under $2 million credit unions increased loan loss provisions by similar amounts, but the peer groups with $2 million to under $100 million in assets have kept their provisions between 0.30% to 0.35% of assets.
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Jim DuPlessis
Jim covers economic data trends emerging for credit unions, as well as branch news and dividends.
