Credit Union Income Surges in Third Quarter

Higher net interest income and lower loan loss provisions allowed credit unions to make a big gain in net income in the third quarter.

NCUA data released Thursday showed the nation’s 5,436 federally insured credit unions generated $3.8 billion in net income in the three months that ended Sept. 30, up 39.6% from 2017’s third quarter.

That translates into an annualized return on average assets of 1.07%, up from 0.90% for the previous two quarters and 0.81% for 2017’s third quarter.

NCUA data shows most of the growth and the highest income margins are occurring among the largest credit unions — those with assets over $1 billion, which account for nearly two-thirds of assets and 59% of members.

Nevertheless, it was a good quarter overall. Net interest income before loan loss provisions rose 17.7% to $10 billion, as loan loss provisions fell 20.5% to $1.4 billion.

Fee income grew 6.1% to $2.2 billion, while other operating income rose 12.5% to $2.7 billion.

Non-interest expenses also rose, but at a rate slightly behind loan growth. Employee compensation and benefits rose 8.6% to $5.7 billion, while other non-interest expenses rose 8% to $5.5 billion.

For the first nine months of 2018, credit unions generated 12.6% more income from loan interest and 20.4% more from investment interest than in the first nine months of 2017, according to Callahan & Associates, the Washington, D.C.-based credit union consulting company.

“Credit unions appear to be benefitting more from asset repricing than increases in cost of funds at the moment,” Sam Taft, Callahan’s associate vice president of analytics, said Friday.

The value of loans originated from January through September was about $386.2 billion—6.8% more than the first nine months of 2017, and slightly better than the growth rate of 6.5% for the nine-month periods from 2016 to 2017.

Most of the gains are driven by lending for automobiles and other consumer loans, Taft said.

NCUA data shows credit unions originated $253.8 billion in non-real estate loans in the nine months ending Sept. 30, up 8.8% from the volume of 2017′s first nine-months. For the third quarter, non-real estate originations grew 9.6% to $86 billion.

“Consumers lead the way in both dollar and percent contribution,” Taft said. “Despite a moderate slowdown in auto sales in recent months, consumer demand for auto loans remains robust, pushing originations higher across the country.”

Real estate originations grew 3.4% to $47.2 billion for the third quarter, and grew 3.1% to $132.4 billion for the nine months. Taft said the slower rate of growth reflected borrowing dampened by rising interest rates and limited home inventory.

Total real estate loans on the books are rising because of a change in the mix, Taft said. Credit unions have generated a lower amount over the past two years  from fixed rate real estate originations, which tend to be sold. But the amounts have been rising for balloon and adjustable rate mortgages, which credit unions keep in their portfolios.

And loan quality is improving. Total delinquency rates stood at 0.71% in September among credit unions, down from 0.79% a year earlier and 1.02% in September 2013. The gap with banks, however, has narrowed: Bank delinquency rates fell from 2.83% in 2013 to 1.07% in September.