The nation's 10 largest credit unions had better earnings in the second quarter than the first quarter, but they were lower than a year earlier even after removing wild swings in loan loss provisions, a CU Times analysis showed.
The analysis also showed loan production stalling. The Top 10 generated $41.9 billion in loans in the three months that ended June 30, up slightly from the first quarter's $41.4 billion but down 12% from a year earlier.
"The loan origination figures are noteworthy," credit union consultant Mike Higgins said. "That's the canary in the coalmine for economic activity."
And while loan quality has generally been extraordinary in the past couple of years, it showed a dip among the Top 10 in the second quarter.
The Top 10's 60-day delinquency rate was 0.80% as of June 30, up from 0.73% a year earlier and 0.68% on March 31. Net charge-offs for the three months ending June 30 were an annualized 0.74% of average loans, up from 0.56% a year ago and 0.69% in the first quarter.
The Top 10 represents about 18% of the entire credit union movement's assets and members. Their results tend to be better than smaller credit unions, but the trends tend to be similar.
Together they generated $932.4 million in net income in the second quarter, or an annualized 0.96% of their average assets. That's up from the first quarter's 0.88% ROA, but 82 basis points lower than the 1.78% ROA in the 2021's second quarter.
About 70 basis points of the drop came from a shift from $224 million of loan loss provisions that were reclaimed as income in 2021's second quarter to a provision expense of $438.8 million in this year's second quarter.
In 2021's second quarter, Navy Federal Credit Union, the nation's largest credit union, reclaimed $214.3 million in loan loss provisions back as income. Four others reclaimed $54.3 million.
But about 11 basis points of the drop came from lower net revenue.
Net interest margins rose 31 basis points to 3.12%, and fee income rose 5 bps. Higgins said the increase in net interest margins above 3% is significant.
Mike Higgins "The balance sheet tends to move more slowly, so the improvement in margin should be sustainable in the near future. This is a good sign for earnings and capital," he said.
Operating expenses were a minor factor in the income drop, lowering ROA by barely 1 bps.
However, non-fee operating income fell 47 bps. As in the first quarter, the drop was driven by unrealized "mark-to-market" losses on investments compared with their values a year earlier.
In fact, removing paper losses would have turned a drop in net income into a gain at Randolph-Brooks Federal Credit Union of San Antonio ($15.5 billion in assets, 1.1 million members).
RBFCU fell off the Top 10 list this quarter in favor of First Tech Federal Credit Union of San Jose, Calif. ($15.9 billion in assets, 636,707 members).
RBFCU's second-quarter net income was $29.5 million, down 46% from 2021's second quarter. EVP/CLO Robert Zearfoss said removing $39 million in markdowns on equity and trading securities in the second quarter would show a 73% gain from a year earlier.
Robert Zearfoss But if the provisions on paper are removed and replaced by net charge-offs paid with cash, it generates a number that Higgins called operating ROA.
By that measure, the Top 10's income is still down from a year earlier, but the amount is less. Operating ROA, which was 1.20% in 2021's second quarter, converged with standard ROA in this year's second quarter at 0.96%.
One factor in lower earnings was lower sales of mortgages.
The Top 10 sold $238.3 million in first mortgages to the secondary market in the second quarter, down 97% from a year earlier. In the first quarter, they sold $7 billion, up 11.4% from a year earlier.
And one reason for the drop in sales was a drop in loan originations.
First mortgages fell the most, as interest rates rose this year and the refinance market dried up. In the second quarter, the Top 10 originated $12.7 billion in first mortgages, down 25% from a year earlier and down 25% from $16.9 billion in the first quarter.
Home equity lending was up, but not enough for the group to offset the drop in first mortgages. The Top 10 originated $2.7 billion in second liens, up 29% from a year ago and up 40% from $1.9 billion in the first quarter.
Combining the categories, total residential real estate originations were down 15% from a year earlier and down 18% from the first quarter, which is typically slower for home sales.
Loans for everything else but real estate were down from a year ago, but up from the first quarter. The category is mostly auto loans, but it also includes credit cards, unsecured personal loans and a tiny amount for commercial loans that are not backed by real estate.
The Top 10 generated $25.1 billion in non-real estate loans in the second quarter, down 12% from a year earlier, but up 15% from the first quarter.
The credit unions in the Top 10 and their results were:
1. Navy Federal Credit Union, Vienna, Va. ($159.7 billion, 11.8 million members) had ROA of 1.22% in the second quarter, compared with 2.52% a year earlier and $1.05% in the first quarter. Originations were $18.3 billion, down 20.6%.
2. State Employees' Credit Union, Raleigh, N.C. ($53 billion, 2.7 million members) had ROA of 1.06% in the second quarter, compared with 1.18% a year earlier and $1.09% in the first quarter. Originations were $3 billion, up 0.2%.
3. PenFed Credit Union, Tysons, Va. ($36.7 billion, 2.8 million members) had ROA of 1.04% in the second quarter, compared with 1.1% a year earlier and $0.9% in the first quarter. Originations were $5.6 billion, down 28.2%.
4. BECU, Tukwila, Wash. ($29.5 billion, 1.4 million members) had ROA of -0.1% in the second quarter, compared with 0.93% a year earlier and $0.01% in the first quarter. Originations were $3.3 billion, up 23.4%.
5. SchoolsFirst Federal Credit Union, Santa Ana, Calif. ($28.1 billion, 1.2 million members) had ROA of 0.76% in the second quarter, compared with 0.61% a year earlier and $0.62% in the first quarter. Originations were $2.4 billion, up 22.3%.
6. Golden 1 Credit Union, Sacramento, Calif. ($18.5 billion, 1.1 million members) had ROA of 0.65% in the second quarter, compared with 1.09% a year earlier and $0.68% in the first quarter. Originations were $2.2 billion, up 25.3%.
7. America First Federal Credit Union, Riverdale, Utah ($17.5 billion, 1.3 million members) had ROA of 0.97% in the second quarter, compared with 1.89% a year earlier and $0.89% in the first quarter. Originations were $1.6 billion, down 43.7%.
8. Alliant Credit Union, Chicago ($16.4 billion, 694,474 members) had ROA of 1.27% in the second quarter, compared with 2.09% a year earlier and $1.17% in the first quarter. Originations were $1.9 billion, up 25.2%.
9. First Tech Federal Credit Union, San Jose, Calif. ($15.9 billion, 636,707 members) had ROA of 0.2% in the second quarter, compared with 2.21% a year earlier and $0.3% in the first quarter. Originations were $1.6 billion, down 4.9%.
10. Suncoast Credit Union, Tampa, Fla. ($15.8 billion, 1.1 million members) had ROA of 0.79% in the second quarter, compared with 1.43% a year earlier and $0.97% in the first quarter. Originations were $2 billion, up 26.4%.
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