CU Times Analysis: Mid-Size Credit Unions Take Q2 Investment Hit

Not much changed from the first quarter to the second if you look at the broad sweep of results from the 4,956 credit unions included in the NCUA’s second quarter data it posted Wednesday.

Annualized returns on average assets (ROA) fell only slightly from 0.89% in the first quarter to 0.84% in the second quarter.

But a closer look showed a quarter with an unusually high number of mid-size credit unions reporting substantial losses.

A CU Times analysis showed that 20 credit unions had losses exceeding $1 million in the three months ending June 30, compared with three in the first quarter.

The gist of the losses was the same story as the first quarter: Non-realized “mark-to-market” losses on investments and other assets reflecting the market losses in the first half.

And usually credit union bad news goes from bad to worse as assets go from big to small. This quarter those most vulnerable to investment losses were the mid-size credit unions, which CU Times classified as those with assets of $1 billion to less than $4 billion.

And while ROA was essentially flat from the first quarter to the second quarter for small and large credit unions, mid-size credit unions had a significant drop from 0.89% in the first quarter to 0.79% in the second quarter.

The largest second-quarter loss has already been reported: BECU based in Tukwila, Wash, in the middle of the Seattle metro area.

The nation’s fourth-largest credit union lost $7.2 million in the second quarter, or -0.10% ROA. That compared with a $65.9 million net gain, or 0.92% ROA, in 2021’s second quarter and 0.01% ROA in the first quarter.

The largest cause was a drop in non-fee operating income. Robert Gatlin, BECU’s vice president of financial planning and analysis, told CU Times in August that it reflects the drop in values in the equity and bond markets since early this year. Since BECU was holding the investments long-term, it expects the market to eventually rebound, resulting in all or most of the paper losses being recovered.

In the first quarter, the largest net losses added up to $10.8 million for a group of credit unions with average assets of $586.2 million.

In the second quarter, the 10 largest losses totaled $44.7 million for a group with average assets of $5.2 billion.

Altogether, 20 credit unions lost more than $1 million in the second quarter for total losses of $59.1 million (-0.18% ROA), down from gains of $139.4 million (0.46% ROA) in 2021’s second quarter.

The group included one large credit union (BECU), 12 mid-sized credit unions and seven small credit unions. The 12 mid-sized credit unions had $41.4 million in losses, or -0.25 ROA, compared with net income of $72.4 million or 0.46% ROA in 2021’s second quarter.

The mid-sized credit unions were:

• Wescom Central Credit Union, Pasadena, Calif. ($6 billion in assets, 211,101 members) lost $4.6 million, or -0.16% ROA, down 34 bps.
• CommunityAmerica Credit Union, Kansas City, Mo. ($4.9 billion, 279,271 members) lost $2.1 million, or -0.09% ROA, down 67 bps.
• Coastal Federal Credit Union, Raleigh, N.C. ($4.7 billion, 314,039 members) lost $5.7 million, or -0.24% ROA, down 80 bps.
• Dupaco Community Credit Union, Dubuque, Iowa ($2.9 billion, 151,886 members) lost $4.4 million, or -0.32% ROA, down 125 bps.
• JSC Federal Credit Union, Houston ($2.5 billion, 124,342 members) lost $3.3 million, or -0.26% ROA, down 39 bps.
• Together Credit Union, St. Louis ($2.4 billion, 138,399 members) lost $1 million, or -0.08% ROA, down 72 bps.
• Hawaii State Federal Credit Union, Honolulu ($2.3 billion, 122,221 members) lost $2.7 million, or -0.24% ROA, down 60 bps.
• Dow Chemical Employees’ Credit Union, Midland, Mich. ($2.2 billion, 76,436 members) lost $1.5 million, or -0.13% ROA, down 74 bps.
• Sharonview Federal Credit Union, Fort Mill, S.C. ($1.9 billion, 110,378 members) lost $1.8 million, or -0.19% ROA, down 31 bps.
• CFCU Community Credit Union, Ithaca, N.Y. ($1.5 billion, 81,084 members) lost $3.5 million, or -0.48% ROA, down 94 bps.
• Amplify Credit Union, Austin, Texas ($1.5 billion, 57,079 members) lost $6.3 million, or -0.89% ROA, down 165 bps.
• InTouch Credit Union, Plano, Texas ($1.1 billion, 92,209 members) lost $4.4 million, or -0.83% ROA, down 163 bps.