Income Falters for Top 10 Credit Unions

The nation’s largest credit unions saw their income fall from the fourth quarter to the first quarter as originations plummeted, charge-offs rose and net interest margins tightened.

The Top 10 credit unions encompassed $400.5 billion in assets and 26 million members as of March 31. In December they accounted for nearly 20% of all credit union assets and members.

CU Times analyzes the Top 10 results each quarter to get a quick read on earnings trends for the recently closed quarter. Their earnings fare better than smaller credit unions, but tend to follow the same patterns.

In the first quarter, the Top 10 earned $989 million in net income, or an annualized return of 1.00% of average assets for the three months. Their ROA was up from 0.90% from a year earlier, and down from 1.18% in the fourth quarter.

From the fourth quarter to the third quarter ROA fell by 18 basis points.

One big reason was net interest margins. They were 3.60% in the first quarter, down 10 basis points from the fourth quarter. Higher pay cost accounted for another 4 basis points drop.

Savings in other non-interest expenses and higher non-fee operating income added back 15 basis points.

The big remaining difference was the 16 extra basis points in non-cash charges for loan loss provisions.

The pattern was similar with net operating income, which replaces loan loss provisions with actual net charge-offs. That ratio showed a 22-basis-point drop to 1.16% of average assets from the fourth quarter to the first quarter. However, it rose 22 bps from 0.94% from a year earlier.

The charge-off ratio, which is based on the period’s average loans, was 1.18% in the first quarter, up from 0.69% from a year earlier and up from 0.96% in the fourth quarter.

Delinquency rates trends were mixed. Loans 60 days or more delinquent accounted for 0.89% of the total balance on March 31, up from 0.69% a year earlier but down from 1.07% on Dec. 31.

The delinquency numbers still might be in the normal range. In March 2019, a slightly different Top 10 had a delinquency rate of 0.82%, while all credit unions had a 0.58% rate.

CUNA estimated the average delinquency rate for all credit unions was 0.67% in February, up from 0.61% in December and 0.42% in March 2022.

One reason the Top 10 has higher delinquency rates is that they hold nearly half of the movement’s balance in credit cards. Credit cards account for 13% of the Top 10’s loan pool, compared to 3% for all other credit unions.

The Top 10 also account for 20% of residential originations and 22% of total originations. To get a deeper and more geographically diverse look at loan production, CU Times picks out of a larger sample.

In the past, the choice was simply the 25 credit unions with the highest residential loan production for the preceding full year. Doing it that way, however, still gives California an outsized presence, and under represents mortgage production in the northeast and Florida.

This year the sample is 29 credit unions, adding four that are slightly outside the top 25 based on 2022 residential loan originations: Teachers Federal Credit Union of Hauppauge, N.Y. ($9.5 billion in assets, 452,771 members as of March 31), United Nations Federal Credit Union of Long Island City, N.Y. ($8.2 billion in assets, 210,796 members), Alliant Credit Union, Chicago ($19 billion, 785,337 members) and Suncoast Credit Union of Tampa, Fla. ($16.9 billion in assets, 1.1 million members).

Call them the Big 29. They account for 35% of residential loan originations and 30% of all production.

Yet, loan originations plummeted at nearly the same rate for both groups.

Top 10 total originations in the first quarter were $27.6 billion, down 34% from a year earlier and down 12% from $31.5 billion in the fourth quarter.

The Big 29 originated $41.0 billion in loans in the three months ending March 31, down 33% from a year ago and down 12% from the fourth quarter. Production by type was:

• $1.7 billion in commercial real estate loans, down 17% from a year ago and down 15% from production in the fourth quarter.
• $12.0 billion in residential loans, down 57% from a year ago and down 15% from the fourth quarter.
• $27.3 billion in other loans, down 14% from a year ago and down 11% from the fourth quarter.

Lower production is reflected in lower loan sales. The Top 10 sold $1.2 billion in first mortgages in the first quarter, down 82.4% from a year earlier, and down 27% from $1.7 billion in the fourth quarter. The Big 29’s sales fell 78% to $2.2 billion over the 12 months.

Total shares and deposits were $342.1 billion for the Top 10 on March 31, up 3.3% from a year earlier and up 4.2% from $328.3 billion on Dec. 31.

Their performance was stronger than others. CUNA estimated savings were $1.88 trillion for all credit unions in February, up 1.9% from a year earlier and up 0.6% from November.

Other Top 10 results from the first quarter included the following:

• Members were 26 million on March 31, up 7.9% from a year earlier and up 1.9% from 25.5 million on Dec. 31.
• Fees per member were $12.36 in the first quarter, down from $13.63 a year earlier and $12.54 in the fourth quarter. As a percentage of average assets there is almost no change.
• Employee compensation and benefits were 55.0% of non-interest expenses in the first quarter, up from 54.0% a year earlier and 52.4% in the fourth quarter.
• The combined net worth ratio was 10.75% on March 31, up from 10.04% a year earlier, and down from 10.87% on Dec. 31. This is simply net worth divided by assets.

The lineup for the Top 10 changed as Suncoast fell to No. 11 as Mountain America Federal Credit Union of Salt Lake City rose to No. 10 based on its $17 billion in assets on March 31, just 0.1% more than Suncoast. Except where stated, prior results reflect the new lineup.

Earnings and originations for each of the Top 10 were:

1. Navy Federal Credit Union, Vienna, Va. ($166 billion, 12.6 million members) had ROA of 1.32% in the first quarter, compared with 1.05% a year earlier. Originations were $12.7 billion, up 1.5%.

2. State Employees’ Credit Union, Raleigh, N.C. ($50.8 billion, 2.7 million members) had ROA of 1.13% in the first quarter, compared with 1.09% a year earlier. Originations were $2.4 billion, down 36.6%.

3. Pentagon Federal Credit Union, Tysons, Va. ($35.3 billion, 2.9 million members) had ROA of 0.37% in the first quarter, compared with 0.9% a year earlier. Originations were $1.9 billion, down 83.5%.

4. BECU, Tukwila, Wash. ($28.9 billion, 1.4 million members) had ROA of 0.78% in the first quarter, compared with 0.01% a year earlier. Originations were $2.7 billion, down 5.7%.

5. SchoolsFirst Federal Credit Union, Santa Ana, Calif. ($28.6 billion, 1.3 million members) had ROA of 0.64% in the first quarter, compared with 0.62% a year earlier. Originations were $1.6 billion, down 16.2%.

6. Golden 1 Credit Union, Sacramento, Calif. ($19.6 billion, 1.1 million members) had ROA of 0.68% in the first quarter, compared with 0.68% a year earlier. Originations were $1.8 billion, up 12%.

7. Alliant Credit Union, Chicago ($19 billion, 785,337 members) had ROA of 0.35% in the first quarter, compared with 1.17% a year earlier. Originations were $1 billion, down 23.4%.

8. America First Federal Credit Union, Riverdale, Utah ($18.3 billion, 1.3 million members) had ROA of 1.31% in the first quarter, compared with 0.89% a year earlier. Originations were $1.5 billion, down 42.2%.

9. First Tech Federal Credit Union, San Jose, Calif. ($17 billion, 650,546 members) had ROA of 0.31% in the first quarter, compared with 0.3% a year earlier. Originations were $618.1 million, down 59.3%.

10. Mountain America Federal Credit Union, Salt Lake City ($17 billion, 1.1 million members) had ROA of 1.4% in the first quarter, compared with 1.59% a year earlier. Originations were $1.4 billion, down 33%.