Credit Union Earnings Fell Sharply in Q1: Callahan

Credit union earnings fell to their lowest level in the first quarter since the start of the COVID-19 pandemic as loan originations continued to plummet, Callahan & Associates reported Wednesday.

During its quarterly Trendwatch webinar, the Washington, D.C. credit union company estimated credit union net income was an annualized 0.78% of average assets for the three months ending March 31 — the lowest ROA since 0.61% in the second quarter of 2020 when the economic impact of the pandemic was at its greatest.

Credit unions originated $135.7 billion in loans in the first quarter, down 30% from a year earlier and down 15% from the fourth quarter. It was the lowest level of originations since the $111.4 billion produced in the first quarter of 2019.

Real estate originations, including commercial real estate, had been expected to be low because of trends and seasonal factors. They were $48.2 billion, down 43% from a year earlier and down 12% from the fourth quarter.

The new deterioration is occurring in other loans, which account for nearly half of credit unions’ balance sheets and nearly two-thirds of production. The majority are automobile loans, which accounted for nearly a third of credit union balance sheets as of Dec. 31.

Credit unions produced $87.4 billion in other loans in the first quarter, down 19% from a year earlier and down 17% from the fourth quarter. It was the lowest for that group since the first quarter of 2020.

Callahan found loan quality deteriorated over the past year with increases in delinquencies and charge-offs for auto loans and credit cards.

Callahan estimated the overall delinquency rate was 0.52% as of March 31, differing vastly from CUNA’s estimate of 0.65%. NCUA data showed the rate is up from 0.41% a year earlier and down from 0.61% on Dec. 31. It stood at 0.66% in March 2018.

A decline in delinquency rates from December to March is typical because many members are using tax refunds to lower loan balances — or catch up on payments.

The net charge-off rate was 0.51% for the first quarter, up sharply from 0.43% in the fourth quarter and returning to pre-pandemic levels. It stood at 0.60% in March 2018.

Callahan said the 9 basis point drop in ROA from March 2022 was the sum of these factors:

• +0.44% from improvement in the net interest margin to 3.01% for the first quarter.
• -0.07% from lower non-interest income, in part a factor of the continuing decline in sales of mortgages to the secondary market.
• -0.17% from higher operating expenses.
• -0.28% from higher loan loss provisions as charge-offs rise. Callahan said provisions were now in a normal range after wild swings during the pandemic.