All bank and Credit Union star-ratings have been updated on our website based on Q2 financial data. While we have spent the past two weeks digging deeper into the results for banks, this week we shift our attention towards federally-insured credit unions.
As with banks, credit unions enjoyed a boost to net income from pulling back on loan loss provisions. Between those declining provisions and growth in other operating income, net income grew a robust $11.9 billion (127%) from a year ago.
Interest income was down $3.0 billion but non-interest income was up $5.1 billion. At 2.57%, the net interest margin at credit unions is seven basis points higher than that of banks but 31 basis points lower than a year ago.
The credit union industry continues a long-running consolidation trend, losing 135 institutions over the course of the year. But, membership continues to grow. The industry added 4.96 million members during the 12 months to reach 127.2 million. Logically, shares and deposits rose along with membership. Shares/deposits were up 14.2% or $196 billion during the 12 moth period closing the second quarter 2021 at $1.58 trillion.
Total assets increased 13% to $1.98 trillion, however loans only grew by 5%. That brought the loan-to-deposit ratio down from 76.3% at June 30, 2020 to just 69.6% this June. The industry net worth to assets ratio stands at a healthy 10.17% and loan quality improved from to a year ago. The delinquency rate dropped to 46 basis points as loan performance improved in such major categories as fixed-rate real estate, credit cards, auto and commercial loans.
With all of this good news, NCUA Chairman, Todd Harper, remains guarded, “During the second quarter of 2021, the credit union system, as a whole, remained on a solid footing. While the economic outlook shows signs of improvement, COVID-19 pandemic-relief programs are coming to an end and may result in uncertainty in the months ahead.” (He sounds a lot like us.)
He went on to say that the poorest households have been hit the hardest and may take longer to recover. So, what are the top priorities for credit unions? Same as always: manage their own risks while helping members. For some, that means looking for a merge partner or acquirer.
The 52 credit unions listed on page 7 each have four things in common. They are old enough (established before 2015) and large enough (at least $1.5 million in assets) to be rated by Bauer. They are federally-insured. And, they each had more than a 35% increase in shares (deposits) during the 12 month period ending June 30, 2021. Nine of the top ten grew their shares by acquiring one or more other credit unions.
The other, Zero-Star Empire Financial FCU, NYC, has been operating under NCUA conservatorship since May 24th of this year. At June 30, 2020 Empire Financial had $2.6 million in assets which were virtually all loans. The quality of those loans was not pristine, but good. Its capital ratio was 14.87%. But, as we all know, the pandemic took a severe toll on New York and New Jersey, right where Empire Financial’s members live.
As a result, by the end of June 2020, its members had already taken advantage of the government’s Paycheck Protection Program (PPP). The credit union reported $2.345 million in outstanding PPP loans at 6/30/20. A year later, that number had jumped to $5.826 million. That’s a lot for a credit union this size: 87% of total assets. Whether that loan money went into deposit accounts as a safety net, or whether members deposited stimulus checks, is not entirely clear. Probably a combination of the two. Membership did not change significantly over the 12 months but assets grew more than 155% and deposits grew almost 84%.
The next one down the list that grew without acquiring another institution was 4-Star Capital Area Realtors FCU, Rockville, MD. It did so by expanding its field of membership (FOM). The 3,000+ members of the Prince George’s County Association of REALTORS® are the latest addition to the FOM which also includes members of the Greater Capital Association of REALTORS® (GCAAR) and the Frederick County Association of REALTORS®. Membership increased over 40% in one year as a result and we expect that will continue. Share/deposits increased over 70%.
This October, Capital Area Realtors FCU will move its office to the GCAAR headquarters. With 10,000 members, GCAAR has the largest pool of potential new members for the credit union. This FOM expansion proves there are other ways to grow than by acquisition. While it isn’t always easy to find new groups that make a good fit, there are plenty of groups that would love access to a credit union.