Total Lending, Assets Up Among CUs in Year Ending Q3, But Net Income Down & Membership Declines in All Asset Categories But One

12/09/2022 CUToday

ALEXANDRIA, Va.–Total assets in federally insured credit unions was up more than 5% and total loans were up nearly 20% in the year ending with the third quarter, but overall net income was down 14% and membership declined in every asset category below $1 billion, according to new NCUA data.

The numbers, released as part of the agency’s Quarterly Data Summary Report, also show rising employee compensation and benefits, which were up $2.5 billion (8.9%), accounted for about half of the increase in non-interest expenses.

According to NCUA, net income totaled $18.5 billion at an annual rate in the first three quarters of 2022, down $3.0 billion, or 14.1%, from the same period a year ago.

The net interest margin for federally insured credit unions was $58.7 billion at an annual rate in the first three quarters of 2022, or 2.79% of average assets. That compares with $50.0 billion, or 2.59% of average assets, in the first three quarters of 2021, NCUA said.

“Federally insured credit unions continue to perform well overall, and that’s good news,” NCUA Chairman Todd M. Harper said in a statement. “However, with ongoing inflationary pressures and rising interest rates, a credit union’s ability to manage its interest rate and liquidity risk exposures will remain a crucial factor in its performance for the remainder of the year and into 2023. Credit unions of all types and sizes must remain diligent in managing their balance sheets, financial performance, and liquidity, interest rate, and credit risk levels as we navigate the challenging economic environment ahead of us.”

Assets Rise

Total assets in federally insured credit unions rose by $132 billion, or 6.6%, over the year ending in the third quarter of 2022, to $2.15 trillion, while total loans outstanding increased $235 billion, or 19.2%, over the year to $1.46 trillion, the Quarterly Report data show.

The average outstanding loan balance in the third quarter of 2022 was $16,989, up $802, or 5%, from one year earlier, while loan to share ratio stood at 78.4% in the third quarter of 2022, up from 69.9% in the third quarter of 2021, according to NCUA.

The credit union system’s net worth ratio was 10.59% in the third quarter of 2022, compared with 10.23% one year earlier.

In addition, the return on average assets for federally insured credit unions was 88 basis points in the third quarter of 2022, down from 112 basis points in the third quarter of 2021. The median return on average assets across all federally insured credit unions was 50 basis points, down six basis points from the third quarter of 2021.

Numbers of CUs & Members

Meanwhile, the number of federally insured credit unions declined to 4,813 in the third quarter of 2022, from 4,990 in the third quarter of 2021. In the third quarter of 2022, there were 3,015 federal credit unions and 1,798 federally insured, state-chartered credit unions, NCUA reported.

The number of credit unions with a low-income designation declined to 2,621 in the third quarter of 2022 from 2,643 one year earlier.

The number of complex federally insured credit unions (those with total assets greater than $500 million) rose to 708 from 703 a quarter earlier.  NCUA said 414 CUs opted into the Complex Credit Union Leverage Ratio (CCULR) framework with an average CCULR of 11.42%.

294 reported under the Risk-Based Capital (RBC) framework with an average RBC ratio of 15.26%.

Federally insured credit unions added 5.7 million members over the year, and credit union membership in

these institutions reached 134.3 million in the third quarter of 2022.

Other Performance Data

Here’s a look at other industry performance data, according to the NCUA Quarterly Report:

Balance Sheet Details

• Cash declined $104.4 billion, or 40.6%, to $152.7 billion. (NCUA noted that the 2022Q1 Call Report redefined cash to exclude cash equivalents (investments with original maturities of three months or less). Cash now represents cash on hand and cash on deposit.)
• Total investments rose $2.5 billion, or 0.6%, to $446.7 billion. (NCUA noted that the 2022Q1 Call Report introduced a new definition for total investments on the investment maturity schedule.)
• Investments with maturities less than or equal to one year declined $13.4 billion, or 13.0%, to $90.1 billion.
• Investments with maturities of one to three years rose $7.3 billion, or 6.6%, to $117.2 billion.
• Investments with maturities of three to five years fell $15.5 billion, or 13.1%, to $103.0 billion.
• Investments with maturities of five to 10 years rose $21.4 billion, or 22.7%, to $115.2 billion.
• Investments with maturities greater than 10 years increased $2.8 billion, or 15.3%, to $21.1 billion.

Credit Union Lending

• Total loans outstanding increased $234.9 billion, or 19.2%, over the year, to $1.46 trillion. (NCUA noted that the loans variable was redefined to include loans to natural person credit unions, which were previously reported as investments. Credit union loan balances rose in all major categories, compared with the third quarter of 2021.)
• Loans secured by 1- to 4-family residential properties increased $102.9 billion, or 19.2%, to $639.0 billion in the third quarter of 2022.
• Auto loans increased $74.1 billion, or 18.6%, to $472.1 billion. Used auto loans rose $48.7 billion, or 19.0%, to $305.3 billion, and new auto loans rose $25.4 billion, or 17.9%, to $166.8 billion.
• Credit card balances rose $8.7 billion, or 14.2%, to $69.9 billion.
• Non-federally guaranteed student loans increased $1.0 billion, or 16.1%, to $7.5 billion.
• Commercial loans, excluding unfunded commitments, increased $26.4 billion, or 25.0%, over the year to $132.2 billion in the third quarter of 2022. The agency noted commercial loans are not directly comparable to member business loans.

Delinquency Rates

• The delinquency rate at federally insured credit unions was 53 basis points in the third quarter of 2022, up seven basis points compared with the third quarter of 2021.
• The delinquency rate on non-commercial real estate loans was 39 basis points in the third quarter of 2022. “This is a new variable added in 2022 Q1; data for previous quarters are not available,” NCUA stated.
• The credit card delinquency rate rose to 130 basis points from 85 basis points one year earlier.
• The auto loan delinquency rate increased 18 basis points over the year to 53 basis points in the third quarter of 2022.
• The delinquency rate for commercial loans, excluding unfunded commitments, was 42 basis points in the third quarter of 2022, compared with 53 basis points in the third quarter of 2021.
• The net charge-off ratio for all federally insured credit unions was 30 basis points in the third quarter of 2022, up four basis points compared with the third quarter of 2021.

Liabilities and Net Worth

• Credit union shares and deposits rose by $110.9 billion, or 6.3%, over the year to $1.86 trillion in the third quarter of 2022. Regular shares increased $39.5 billion, or 6.2%, to $679.5 billion. Other deposits increased $37.2 billion, or 4.9%, to $791.5 billion, led by money market accounts, which grew
  $24.0 billion, or 6.1%, over the year.
• The credit union system’s net worth increased by $21.3 billion, or 10.3%, over the year to $227.8 billion. The aggregate net worth ratio — net worth as a percentage of assets — stood at 10.59% in the third quarter of 2022, up from 10.23% one year earlier.

Income Statement Details

• Net income for federally insured credit unions in the first three quarters of 2022 totaled $18.5 billion at an annual rate, down $3.0 billion, or 14.1%, from the first three quarters of 2021. Interest income rose $9.0 billion, or 15.3%, over the year to $67.4 billion. Non-interest income fell $3.4 billion, or 12.8%, to $23.4 billion, largely due to a drop in other income.
• Interest expense totaled $8.8 billion annualized in the first three quarters of 2022, up $0.3 billion, or 3.4%, from one year earlier. Non-interest expenses grew $5.1 billion, or 9.5%, over the year to $59.1 billion in the first three quarters of the year. Rising employee compensation and benefits, which were up $2.5 billion, or 8.9%, accounted for about half of the increase in non-interest expenses.
• The aggregate net interest margin widened by $8.7 billion, or 17.4%, over the year to $58.7 billion at an annual rate in the first three quarters of 2022.
• The credit union system’s provision for loan and lease losses or credit loss expense increased $3.2 billion, or 257.3%, to $4.4 billion at an annual rate in the first three quarters of 2022.

Performance by Asset Category

“Consistent with long-running trends, credit unions with assets of at least $1 billion reported the strongest growth in loans, membership, and net worth over the year ending in the third quarter of 2022,” NCUA noted.

The report further found:

• The number of federally insured credit unions with assets of at least $1 billion increased to 414 in the third quarter of 2022 from 395 in the third quarter of 2021. These 414 credit unions held $1.6 trillion in assets, or 75% of total system assets, NCUA said, with credit unions in this category reported loan growth of 22.6% over the year. Membership rose 8.1%. Net worth increased 12.8%.
• The number of federally insured credit unions with assets of at least $500 million but less than $1 billion rose to 294 in the third quarter of 2022 from 290 in the third quarter of 2021. These 294 credit unions held $212.5 billion in total assets, or 10% of total system assets. Credit unions in this category reported 13.1% growth in total loans outstanding over the year. Membership edged down 0.3%, while net worth increased 7.3%.
• The number of federally insured credit unions with at least $100 million but less than $500 million in assets declined to 1,076 in the third quarter of 2022 from 1,083 in the third quarter of 2021. These 1,076 credit unions held $243.9 billion in total assets, or 11% of total system assets. Credit unions in this category reported a 7.7% increase in total loans outstanding over the year. Membership fell 4.3%, while net worth rose 2.9%, NCUA said.
• The number of federally insured credit unions with at least $50 million but less than $100 million in assets declined to 675 in the third quarter of 2022 from 688 one year earlier. These 675 credit unions held $49.2 billion in total assets, or 2% of total system assets. Credit unions in this category reported a 4.9% increase in total loans over the year. Membership fell 4.8%. Net worth rose 1.3%.
• The number of federally insured credit unions with assets of at least $10 million but less than $50 million declined to 1,379 in the third quarter of 2022 from 1,466 in the third quarter of 2021. These credit unions held $36.1 billion in assets, or 2% of total system assets. Credit unions in this category reported a 0.4% increase in loans over the year. Membership declined 8.1%, while net worth fell 3.5%, NCUA reported.
• The number of federally insured credit unions with less than $10 million in assets declined to 975 in the third quarter of 2022 from 1,068 in the third quarter of 2021. These credit unions held $4.1 billion in assets, or 0.2% of total system assets. Credit unions in this category reported a 3.8% decline in loans over the year. Membership fell 11.1%, while net worth declined 6.4%.

The full report can be found here.