Credit Unions Kick Lending Up a Notch

Mortgage lending among credit unions experienced significant gains for the first quarter of the year, but their supervisory agency cautioned that these institutions should monitor risks.

The National Credit Union Administration (NCUA) reported Friday that loans outstanding among credit unions rose 10.7 percent in the year ending in the first quarter of 2016.

NCUA Board Chairman Rick Metsger said, “The credit union system again experienced solid performance during the first quarter of 2016. "With an influx of deposits, federally insured shares at credit unions also neared the $1 trillion mark coming in at $991.7 billion."

According to the data,total loans at federally insured credit unions reached $799.5 billion at the end of the first quarter, an increase of 10.7 percent from one year earlier. First-mortgage loans outstanding increased 10.4 percent to $327.9 billion, while other real estate loans grew by 3.9 percent to $74.3 billion. The loans-to-shares ratio was 76.1 percent at the end of March, up 2.7 percentage points from a year earlier but down for the quarter due to an influx of member deposits.

“As credit union lending has increased, long-term investments have declined and reduced the system’s interest rate risk," Metsger said. "However, delinquency and charge-off rates are slightly higher than a year ago, and member-business loan delinquencies are rising even more. Credit unions making such loans should take note and ensure that they perform proper due diligence to mitigate the risk.”

With the uptick in orginations, credit unions' delinquency rate also rose to 71 basis points in the first quarter, up 2 basis points from a year earlier. However, the NCUA noted that the delinquency rate for fixed real estate has been down for the last four quarters. The system’s net charge-off ratio increased slightly to an annualized 52 basis points in the first quarter, up from 47 basis points at the end of the first quarter of 2015.

Net income at credit unions totaled $9.2 billion on an annualized rate in the first quarter of 2016, up 3.5 percent from the $8.9 billion reported last year at the same time, the report said. Total assets in federally insured credit unions rose to more than $1.2 trillion at the end of March, up 7.1 percent for the year.

The NCUA reported that credit unions remain well capitalized, with 97.8 percent reporting a net worth ratio at or above the statutorily required 7 percent. At end of first quarter of 2016, 0.7 percent of federally insured credit unions were less than adequately capitalized. In addition, the credit union system’s aggregate net worth ratio was 10.78 percent at the end of the first quarter, down 3 basis points from a year earlier.

"The first-quarter data shows credit unions continue to shine by delivering exceptional value and exemplary service to their members,” said B. Dan Berger, President and CEO of the National Association of Federal Credit Unions (NAFCU). “American consumers are voting with their wallets and demonstrating their extraordinary satisfaction with credit unions' first-rate products and top-notch financial services. While small credit unions want to continue to be part of this trend, they are being especially hard-hit by an endless tide of regulatory burden. The impact is undeniable–at the current pace we are losing nearly a credit union each business day.”