Credit union fourth quarter performance data is rolling in. Preliminary FirstLook trends – which are based on slightly more than 40% of the industry – indicate a strong performance by the nation’s credit unions. Loan volume and membership growth are accelerating, and the industry’s increased momentum at the end of 2011 positions it to capitalize on its powerful foundation in 2012.
Members & Shares
The combined media attention of Bank Transfer Day (November 5, 2011) and broader societal awareness of local financial institutions helped FirstLook credit unions welcome an influx of new members. Annual growth in the number of members reached 2.3%, up from 1.5% in the third quarter of 2011. Credit unions are focusing on building relationships with new and existing members. Share draft penetration, or the percentage of members with a checking account, increased to 50.4% for these credit unions, up significantly from the September rate of 49.6%. These credit unions grew the number of checking accounts at an annual rate of 6.1%, more than twice the rate of net new member growth.
Share growth for these FirstLook credit unions is unchanged from September. The annual growth in shares as of December 31, 2011, is 5.7%. Continued share growth and positive, but lower, loan growth moved the loan-to-share ratio down slightly from 71.2% in September to 71.0% for these credit unions.
Loans & Asset Quality
Credit unions posted the highest ever level of loans originated in the fourth quarter and the second-highest level of loans originated in any quarter. FirstLook credit union originations total $120.5 billion in 2011; that up 5.1% over 2010 levels and is only slightly less than 2009’s $122.1 billion record, which was fueled by a wave of refinancings in the second quarter. FirstLook credit unions report funding $33.7 billion in loans in the fourth quarter, up from $31.2 billion in the third quarter. That is partially reflective of the continuing improvement in consumer lending. In 2011, 58.5% of originations were consumer-based, up from 55.3% in 2010.
With strong originations, credit unions’ balance sheet loan growth has picked up. High mortgage volume at record-low interest rates combined with sales to the secondary market has muted loan growth over the past few years, but 4Q11 FirstLook credit unions posted a year-over-year 1.59% positive change in outstanding loan balances. This rate is a significant acceleration from September figures, when the same credit unions posted loan growth of only 63 basis points. The last time credit unions increased loan growth by nearly a full percentage point in a single quarter was mid-year 2005.
Despite increased loan activity, asset quality remains stable. Both the delinquency ratio of 1.55% and the net charge-off ratio of 0.95% remain unchanged from September levels.
Net Interest Margin & Earnings
The net interest margin has dropped three basis points from September to 3.19%. Traditionally the seasonality of balance sheet components makes the net interest margin higher in the third or fourth quarter each year. Members paying down higher-rate loans combined with credit unions making new loans at record low rates mean credit unions are earning lower interest income. As such, the net interest margin is at the lowest level in the fourth quarter this year.
Despite the slightly lower net interest margin, earnings are a strong point for these FirstLook credit unions. Most of the gains are a result of stable asset quality allowing credit union managers to lower the provision for loan losses from earlier levels. Prior to the corporate credit union stabilization expenses, credit unions reported an ROA of 94 basis points. However, because of the assessment billed in the third quarter, FirstLook credit unions posted bottom line ROA of 74 basis points, up from 2010’s level of 53 basis points.
With positive earnings, reserves have also increased. The 11.4% capital-to-assets ratio is unchanged from September, the result of similar rates of asset growth.