First Look Credit Unions Strengthen Earnings Despite Weakened Yields

A quick look at first quarter performance for 220 leading U.S. credit unions.


The credit unions that participated in Callahan's First Look program demonstrate how credit unions have been able to adjust to a much different financial landscape than a year ago. These 220 credit unions account for $142.7 billion in assets, or 28% of industry assets based on year-end 2001 figures. For the first time in recent memory, credit union total income dropped versus the prior year, declining 5%. This is occurring even as credit unions extend investment maturities, with investments of one year or more accounting for 42% of the portfolio versus 32% a year ago. A nearly 100 basis point drop in yield on loans also hurt total income. However, the bottom line, net income, rose 22.5% versus the first quarter 2001.

Just how much has the landscape changed? Despite a 21.9% 12-month increase in investments, a more than 200 basis point drop in yield on investments resulted in a 20% drop in investment income. Competitive, yet still prudent enough to help these credit unions realize 1.2% annualized return on average assets, credit unions remain financially sound as well. In addition, operating expenses rose 7.5% from one year ago, and now account for 41% of total income. Yet, in the face of these changes, credit unions have continued to maintain earnings and provide competitive rates, lowering their average cost of funds 150 basis points in the last 12 months as the Fed cut rates by 275 basis points.

On the balance sheet, trends continue from 2001. The first look credit unions' shares, particularly in short-term deposits, continue to grow with 5.6% 3-month growth at March 31, 2002. Since first quarter is typically when share growth is strongest, it is unlikely this pace will be maintained throughout 2002. Loan growth continues to struggle at 1.3% for the first three months. First mortgage loans, however, remain the primary source of lending activity, rising 5.6% since year-end.

Net worth to assets has declined due to rapid asset growth, but remains solid at 9.7%. Even with the unstable economy, asset quality remains good with delinquency at 0.6% and the allowance for loan loss covering 1.4x delinquent loans.

Credit unions continue to post extraordinary results in an uncertain environment. The strong growth, asset quality and capital base simply verify why members look to their credit union as a stable, trusted financial partner.




May 13, 2002



No comments have been posted yet. Be the first one.