The third quarter has delivered positive results for the income statements of credit unions with over $50 million in assets. Top line revenue has grown 12.1 percent from September 2004 to September 2005 for these credit unions. This increase, driven by 40-year lows in interest rates, ends a three-year slump and is the largest since 2000.
Balance sheet growth has been relatively consistent over the same period of time. As shown below, revenue is now gaining some of the momentum that the balance sheet has been carrying. The income growth can be explained by the rise of interest rates since June 2004, as well as loan growth of 11.2 percent as of September 2005. In addition, investment income increased by 18.2 percent, in contrast to September 2004 growth of –1.82 percent. Non-interest income also had double-digit growth of 15 percent. With all income categories finally growing together, these credit unions are now experiencing much-needed growth.
The rate of expense growth is at its lowest point in decades. Credit unions have had to focus on controlling expenses as the flat yield curve has tightened margins and applied pressure on the bottom line. With rates increasing over the past year, credit unions have successfully increased the gap between income and expense growth as shown below.
Most market observers expect the Federal Reserve to stop increasing interest rates in the coming sessions, thus stabilizing the market. If this stability brings the yield curve back to normal, pressure on the net interest margin will be reduced, allowing credit unions to return more to members in the form of higher dividend rates.