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CUNA Despite headwinds more gradual improvement in CU results
WASHINGTON (8/31/10)—The Credit Union National Association’s (CUNA’s) economists, analyzing mid-year credit union call report data released yesterday by the National Credit Union Administration (NCUA), conclude that following the initial positive signs for credit union operations of the first quarter, most indicators continued to move in the right direction in the second quarter. This of course follows two of the most difficult years ever for credit unions operations in 2008 and 2009. Most significant, the economists noted, was the further improvement in credit union earnings in the second quarter. Although net income, or return on assets (ROA), was down slightly during the quarter, to 38 basis points (bp) of assets from 46 in the first, the drop was due to the corporate stabilization assessment of 13.4 bp of insured savings levied during the quarter. Net income before the separate National Credit Union Share Insurance Fund (NCUSIF) stabilization expenses actually rose from 48 bp in the first quarter to 79 bp in the second. This means, the economists said, that ROA for the first half, after stabilization expenses was 42 bp. Although that pales in comparison to the 90 bp to 100 bp that many credit unions became accustomed to before the recession, it represents a marked improvement from the near zero earnings of the previous two years. The most significant contributor to the earnings improvement was another decline in the provision for loan loss expense, from 115 bp of assets for all of 2009 to 82 bp in the first quarter and 73 in the second quarter. Other signs of improvement in credit quality were a reduction in net loan charge-offs, from 1.21% of loans outstanding in 2009 to 1.17% in the first quarter and 1.09% in the second. Credit unions’ average delinquency rate, which had soared from 0.68% in 2006 to 1.87% last December, has stabilized, dropping to 1.79% as of March and 1.77% as of June. “This remains a difficult economy in which to operate,” said CUNA Chief Economist Bill Hampel, “but it’s a big relief that conditions are no longer deteriorating as they were in the past two years. Most signs point to continued slow improvement in credit union results for the rest of the year. An ROA after both NCUA assessments of over 50 bp for the full year is very likely.” To CUNA’s economists, the only real surprise in the data was the slowdown in savings growth in the second quarter. Savings rose by only 1.6% on an annual basis in the second quarter. “This is very unusual considering the increase in household saving as a result of the recession,” Hampel said. Loan growth was even weaker at a 0.7% annual rate. “It appears that members are using their extra cash balances to pay down loans rather than to build savings balances,” said Hampel. “That’s not surprising considering the very low rates available on most savings accounts right now.” Use the resource link to access the complete data from NCUA.
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